2011 India - Telecoms, Mobile, Broadband and Forecasts

India feels more shockwaves from the so-called ‘2G scandal’

India continues to be one of the fastest growing major telecom markets in the world. It is also one of the largest. Sweeping reforms introduced by successive Indian governments over the last decade have dramatically changed the nature of telecommunications in the country. The mobile sector has grown from around 10 million subscribers in 2002 to pass the 900 million subscriber mark by early 2012 and the market was continuing to grow. The boom in the country’s mobile industry is expected to continue at least into the medium term, despite the dramatic events surrounding the licensing of mobile operators. By early 2012 the impact of the unfolding scandal over the awarding of 2G licences in 2008 was looking grim for both India and its mobile telephone sector. They cancellation of some 122 mobile licences having been the direction of the Supreme Court decision on the case, the subsequent responses of the industry regulators are key to the future shape of the industry in India.

A number of factors have been responsible for the amazing growth in India’s telecom sector; apart from the obvious booming economy and the rapid expansion in the country’s middle class, the growth drivers include low tariffs, low handset prices and most notably a highly competitive market created by the government and the regulator. The government has continued to open the market up to more and more competition. Home to a clutch of global operators working with local companies, the government has continued to issue licences to new telecom operators. Competition in the market place has become even more intense over the last year or so. The launch of Mobile Number Portability (MNP) in 2011 added yet another dimension to this intensely competitive market.

While the mobile subscriber base was continuing to grow at an annual rate of around 20% coming into 2012, Average Revenue Per User (ARPU) has been steadily declining as competing operators offer cheaper tariffs; at the same time usage levels have remained reasonably high thus slowing the decline in revenues. There has been a major push in recent years to take mobile services into the poorer and rural areas of the country; this has also weighed heavily on ARPUs.

In 2010 the long-awaited 3G auctions finally took place. This subsequently saw 3G networks being rolled out on a large scale across the country and the operators have started delivering next generation services to customers. Although still struggling with coverage issues, 3G has certainly given yet another boost to the already huge mobile sector. Apart from the impact on the mobile market itself, the 3G spectrum auction earned revenue of US$14.6 billion for the government, an amount that far exceeded expectations and was welcomed by the government as a major contribution to improving the national deficit. All things considered – and despite the 2G scandal and its aftermath - the mobile industry should continue to grow for the time being.

As for the rest of the market, the country’s fixed-line sector, having grown strongly for a while, has been experiencing zero and negative growth of late. With less than 3% fixed-line penetration, India has nevertheless achieved a remarkable national coverage, with 98% of the population having some form of access to a telephone. It has been the heavy investment in telecoms infrastructure over the last decade that has seen India’s huge population delivered at least some level of telephone service. At the same time major difficulties persist. Fixed-line subscriber numbers stood at just over 30 million by early 2012, but a continuing decline in this segment of the market was evident. The future of fixed lines remained uncertain.

And, in the meantime, there has been a fresh effort made to promote broadband internet access throughout the country; after a period in which broadband development languished - and the government became concerned - there was new hope for a serious expansion phase in this segment of the market. The segment has continued to puzzle the observer – and the government. Despite the obvious enthusiasm for internet access found across the country, India’s move into high-speed broadband internet has been noticeably sluggish. The TRAI in describing the situation in 2010 noted that ‘... the performance so far has not been up to the expectations’. The regulator’s reference point was the targets set in the government’s National Broadband Policy issued in 2004, with growth falling well short of these targets. By 2011 broadband internet penetration in India was still a low 1%, with these broadband services accounting for about 60% of the total internet subscriber base. In other words, coming into 2012 there were just over 13 million broadband subscribers in a country of 1.2 billion people. In the meantime, somewhat paradoxically, the overall level of internet usage seems to be growing strongly, perhaps boosted by the widespread use of internet cafes and other points of public online access. There were in excess of an estimated 80 million internet users throughout the country by January 2011, this representing a penetration of almost 7%.

With the government continuing to push to complete the restructuring of the telecommunications regulatory regime, the opening up of the market to full scale competition has been dramatic. The Telecom Regulatory Authority of India (TRAI) remains committed to further structural reforms. The adoption of Unified Licensing, a change in the Access Deficit Charge regime, and the encouragement of increased infrastructure sharing, especially towers for mobile networks, were all contributing to ongoing growth. Another important initiative has been the Indian government’s revised Foreign Direct Investment (FDI) policy which increased the foreign ownership cap from 49% to 74%. If anything it could be said that the regulation of the market has been overly enthusiastic; there being some signs that the market was starting to suffer from the complexity of the regulatory regime. In parallel with the regulatory change process, there has been a continuing evolution of the market through a series of mergers and takeovers among the mobile operators that has initially resulted in a welcome and productive consolidation.

Key highlights

• Through 2011 and into 2012, growth in India’s mobile market was continuing, but more modestly than in previous years;
• By January 2012 the country around 900 million mobile subscribers, for a penetration of 74%;
• The mobile market was continuing to expand at an annual rate in excess of 20% into 2011;
• GSM was strengthening its position as the dominant mobile technology with 85% of the mobile subscriber market, as CDMA slipped further behind;
• The number of broadband Internet subscribers is finally on the increase, reaching 13.3 million for a penetration of 1.1% by population by end-2011;
• DSL, whilst holding around 85% of the local broadband market, was steadily losing market share to other non-DSL broadband platforms, especially to wireless broadband platforms;
• After auctioning 3G spectrum licences in 2010, India was finally witnessing the large scale roll-out of 3G networks by operators across the country;
• The 3G auction delivered US$14.6 billion in revenue to the government and was certainly an unqualified success in this respect;
• An equally high profile auction of wireless broadband spectrum followed the 3G auction in 2010 and pumped even more energy into an already invigorated wireless broadband market;
• This auction raised another US$8.2 billion in revenue for the government.

India: Key telecom parameters – 2011 - 2012

(Source: BuddeComm)