History Of The Telecommunications

Published Date: 02 Nov 2017

Chapter I

Introduction

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Chapter 2

HISTORY OF TELECOMMUNICATIONS

The first telephone was invented by Alexander Graham Bell in 1876. The first commercial instrument was developed in 1878 by Bell. The first telephone exchange was set up in the same year at new Heaven. Telecommunication services began in 1851 in India with a telegraph service between Kolkata and Diamond Pearl, the seat of British colonial government and a trading post of the British east India Company respectively.

The first formal telephone service was established in the country when in 1881, a licence was granted to the Oriental Telephone Company Limited of England for opening telephone exchanges at Calcutta, Bombay, Madras and Ahmadabad. The liberalization of the telecommunication industry started under the prime-minister-ship of Rajiv Gandhi who invited Sam Pitroda, a former Rockwell International executive to set up a centre for Development of Telematics(C-DOT) which manufactured electronic telephone exchanges in India for the first time. In 1985, Department of Telecom (DoT) was separated from Indian Post and Telecommunication department. Mahanagar Telephone Nigam Limited (MTNL) and Videsh Sanchar Nigam Limited (VSNL) were formed out of DoT to run services for Delhi and Mumbai and international long distance operations.

In 1991, Owing to the increasing demand and the fiscal crisis due to balance of payment options, the government was under severe pressure to open up the telecommunications sector for private investment. Value added services were subsequently opened up for private investments. In 1994, the National telecom Policy was introduced which envisioned telecom services to all. Liberalization was also conceived as a part of it and subsequently joint ventures were established between state run telecom companies and foreign players. Foreign firms could hold 49% of the total venture and they were involved only in technology transfer, not policy making. Local services were first liberalized wherein the country was divided into 18 telecommunication circles for mobile services. The government opened bids to one private company/circle along with government owned DoT per circle. For cellular service, 2 service providers were allowed/circle and a 15 years license was given to each provider.

In 1997, Telecom Regulatory Authority of India (TRAI) was set up to deice on policy issues, tariffs and for overall regulation, minimizing government interference simultaneously. DoT was later corporatized into BSNL. Government holdings in VSNL were also liquidated from 53% to 26%. After March 2000, government became even more liberal in the telecom sector and reduced licence fee. The allowable stake for foreign companies was increased to 74% which lead to a large number of multinational players entering the Indian telecom market.

Some of the important milestones in the Indian telecom growth are:

Pre 1902

Cable telegraphs were used

1902

First wireless telegraph station established between Sagar Island & Sandhead

1907

First Central Battery of telephones was introduced in Kanpur.

1913-14

First Automatic Exchange was installed in Shimla

1927

Radio-telegraph system was setup between the UK and India, Khadki & Daund were the important beam stations

1933

Radiotelephone system was inaugurated between the UK & India.

1953

12 channel carrier system was introduced.

1960

The First subscriber trunk dialling route was commissioned between Lucknow & Kanpur

1975

The First PCM system was commissioned between Mumbai City and Andheri telephone exchanges

1976

The First digital microwave junction was used

1979

First optical fibre system for local junction was commissioned at Pune

1980

First satellite earth station was established at Sikandarabad, U.P. for domestic communications

1983

First analogue Stored Program Control exchange was commissioned at Mumbai for trunk lines

1984

C-DOT established for indigenous development and production of digital exchanges.

1985

On non commercial basis , mobile service was commissioned in Delhi

1995

First mobile telephone service started on non-commercial basis on 15 August 1995 in Delhi

1995

Internet Introduced in India starting with Mumbai, Delhi, Calcutta, Chennai and Pune on 15 August 1995

1999

New Telecom Policy launched

2000

The national long distance market (NLD) was opened up to the private sector. There was no ceiling on the number of players

2001

A fourth cellular operator from the private sector was allowed to launch mobile services in each circle

2003

Unified Access (Basic & Cellular) Service License (USAL) was introduced as a first step towards Unified License Regime, Internet and GPRS were allowed through cellular service providers and CDMA services were rolled out

2006

India added 5 million subscribers and overtook China to become the fastest telecom market in the world

2007

Dual technology was allowed. This enabled service providers to offer both GSM and CDMA under the same licence subject to entry fee

2009

Mobile subscribers in India crossed 500 million mark

2010

3G and BWA spectrum were auctioned and allocated to allocated to Vodafone, Tata teleservicess, Bharti Airtel, Aircel, STel, RCom,Idea

2011

Mobile number portability was launched

2012

Total subscribers stand at 845Mn with overall teledensity being 73.34%

Chapter 3

Telecom liberalization & Reforms

The government of India recognized that in critical to the economic and social development of the country is the provision of world class telecommunication services to the countrymen across the length and breadth of the country. This would pave the not only for the development of IT sector in India but the cascading effect would provide growth and development stimulus across industries and sectors.

The government in order to meet the rising demand along with the intention of providing quality services moved towards planned development of the telecom sector beginning with the liberalization and partial privatization of the sector in 1991. The National telecom Policy introduced in 1994 which brought changes in ownership, service and regulation of telecommunications infrastructure. The policy introduced the concept of "telecommunication for all". Its vision was to expand the telecommunication facilities to all the villages in India. It provided for opening up the telecom sector in basic services, along with value added services like cellular mobile service, VSAT services, provision for telephone on demand and long distance telephony. Some of the bottlenecks related to NTP 1994 were dealt with in NTP 1999 which also paved the way forward for liberalisation and privatization.

National Telecom Policy 1994 and 1999

NTP 94 spelt out five basic objectives of which two objectives of availability of telephone on demand and universal service (connecting all villages) were targeted to be realized by 1997. With respect to quality of service, matching "world standard" and providing "widest possible range of services" "at reasonable prices" were stated aims. Two other objectives were to ensure the country's defence and security needs and to make the country a major manufacturing base and exporter of telecom equipment. The powers of giving licence and spectrum allocation were retained by the government.

There were gaps in the document with respect to areas providing conductive environment for entry of private service providers and on issues related to regulation. The 1994 policy was designed with the mindset that services should be provided largely by a strong incumbent that faced little competition just as was the in practice. Similar approach was reflected in the 'guidelines' for selection of basic service operators from private sector. Efforts to involve the private sector under this policy encountered certain roadblocks. NTP 94 layed down major targets however, an accurate assessment of the resource requirements was not done. For instance, in order to achieve the set objectives, additional resources of Rs. 230 Billion were required which clearly highlighted the need for private sector participation. However, poorly defined policies, along with implementation issues due to incomplete reforms mitigated the efforts. Meanwhile, due to the changes in the market structure as well as the changes in technology, there was a need to provide a new direction through a fresh policy.

NTP 99 made major attempts to plug the loopholes of NTP 94. Opening up of Internet sector was one such attempt. Policy objectives were also enunciated. The provision of Universal Service was sought to be balanced by the provision of high tech sophisticated telecom services capable of meet the growing needs of a developing economy. The latter objective was further widened to include internet access to all district heads by 2000 and providing high speed multimedia and data connectivity to all towns with a population of 200,000 and above by 2002. A target average penetration of 7% by 2005 and 15% by 2010 was set. Moreover, teledensity target for rural areas were set to 4% from the 0.4% level at that time.

An estimated capital expenditure of Rs. 4000Bn for installing 130Mn lines was required to meet the teledensity targets set. This again brought forward the need for private investment. NTP 99 thus paved the way for multiple operators in the market for multiple services. Another significant change was the move from the existing licence fee system to one time entry fee system combined with revenue share payments.

Comparing NTP 94 and NTP 99, NTP 94 mainly acknowledged the need to include private participation for provision of basic as well as value added services and to ensure fair competition, NTP 99 went one step ahead and targeted a level playing field with greater competition. Some restrictions in these policies were that of limitation on sub licensing, licensee being labelled defaulter on non-compliance of any licence condition and limitation on transferability of shares for a period of five years. Over the years the government has made the required efforts to remove restrictions that were affecting the performance of the licensee. The relaxation of the condition that the last mile linkage should be made with copper wire only is an example of the same.

As per NTP 99, MTNL/Dot could enter in any service area as the third cellular mobile operator if they wished to provide that service. In order to ensure fair competition, MTNL and DoT were also required to pay the licence fee however DoT’s licence fee was refundable because of this obligation to provide Universal Service. The fee was to be specially refunded so that the cost of Universal Service Obligations could be borne. This aspect was accounted for when USO levy had to be calculated and revenues apportioned for that levy.

Some of the significant advances made by NTP 99 are as follows:

NTP 99 opened up the scope for a new category of "carrier’s carrier" or "infrastructure providers". This happened since in order to speed up competition in the area of long distance service, NTP 99 allowed usage of existing backbone network in rail transport, energy sector, power sector, of both public and private entities for data in the immediate run and for domestic long distance voice communication when it were opened for competition from January 2000.

Fixed Service Providers (FSPs) were given the permission to carry long distance traffic and provide fixed services within their service area without obtaining any additional licence. Direct interconnectivities between FSPs and between FSPs and other type of service providers in their area of operation was permitted. Similarly, sharing of infrastructure was also permitted.

A policy to convert Public Call office (PCO) into Public Tele Info-centre, where ever justified, was designed. The Public Tele Info-centre were different from PCOs by them having multimedia capability like ISDN services, remote database access, government information system, community information system, etc.

Making the telecom sector more competitive by providing equal opportunities and level playing field for all operators, in both urban and rural areas

Providing impetus to research and development in telecom sector and facilitating development of world-class manufacturing capabilities

Achieving transparency and efficiency in spectrum management

Permission to "resell" domestic telephony

Restructuring of Dot

Facilitating interconnection between private service providers in the same circle and between service providers and VSNL. Introduction of and encouraging competition in domestic long distance.

Review of interconnectivity between private service providers of different service areas in consultation with TRAI

Clarity regarding how many licences each operator can be granted. This also paves the way for consolidation in the sector in the long term

Issues such as standardisation, disaster management, human resource development and change in legislation were addressed.

According to NTP 99, the number of players in each circle for basic services and the mode of selection for operators were to be decided on the basis of recommendation from TRAI. Contrary to the fixed licence fee regime earlier, fresh licences were now to be issued on the basis of one time entry fee and a part of the revenue to be determined by DoT in line with the recommendations from TRAI. Cable operators were given the permission to provide last mile linkages and switched services within their area of service. They were also permitted to provide 2 way communication including voice, information services and data subject to their obtaining a basic service licence.

As per NTP 99, it was proposed that long term policy will be to have uniform 20 year licences for both basic and cellular mobile services. Provision for extensions of licence initially by 5 years and subsequently by 10 years was also made. These provisions had to be executed in a transparent manner which again brought up the issue of governments role and its licensing powers in favour of the regulatory authority. Internet telephony was still not permitted under NTP 99.

NTP 99 represented a well designed effort to address major issues relating to the telecom reforms and to lay down policies with intent to make the sector a truly competitive one with efficient infrastructure within a reasonable time period. The policy aimed at providing a modern and efficient telecommunication infrastructure and took account of convergence of media, IT, telecom, and consumer electronics. The vision was to make India an IT super-power. However, as mentioned earlier, the rapidly changing telecom scenario coupled with some issues required further analysis and a change in policy framework in the subsequent years. During 1990s, the limit on FDI in various sectors was progressively raised. In 2001, upto 100% FDI was allowed in some sectors including almost all infrastructure sectors. FDI in India can enter through two channels:

The automatic route as per which companies receiving FDI need to inform Reserve Bank of India within thirty days of receipt of funds and issuance of shares to the foreign investors

Prior approval from Foreign Investment Promotion Board (FIPB) for sectors that do not allow automatic route

The foreign direct investment in telecom was hiked from 49% to 74%. This move was critical for the sector since the sector required investments to the tune of Rs. 900Mn in the next 5 years in order to achieve the objectives set. FDI inflow in the telecom sector by 2004 was rs. 9950.94 crores.

There were still some restrictions related to international transit routing of Indian traffic, remote access and transfer of network information outside India. It was also decided to further increase FDI in telecom in areas of cellular unified access services, long distance services, radio service, and public mobile along with basic telecom. DoT had the authority to restrict any licence company from operating in any area of the country it felt was sensitive.

Broadband Policy 2004

The government announced Broadband policy in 2004 in light of the potential of ubiquitous broadband in development of the economy and enhancement in quality of life through applications such as tele-education, tele-medicine, e-governance, employment generation, entertainment, etc by way of high speed access to information and web based communication. The main emphasis was on the development of infrastructure that can contribute to the growth of broadband services. Technologies such as optical fibre, cable TV network, Asymmetric Digital subscriber Lines (ADSL), DTH etc where focussed on.It was estimated that there would be 20Mn broadband subscribers by the end of 2010. In order to encourage broadband connectivity, outdoor and indoor use of wi-fi and wi-max systems in 2.4Ghz-2.4835 Ghz was deliceansed. Use of low power indoor systems in 5.15-5.35 Ghz and 5.725-5.875Ghz band was also delicenced. National Internet exchange of India (NIXI) was set up with the view to bring down international bandwidth cost substantially thus making broadband more affordable. The focal point of consideration in the policy was making broadband services affordable and reliable, providing incentives for creation of additional infrastructure, induction of latest technologies, employment opportunities, national security and set up a competitive environment with minimal regulatory interventions. The government, through this policy, aims to make available transponder capacity for VSAT services at competitive rates. Service providers were permitted to enter into franchisee agreement with cable TV operators. It was established that the licencee shall be responsible for compliance of the terms and conditions of the licence. In case of DTH, the service providers were permitted to provide receive-only-internet service. The role of facilities such as Departments of IT of various state governments, local self governments, panchayats, electricity authorities, department of education etc are all very important to carry the advantages of broadband services in the country to the countrymen. A target to provide internet connectivity to all secondary & higher secondary schools, panchayats and public health institutions was set via the policy. In rural areas, connectivity of 512Kbps with ADSL 2 plus technology was to be provided from about 20,000 existing exchanges in rural areas.

National Telecom Policy 2012

In an increasingly knowledge intensive global scenario, the government recognized telecommunication has emerged as a key driver of economic and social development. Aiming to play a leadership role in this scenario, National Telecom Policy 2012 was launched. National Telecom Policy-2012 is designed to ensure that 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. The policy aims at overcoming developmental challenges in education, health, employment generation, financial inclusion through sustained adoption of technology. Availability of affordable and effective communications for the citizens is at the core of the vision and goal of the National Telecom Policy – 2012. NTP-2012 has the vision Broadband on Demand and envisages leveraging telecom infrastructure to enable all citizens and businesses, both in rural and urban areas, to participate in the Internet and web economy thereby ensuring equitable and inclusive development across the nation. The policy sees convergence between telecom, broadcast and IT services, networks, platforms, technologies as the key enabler of equitable and inclusive growth. Overcoming the existing segregation of licensing, registration and regulatory mechanisms in these areas is being aimed at to enhance affordability, increase access, delivery of multiple services and reduce cost. A need to reorient the telecommunication policy was felt by achieving ubiquitous network connectivity of mobile technology, broadband Internet, fiber penetration in all villages, high-technology low-cost affordable devices and software solutions which enable electronic access to service including m-payment. A unique AADHAR based electronic authentication framework would be integral part of providing service to the people. Cloud computing will significantly speed up ability to design and roll out services, enable social networking and participative governance and m-Commerce at scale which were not possible through traditional technology solutions.

Some of the critical objectives of NTP 2012 are:

To increase rural teledensity from the current level of around 39 to 70 by the year 2017 and 100 by the year 2020.

Provide high speed and high quality broadband access to all village panchayats through a combination of technologies by the year 2014 and progressively to all villages and habitations by 2020

Enable citizens to participate in and contribute to e-governance in key sectors like health, education, skill development, employment, governance, banking etc. to ensure equitable and inclusive growth

Simplify the licensing framework to further extend converged high quality services across the nation including rural and remote areas

Strive to create One Nation - One License across services and service areas.

Achieve One Nation - Full Mobile Number Portability and work towards One Nation - Free Roaming.

Reposition the mobile phone from a mere communication device to an instrument of empowerment that combines communication with proof of identity, fully secure financial and other transaction capability, multi-lingual services and a whole range of other capabilities that ride on them and transcend the literacy barrier

Promote an ecosystem for participants in VAS industry value chain to make India a global hub for Value Added Services (VAS).

Ensure adequate availability of spectrum and its allocation in a transparent manner through market related processes. Make available additional 300 MHz spectrum for IMT services by the year 2017 and another 200 MHz by 2020.

Chapter 4

regulatory framework & policy initiatives in telecom sector

National Telecom policy and impact on Telecom Environment

Key Issues of Policy:

Universal Service Obligation

The USO policy was laid along with NTP ’99 in order to widen the reach of telephony services in rural India. All telecom operators are bound to contribute 5 per cent of their revenues to this fund. Initially, only basic service providers were under the purview of USO. Subsequently its scope was expanded to include mobile services as well. This system was put in place to bridge the wide gap between urban and rural teledensities. This is a non lapsable fund. It also absorbs any grants and loans from the central government. The Government enforced USO contribution on all operators – except value added service providers – from 1 April 2002. As per NTP 2012, Optical fibre network will be initially laid up to the village panchayat level by funding from the Universal Service Obligation Fund (USOF). Extension of optical fibre connectivity from village panchayats to be taken up progressively to all villages and habitations. Access to this Optical Fibre Network will be open, non-discriminatory and technology neutral. Consequently, although it increases the cost burden for the telecom companies, USO helps in building telecommunication infrastructure in the rural areas.

Access Deficit Charge

Access Deficit arises when the tariff specified for access does not cover the cost of providing access. The ADC compensates for the below cost rentals especially in rural areas, local call charges, provision for free calls etc. to make the fixed line telecom services affordable to the common man to promote both Universal Service and Universal Access as per NTP’99.ADC makes it essential for the service provider at the caller’s end to share a certain percentage of the revenue earned with the service provider at the receiver’s end in long distance telephony. This actually subsidises the infrastructure costs of a service provider enabling access at receiver’s end, especially because rental for fixed-line services is low. As the Indian telecom sector is witnessing exponential growth in a highly competitive atmosphere, the sustainability of fixed lines assumes critical importance. ADC supports incumbent operators in rebalancing the tariff during a transition period by providing buffer time. However, many private players believe that ADC is a burden, as India already has a USO fund in place. ADC is charged from all service providers as a certain per cent of their adjusted Gross Revenue (AGR). More than 95 per cent of the ADC fund is dedicated to developing the rural infrastructure and services of BSNL. For 2007-08, ADC was estimated to amount to US$ 444 million. On the other hand, it was felt that continuous reduction in tariff is also essential to sustain high growth in the number of subscribers. In keeping with this, TRAI revised the ADC regime, so that the benefit can be passed on to the consumers. ADC was then reduced to 0.75 per cent from 1.50 per cent of AGR for all service providers. Per minute ADC on incoming international calls was also reduced. ACD was finally phased out in 2009 since ADC was instituted for a limited purpose of supporting incumbent at the time of transition from monopoly to competitive environment and allowing them to rebalance tariff.

Optimization of spectrum Allocation

In order to ensure optimum utilization of spectrum, the policy has allowed the use of spectrum in any band to provide any ervice, within the scope of respective service license using any technology. Moreover, spectrum pooling by two or more operators and spectrum sharing has been allowed. This would later be followed by spectrum trading also.

New Licensing regime

NTP 2012 has introduced a new unified licensing regime. The Government has recommended that the plethora of licenses that telecom operators currently need to apply for and maintain be converged appropriately along the following lines: (a) Services, (b) Networks and Devices. According to broad features of the new scheme, telecom companies holding UL will be able to provide all services that existing licences permit as well as share spectrum and other active part of telecom infrastructure that were not permitted earlier. Further details have not yet been released. Regarding new 2G spectrum allocation, telecom companies winning spectrum in the auction will be allowed to use airwaves for any technology within scope of their licences. Existing players, however, will have to get their entire spectrum holding converted in to liberalised spectrum to remove restriction on use of technology.

Business Line Article (http://www.indiastat.com/telecommunication/28/stats.aspx)

Mobile Number portability

Mobile Number Portability (MNP) has enabled subscribers to change their operators while retaining their number; not only giving more choice to customers but also leading operators to further improve their services to retain their customers.

As per the data reported by the service providers as given on TRAI website, by the end of December 2012 about 80.06 million subscribers have submitted their requests to different service providers for porting their mobile number.

Mobile Value Added Services

"Value Added Services are enhanced services which add value to the basic tele services and bearer services for which separate licences are issued. At present, Government is issuing licences for following Value Added Services:-

(i) Cellular Mobile Telephone Service (Public Land Mobile Network)

(ii) Radio Paging Service

(iii) Public Mobile Trunking Service

(iv) Electronic mail

(v) Voice Mail Service.

(vi) Closed Users Group Domestic 64 kbps data network via INSAT satellite system.

(vii) Videotex Service.

(viii) Video conferencing

(ix) GMPCS

(x) Internet "

-item 54 of Definitions and Interpretations of Licence Agreement for Basic Service Operators

As per Licence Agreement for provision of Cellular Mobile Telephone Service : "Value Added Service means any Service the provision of which necessarily involves both the running of a telecommunication system and the provision by means of that system of a Service (other than a directory information service), which is additional to the conveyance (not including switching ) of Messages by means of that system and switching incidental to such conveyance."

VAS is not a form of basic service but rather adds value to total service offering. Some of these services can stand alone from an operational perspective and not necessarily add value to basic or core services. For example, applications like e-education, e-health, e-commerce, gaming, music, video, IPTV etc. can be provided as a standalone service. However, these services if provided through the telecom network can stimulate incremental demand for core service(s) as well as add additional revenue streams for service providers. New content also form VAS like songs, jokes, wall papers, entertainment, news, television listings, movie trailers, promotional media content as well as applications like e-commerce, e-education, e-agriculture, e-health, Games, Location based services, Animations, Quiz, Astrology etc. Since these services are not necessarily adding additional value, they fall outside the definition of VAS. Hence TRAI has recommended as new term "Application Services" and a new definition to cover all such content related applications under one definition, the same being: "Application services are enhanced services, in the nature of non-core services, which either add value to the basic tele services or can be provided as standalone application services through telecommunication network. The basic services are standard oice calls, voice/non-voice messages, fax transmission and data transmission."

NTP 2012 stresses on developing an appropriate framework for delivery of VAS at an affordable price. It also strives to put in place a policy framework to regulate the carrier charges which are content neutral and based on bandwidth utilization. Finally, policies in order to promote an ecosystem for participants in VAS industry to make India a Global Hub are to be given priority.

Chapter 4

overview of present scenario of indian telecom

Industry snapshot

Telecom Subscribers (Wireless +Wireline)

Total Subscribers

937.70 Million

Urban Subscribers

595.69 Million (63.53%)

Rural Subscribers

342.01 Million (36.47%)

Market share of Private Operators

86.16%

Market share of PSU Operators

13.84%

Teledensity

77.04

Urban Teledensity

161.13

Rural Teledensity

40.36

Wireless Subscribers

Total Wireless Subscribers

906.62 Million

Urban Subscribers

571.70 Million (63.06%)

Rural Subscribers

334.92 Million (36.94%)

Market share of Private Operators

88.43%

Market share of PSU Operators

11.57%

Teledensity

77.04

Urban Teledensity

161.13

Rural Teledensity

40.36

Wireline Subscribers

Total Wireline Subscribers

31.08 Million

Urban Subscribers

23.99 Million (77.17%)

Rural Subscribers

7.10 Million (22.83%)

Market share of Private Operators

20.16%

Market share of PSU Operators

79.84%

Teledensity

2.55

Urban Teledensity

6.49

Rural Teledensity

0.84

(as on 30th September, 2012 )

Trends in Telephone subscribers and Teledensity in India

The teledensity in India overall has become more than 4 times of 2007 level. The urban teledensity has increased about 250% from 2007 to 2012. The rural teledensity today is over 6 times as compared to 2007 level. However urban teledensity is still very high as compared to rural teledensity, almost 5 times of that of rural levels.

Composition of Telephone Subscribers

Wireless services constitute 96.69% of the total subscriber base with urban wireless constituting 60.97% of the total. The breakup of urban and rural wireless and wireline subscribers is as shown:

Annual Growth Rate in the Telecom Industry (1981 to December, 2011)

http://cis-india.org/telecom/telecom-knowledge-repository/market-structure-in-telecom-industry

List of Service Providers and Area of Service

Wireless (GSM+CDMA)

Wireline

At present there are 8 providers in the Indian Telecom industry which are providing wireline services. Bharti Airtel, Vodafone, Tata-Tele services and reliance Communications are present in major part of the country while state players MTNL and BSNL combined also cover PAN India

Service Provider wise Market Share

Wireless

Private operators hold 87.83% of the wireless market share (based on subscriber base) where as BSNL and MTNL, the two PSU operators hold only 12.17% market share. The graphical presentations of market shares of all the service providers as on 31st Dec 2012:

Wireline

The overall wireline Teledensity stands at 2.52 in December 2012, with urban and rural Teledensity being 6.42 and 0.82 respectively. BSNL and MTNL, the two PSU operators hold 79.57% of the Wireline market share.

Service Area wise Rural Teledensity

The Service Areas are divided in four main categories: Metros, circle A, B anc C. Circle C has the highest percentage of rural subscribers. Rural Tele density is highest in India in Jammu and Kashmir at 167% while it is a single digit number in a couple of states.

Circle

Teledensity

Andhra Pradesh

47.76

Assam

8.31

Bihar

16.47

Delhi

-

Gujarat

11.86

Haryana

18.53

Himachal Pradesh

271.22

Jammu and Kashmir

167.19

Karnataka

57.29

Kerala

120.95

Madhya Pradesh

00.00

Maharashtra

27.23

North East

109.34

Orissa

68.17

Punjab

94.56

Rajasthan

64.00

Tamil Nadu

66.67

Uttar Pradesh

16.75

West Bengal

50.76

All India

39.52

Service Provider wise Subscribers & Share of Rural Subscription

Wireless

As per the market share data, Bharti Airtel and Vodafone are the two biggest market players in the rural market with each holding over 20% of the market share. The top three operators- Airtel, Vodafone and reliance together constitute 50% of the market. In terms of percentage revenue of rural market of the total revenue, Idea is the most significant operator since about 53% of IDEAs revenues come from rural markets. IDEA is one of the companies’ most strongly routed in the rural market.

Wireline

State Run BSNL has 32% of its subscriber base in the form of rural landline subscribers. Dominant players like Bharti Airtel and Vodafone though provide wireline service but these are not present in the rural markets.

Total and Market Share by Revenue (September 2012)

IDEA continues to be the Service provider with highest proportion of Rural subscribers (53.91%) to its total subscribers.

Internet Subscribers

Wireless subscribers who have subscribed to Data services

49.30% of total wireless subscribers base are capable of Accessing Data Services/Internet at the end of Sep-12.

Service Provider wise details of Data Services

Mobile Value Added Services

The Mobile Value Added Service (MVAS) market in India is rapidly growing and has great revenue potential. The revenue estimated from mobile application services is around 11% of the total revenue of mobile telecom service providers, which excludes revenues from SMS which is 7% of total revenue of mobile telecom service providers. The revenue from application services is expected to reach31% (inclusive of SMS and data access) of the mobile telecom service providers‘ revenue by the year 2015. Growth in mobile application services is fuelled by the continuous improvement in quality of handsets and their falling costs, younger generation of mobile users and innovative content/applications and packaging.

Range of Application Services

Delivery Platforms

Entertainment

Informational

Transactional

SMS

Ringtones CBRT

Customised Wallpaper

Animations

Quiz

Jokes

Cricket / Match alerts

News

Astrology, Vaastu, Fengshui, Personality Test

Banking Info Alerts

Travel alerts details like Train, Flight Details etc.

Location Search

Mobile Banking

Ticketing

Travel and Holiday Bookings

Payment confirmations

Due date reminder

IVRS

Religious Chants

Music on Demand

Astrology, Vaastu, Fengshui, Personality Test

Mobile Banking

Ticketing

WAP Portals

Video Clip

Mobiles Games

Mobile Themes

Mobile Radio

Movies Related Info

Stock Portfolio Managers

News Tickers/ Alerts

Location based Informations

Mobile Banking

Ticketing

Travel and holiday bookings

According to an ASSOCHAM study, market size of Mobile Value Added Service increased to Rs. 97.6 billion by the end of year 2009 from Rs. 28 billion at the end of year 2006. In another study5 by ASSOCHAM, market of MVAS at the end of year 2010 was estimated at Rs. 122.2 billion and is forecasted to reach at Rs. 482 billion by the year 2015. Therefore, a large part of the revenue for telecom service providers will be from provision of MVAS.

Break Up of revenue by applications

CRBT accounts for the maximum revenue. Video applications, e-commerce, e-education, e-agriculture, e-health and various other innovative services have immense potential and yet to be realised.

Revenue Breakup as per the access mechanism

The different access mechanisms are Short Message Services (SMS), Interactive Voice Response (IVR), Wireless Application Protocol (WAP) and General Packet Radio Service (GPRS), Unstructured Supplementary Services Data (USSD), Call Management Services (CMS) and SIM Application Tool Kit (STK). Revenue through applications using SMS as access mechanism is highest. With only a small percentage of our population understanding English, the potential of application services through SMS can increase many-fold if necessary platforms for Indian languages are developed.

Competition Overview

Major Players:

At present there are three types of players in the market

State owned companies (BSNL & MTNL)

Private owned Companies like Reliance Communications, TATA Tele-services

Foreign Invested Companies like Vodafone, Bharti Airtel, Escotel, Idea Cellular, BPL Mobile

Bharti Airtel Limited

Bharti Airtel Limited is a leading integrated telecommunications company with operations in 20 countries across Asia, Africa and Channel Islands. Headquartered in New Delhi, the company ranks amongst the top 5 mobile service providers globally in terms of subscribers. Airtel is the largest cellular service provider in India and the 4th largest in the world. In India, the company's product offerings include 2G, 3G and 4G services, fixed line, high speed broadband through DSL, IPTV, DTH, enterprise services including national & international long distance services to carriers. In the rest of the geographies, it offers 2G, 3G mobile services. Bharti Airtel had over 246 million customers across its operations at the end of February 2012. Airtel is the market leader in India with about 20.62% market share at the end of November 2012. The Brand Trust Report [55] published by Trust Research Advisory, places Airtel as the only mobile operator in the top 10 most trusted brands in IndiThe organisational structure has two distinct Customer Business Units (CBU) with clear focus on B2C (Business to Customer) and B2B (Business to Business) segments. Bharti Airtel's B2C business unit comprehensively services the retail consumers, homes and small offices, by combining the erstwhile business units - Mobile, Telemedia, Digital TV, and other emerging businesses (like M-commerce, M-health, M-advertising etc.). The B2C organization consists of Consumer Business and Market Operations. Bharti Airtel is the first Indian telecom service provider to achieve Cisco Gold Certification. It also acts as a carrier for national and international long distance communication services. Airtel operates in all telecom circles of India. Its network is present in 5,121 census towns and 457,053 non-census towns and villages, covering approximately 86.6% of the country’s population as of September 2012. Airtel has a 3G presence in 15 out of 22 circles in India. On 10 April 2012, Airtel launched 4G services using TD-LTE technology in Kolkata, becoming the first company in India to offer 4G services. The Kolkata launch was followed by launches in Bangalore (7 May 2012) and Pune (18 October 2012).

Bharti Airtel won the QuEST Forum India Quality Award for the Top Telecom Service Provider. Bharti Airtel was awarded the #1 Service brand in Brand Equity's List of "Most Trusted Brands" in 2012. Bharti Airtel was also awarded the 'Brand of the Year' at the CNBC TV18's flagship initiative, the India Business Leader Awards (IBLA) for its Har Ek Friend Zaroori Hota Hai campaign. Bharti Airtel won 5 awards at the Telecom Operator Awards 2012, announced in March 2012 by Telenet. Airtel bagged the 'Best National Mobile Operator', 'Best VAS Provider', 'Best Enterprise Services Provider', 'Best Ad Campaign by an Operator' and 'most innovative Solution' for airtel money.

Vodafone

Vodafone India, formerly Vodafone Essar and Hutchison Essar, is the second largest mobile network operator in India after Airtel. It is based in Mumbai, Maharashtra and which operates nationally. It has approximately 153 million customers as of September 2012. Vodafone India provides 2.75G services based on 900 MHz and 1800 MHz digital GSM technology. Vodafone India launched 3G services in the country in the January-March quarter of 2011 and plans to spend up to $500 million within two years on its 3G networks. On July 2011, Vodafone Group agreed terms for the buy-out of its partner Essar from its Indian mobile phone business. The UK firm paid $5.46 billion to its Indian counterpart to take Essar out of its 33% stake in the Indian subsidiary. It will leave Vodafone owning 74% of the Indian business, while the other 26% will be owned by Indian investors, in compliance with Indian law. Vodafone 2G service covers 88% population coverage in established 16 circles and 79% nationwide. In the spectrum allocation undertaken by GoI in 2012, Vodafone won spectrum in 14 circles. The circles it will provide 3G in are Delhi, Kanpur, Gujarat, Haryana, Kolkata, Maharashtra & Goa, Mumbai, Tamil Nadu, Uttar Pradesh (East) and West Bengal. Vodafone also operates 3G services in Kerala, Andhra Pradesh and Uttar Pradesh (West) through an agreement with Idea and in Karnataka through an agreement with Airtel. This gives Vodafone a 3G presence in 13 out of 22 circles in India. The Brand Trust Report, 2011 published by Trust Research Advisory has ranked Vodafone as the 16th most trusted brand in India.

Idea Cellular

IDEA Cellular is a publicly listed company, having listed on BSE & NSE in March 2007. It is the 3rd largest mobile services operator in India with wireless revenue market share at 15 % in Q1 FY 2013, and subscriber base of over 117 million. Idea has consistently stayed ahead of the industry in VLR reporting, and has the 3rd highest base of active subscribers. Idea is a pan-India integrated GSM operator and has its own NLD and ILD operations, and ISP license.

With traffic in excess of a billion minutes a day, Idea ranks among the Top 10 country operators in the world. Idea operates across all 22 service areas with 2G services and 3G services spread in over 3,000 towns and 10,000 villages.

Idea has a network of over 97,000 2G and 3G cell sites covering the entire length and breadth of the country. Idea has nearly 4,000 Service Centres servicing Idea subscribers across the country, including over 650 special Experience Zones for 3G promotion. Idea’s service delivery platform is ISO 9001:2008 certified, making it the only operator in the country to have this standard certification for all 22 service areas and the corporate office.

It has the highest share of rural subscribers as a percentage of total subscribers, amongst other GSM players. 2 out of every 3 new Idea subscribers come from rural/ semi-urban India.

 Idea won the ‘Best Brand Campaign’ at the esteemed World Communication Awards 2011. It also recently won 3 Awards at the ET Telecom Awards 2012, in the following categories Customer Experience Enhancement, Excellence in Marketing and Innovative products, respectively.

It is also the winner of ‘The Emerging Company of the Year Award’ at The Economic Times Corporate Excellence Awards 2009. IDEA Cellular also received the prestigious Avaya GlobalConnect Award for being the ‘Most Customer Responsive Company’ in the Telecom sector in the year 2010. The company has received several other national and international recognitions for its path-breaking innovations in mobile telephony products & services. It won the GSM Association Award for ‘Best Billing and Customer Care Solution’ for 2 consecutive years. It was awarded ‘Mobile Operator of the Year Award – India’ for 2007 and 2008 at the Annual Asian Mobile News Awards.

TATA Teleservices

Tata Teleservices Limited (TTSL) is an Indian broadband and telecommunications service provider based in Mumbai, Maharashtra, India. It is a subsidiary of the Tata Group, an Indian conglomerate. It operates under the brand name Tata DoCoMo in various telecom circles of India. In November 2008, Japanese telecom giant NTT Docomo picked up a 26 per cent equity stake in Tata Teleservices for about 130.7 billion (US$2.38 billion) or an enterprise value of 502.69 billion (US$9.15 billion).

Tata Teleservices provides mobile services under the following brand names:

Tata DoCoMo (CDMA & GSM mobile operator, wireless broadband)

Virgin Mobile (CDMA & GSM mobile operator)

T24 Mobile (GSM mobile operator)

The company received licenses to operate GSM services in nineteen telecom circles and was allotted spectrum in eighteen of these circles and launched GSM services on 24 June 2009. It began operations first in South India and currently operates GSM services in eighteen of twenty two telecom circles. It has licences to operate in Delhi but has not been allocated spectrum from the Government. Docomo provides services throughout India. Tata DOCOMO offers both prepaid and postpaid cellular phone services. It has become very popular with its one second pulse especially in semi-urban and rural areas. On 5 November 2010, Tata DOCOMO became the first private sector telecom company to launch 3G services in India. Tata DOCOMO had about 42.34 million users at the end of December 2010.

Aircel

Aircel group is an Indian mobile network operator headquartered in Chennai, that provides wireless voice, messaging and data services in India. It is a joint venture between Maxis Communications Berhad of Malaysia and Sindya Securities & Investments Private Limited, whose current shareholders are the Reddy family of Apollo Hospitals Group of India, with Maxis Communications holding a majority stake of 74%. Aircel commenced operations in 1999 and today is the leading mobile operator in Tamil Nadu, Assam, North-East India and Chennai. Aircel provides 3G service in Andhra Pradesh, Kerala, Kolkata, Assam, Bihar & Jharkhand, Punjab, Tamil Nadu, Chennai, Jammu & Kashmir, Karnataka, North East, Orissa, UP East and West Bengal. 

It is India’s fifth largest GSM mobile service provider and seventh largest mobile service provider (both GSM and CDMA) with a subscriber base of over 63.35 million, as of December 2012 with 62.24% of them being active. It has a market share of 7.33% among wireless operators (includes GSM, CDMA, and FWP operators) in the country.

Aircel has also obtained permission from the Department of Telecommunications (DoT) to provide international long distance (ILD) and national long distance (NLD) telephony services. It also has the largest service in Tamil Nadu.

Aircel emerged as the top mid-size utility company in Businessworld's 'List of Best Mid-Size Companies' in 2007. Additionally, the company has also been awarded as the best regional operator by the Tele.net publication in 2007 and have been honoured by CMAI INFOCOM for excellence in marketing of new telecom service in 2009.

Chapter 5

Case study

Bharti Airtel Ltd Rural Expansion

Bharti Airtel was facing the challenge of profitably serving the rural areas of India. Besides the challenges of rural users’ low incomes, a widely dispersed population, and a less than ideal public infrastructure (i.e., roads, electricity, etc.) posed by the market in general, specifically, Airtel had to address the following conditions:

The average revenue per user (ARPU) for rural residents was less than US$2 per month.

Airtel needed to establish a cost-effective marketing, sales, and distribution channel to provide service promotion and customer support besides deploying a scalable network.

Opportunities

The opportunities lying ahead of Airtel at the time of were:

The future growth of the Indian mobile market is expected to be driven by rural customers, which account for about 70 percent of the country’s total population (1.1 billion people) with a teledensity of only 18.5 percent as of September 2009. Indian urban mobile penetration is already over 100 percent.

Rural dwellers place a high value on communications. Contacting urban/overseas relatives and friends often requires a long and sometimes treacherous trip to the nearest town to reach a payphone.

Having 27 percent market share in the relatively untapped rural market, as of Sept 2009, Airtel was well-placed to grow with its focus on under-penetrated Indian regions with new revenue streams such 3G-enabled data services and pay-TV.

Strategies Followed

Airtel is focusing on innovative initiatives, including efficient infrastructure deployments, customized content and tariffs and expanding its distribution network via partnerships to extend its reach in India’s rural markets.

Airtel has launched microfinancing agreements in collaboration with Nokia and SKS Micro-finance. Under these partnerships, Bharti provides subsidized tariffs and subscriber identity module (SIM) cards to rural users, Nokia provides subsidized handsets, and SKS offers micro financing. The initiative was aimed at offering mobile handsets bundled with prepaid connections especially for SKS Microfinance members. While, Airtel provided free prepaid SIM cards to the SKS members, SKS tied up with Nokia for handsets and provided loans to members to purchase the handsets. They launched a bundled offer, including a handset for Rs. 2,300 with a free SIM and affordable calling rates.

To expand coverage into rural regions, Bharti Airtel is sharing passive infrastructure services with Vodafone (42 percent ownership) and Idea (16 percent ownership) through its joint venture, Indus Towers. Sharing the infrastructure cost and usage between multiple operators has helped Bharti Airtel to reduce its operating and capital expenses.

Bharti Airtel also formed a joint venture with the Indian Farmers Fertilizer Cooperative Limited (IFFCO). Its joint venture, IFFCO Kisan Sanchar, uses IFFCO’s wide rural presence (present in 80 percent of Indian villages) and its appeal among the rural agricultural community to market and distribute Bharti’s products. IFFCO Kisan Sanchar provides subsidized handsets and connections at competitive rates in rural areas. It also helps Bharti Airtel to identify and acquire suitable locations for deploying its cell sites. In addition, it offers tailored services including voice-based updates on crop prices, farming techniques, rural health initiatives, and "help line" services. To help improve the quality of living of poor and illiterate farmers in India the empowering Farmers Mobile Phone initiative was developed to provide agricultural information via mobile phone to aid famers in developing a more productive, profitable and sustainable agricultural sector in India. The special service to farmers includes 5 Free Voice Messages daily in 10 local languages on areas such as crop advisory, weather related, market prices, animal husbandry. There is also a farmer help-line operated by experts that farmers can call and obtain information or advice. Additional messages are provided on women’s issues, health, employment opportunities and government schemes to positively impact the rural economy.

Strategy Execution

Bharti Airtel first studies the commercial viability of a rural community (and the surrounding villages) based on parameters such as source of livelihood, average income, and involvement in frequent commercial transactions or travels. The company has developed a prioritized deployment strategy based on the specified criteria. Qualifying villages are first to receive a base station, which also caters to nearby communities. To help ensure efficient usage and profitability for each of these base stations, Bharti Airtel tracks the revenue generated per base station (instead of ARPU, which is considered less relevant in a rural context).

The following best practices have also been established:

Bharti Airtel has adopted the strategy of direct communications to market its value proposition to rural customers. To make its services accessible, the company provides all of its marketing content in local languages. Vans are used to cover rural areas with staff who educate locals about mobile services and usage.

Bharti Airtel rolled out a programme where its distributors and retailers help it acquire new rural customers, apart from acting as local one-stop shop for supporting these users. These folks provide a highly personalized service to rural customers. Airtel held training workshops with these retailers and distributors every month for sensitizing them while dealing with rural users. The premise here is that rural customers, many of them first-time phone users, are more comfortable dealing face to face with a retailer rather than making a call to a customer service centre and receive instructions. By getting such customers to interact with retailers, Bharti Airtel saves on customer service costs.

The company followed a "matchbox strategy". It was about making available Airtel recharge cards wherever matchboxes could be found. Bharti Airtel is also tried to stoke usage and billing. In order to get rural users to talk more, the company began selling mobile talktimes in lower denominations of Rs10, Rs20 and Rs30.

The company has developed a shared phone service called Public Call Offices (PCOs) in rural regions to increase awareness about its brand and services.

Bharti Airtel Service Centres have been set up in villages to address customer queries and complaints as well as act as sales and distribution points. These centers employ local people and offer sales and customer services using local dialects.

Bharti Airtel has already established over 18,000 service centres in rural India, covering over 400 languages and local dialects. The company plans to expand this network.

In 2012, Airtel launched ‘Airtel Money’ in association with Eko India Financial Services as a Business Correspondent of Banks. Airtel has a strategic alliance with Axis Bank, whereas, Eko India Financial Services has alliances with State Bank of India and ICICI Bank to provide services in urban as well as rural areas while YES bank is involved in urban areas. Airtel Money is one of the biggest players in mobile money transferring services. One can open an account with his mobile number and he gets eligibility of transferring money to another Airtel Money account or any bank account of his family or friend. He does not need to carry cash always. He can pay his utility bills like telephone, electricity, water or gas bills through his phone. He can buy movie tickets or he can do shopping in a retail shop and he does not have to pay cash or carry his debit or credit cards, he can pay the retail bill through his mobile if he has an Airtel Money account.

Success Factors/Metrics/Monetization

Bharti Airtel does not provide separate rural key performance indicators, but the following results have been publicly announced:

As of April 2010, Bharti Airtel’s network covered 440,000 villages in India, which, together with its urban services, accounted for coverage of approximately 84 percent of India’s total population.

As of March 31, 2010, Bharti Airtel had added 9 million new customers to reach a total of 128 million connections. Ovum estimates that rural users accounted for 60 percent of the company’s net subscriber adds in that quarter.

Despite Bharti Airtel’s overall ARPU of just under $5, its mobile division’s earnings before interest, taxes, depreciation, and amortization (EBITDA) margin was approximately 30 percent, and its earnings before interest and taxes (EBIT) margin was approximately 19 percent, which indicate a healthy return on overall (including significant rural) investments.

The initiative to introduce prepaid recharges in smaller denomination started paying off quickly at Bharti, with Bihar, where these were first made available, alone accounting for more than 10% of total recharge revenues at the company in the year of introduction.

The number of rural retailers is rose to 60% of an estimated 800,000 points of sale where Airtel cards were available

Airtel Money which is operating in 300 hundred cities in the country became a huge success with about 7,000 transactions done through the CSPs daily. After this success, Airtel is planning of expansion of services to at least 7 states, moving towards, Rajasthan, Himachal Pradesh and Punjab.

Chapter 6

Insights on Rural Market and consumers

According to a survey undertaken by a major operator in 2010, 65% of the rural users do not know what data services are. However, of the remaining 35% who know about data, approximately two-thirds of this population use data services regularly. This points towards the high acceptability and use of data services in Rural India.

Major Challenges

The major challenges that would restrict telecom expansion in rural markets are:

Low literacy rate

Due to low literacy levels, the message being communicated through advertisements and promotions by the telecom operators fails to be understood completely. This dilutes the effectiveness of the marketing efforts through the media campaigns.

Low English Literacy

English is spoken/understood by barely 15% of the population, and English literacy is only 7 % in rural India. The low penetration of English as a language restricts the use of majority of the services because these are mostly available in English.

Linguistic fragmentation

Even though Hindi and English are the official languages, there is no national language. There are over 30 such languages which are spoken by over 1 million people In India. Essentially, there are a large number of languages which are spoken by considerable population and reaching out to those parts of the population becomes challenging

Lack of Infrastructure

Electricity supply is either nonexistent or erratic in large parts of rural India making the environment though for telecom operators to expand and operate in such regions. In villages that do not have electricity supply, operators have to run the Base transmission Stations using generators in advent of absence of electricity line from state electricity boards. Availability of DG (Direct Grid) power, required for running the telecom towers, is the biggest roadblock. DG availability ranges from 2 to 6 hours daily in rural areas, with telco’s spending 30 percent of network OPEX on diesel and DG. This further increases the costs for the operator. Moreover, electricity used in rural telecom is charged at full commercial tariff which increases the operation costs. All weather roads are a distant reality. Moreover, India’s expenditure on infrastructure being USD 110, which is a small amount as compared to other developing economies, infrastructure development is going to be slow.

Low Revenues and High operating costs

Rural India is sparsely populated with over 75 crore people spread over 6Lac villages with more half of the villages having a population of less than 1000. Hence the number of subscribers per BTS is low in rural areas.

Skills challenges

There are no trained telecom engineers and few people can read or write. This makes the installation and maintenance of GSM networks highly challenging.

The Rural Consumer

In rural areas, 27m households today count as middle class, with annual income in the range of US$1,000 to $4,000. With the low-tier user base – those who use basic voice and text-capable phones – being relatively large, a modest 5% increase in low-tier adoption and usage could generate as much value as a 20% increase in adoption by Smartphone users would.

Outgoing minutes of use between urban and rural users are roughly the same. So rural users appear to be generating as much revenue from outgoing calls as urban users do.

Rural dwellers place a high value on communications. Contacting urban/overseas relatives and friends often requires a long and sometimes treacherous trip to the nearest town to reach a payphone. Compared to urban users, rural users commonly depend more on mobile communications to stay connected and have a greater need for channels to deliver them all manner of services and goods partly because of their remoteness.

An estimated 240 million people across India hold bank accounts; more than 90 per cent of country’s population uses cash to pay for its daily needs. Additionally, a majority of customers continue to rely on traditional or time consuming methods like money orders and cheque remittances when it comes to transferring funds. Since rural India is lacking formal banking services, a person travels 15 to 20 kms for any banking transactions, which consumes his entire day, he losses one day job and a burden of hassles he gets. Also, money transfer from a wage earner is a city to his family in a village is a common transaction. Mobile banking has a huge potential to address these requirements.

Recently a leading TV channel recorded that in the state of Andhra Pradesh, as much as 25% of interactive TV responses came from rural areas. Non-urban consumers already form a sizable segment of engaged, interactive audiences.

Rural Purchasing Power

An estimate of the purchasing power and the nature of rural market requirements can be had by looking at the deepening penetration of Fast Moving Consumer Goods (FMCG). For the past few years, FMCG companies have been concentrating their efforts on increasing their coverage of rural areas. In the process, they have had to redesign their marketing strategy. The fact that they have achieved great success and over