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Ppm group 2 ppt on telecom
1. A Microeconomic Analysis
of
The Indian Telecom Sector
(Group-2)
Awadhesh Kumar Singh 14PPM05
Dharmesh Makwana 14PPM06
Harish Kumar 14PPM07
Hirdesh Kumar 14PPM08
2. 1975 Dept. of Telecom separated from Indian
Post & Telegraph Dept
1985 MTNL carved out of DOT for telecom
services in Delhi and Mumbai
1994 National Telecom Policy 1994 announced.
Affordable World Class Telecom Service,
Opening of FDI
1995 1st mobile telephone service started
on 15 Aug 1995
1997 Telecom Regulatory Authority of India
was setup
The Telecom Sector Evolution
3. 1999 National Telecom Policy 1999 announced
2000 BSNL carved out of DoT
2002 BSNL entered in to GSM cellular operation
2003 Unified Access (Basic & Cellular) Service License
(USAL) introduced
2004 License fee reduced by 2% across the board for all
the access licenses
2009-10 3G auction for public and private players
The Telecom Sector Evolution (cont..)
4. Total subscriber 933 m
World’s second largest mobile phone users 904 m
Overall teledensity 75 : urban 146 & rural 44
Total revenue of the sector approx 2.8 lac crores
Compound annual growth rate (CAGR) of 64 per cent per annum
during 2002-12
13 major service providers in the market
Market share : 89.1% Private & 10.9% State PSU
Facts & Figures
5. Three type of players :
State owned companies (BSNL and MTNL)
Private Indian owned companies (Reliance, Tata etc.)
Foreign invested companies (Vodafone, Bharti Tele-Ventures, MTS
etc.)
8. BSNL established – 2000
NLD, ILD services are opened for competition – 2000
CDMA technology launched – 2000
Internet Telephony Initiated – 2000
Reduction of license fees -2000
VSNL privatized – 2002
9. Launch of mobile services by BSNL – 2000
UASL regime was introduced – 2003
Calling Party pays (CPP) was implemented – 2003
Broadband Policy was formulated – 2004
Intra Circle Merger guidelines established – 2004
FDI limits increased from 49% to 74% - 2005
Number Portability was started – 2010
10. Prior to opening of FDI Telecom was a state owned Monopoly
It was less efficient, high consumer tariffs, long waiting list
In 1995 first time competition started in telecom sector as mobile
services were launched by private firms
From 1995 to 2002 market indicated signs of
competition/cartelization. The call tariffs were very high during this
period. Firms earned supernormal profits and Indian market lured all
big international telecom players
Emergence of competition
11. In 2003 state owned PSU BSNL entered in mobile telecom market
which was instrumental in breaking so called cartelization of
mobile private firms
From 2003 onwards there is successive reduction of tariffs by all
firms one after another
The decision of one firm was/is not only dependent upon itself but
also on governed by decisions of competitors, thus proving nature
of interaction while taking decisions
It shows the Indian telecom market is oligopolistic in nature
Emergence of competition (cont..)
12. Tariff in 2000 Tariff in 2014
Long Distance Rs 35 per Min 50 paise per Min
Local Call Rs 16 per Min 50 paise per Min
ISD Rs 85 per Min Rs 5 per Min
Incoming Call Rs 12 per Min Free
Competition Reduced Tariffs
14. Reduced Tariff rates
Variety of Mobile Handsets at cheaper rates
Value added Services (VAS) introduction e.g. SMS, MMS, M-
commerce
Boost to Telecom Manufacturing Companies
Huge employment opportunities
Key driver for growth of other sectors
Benefits of Competition
15. The Consumers Reduced Tariff & large
Range of IT services
Social Benefits Large Emp. Opportunities
The Companies Exponential Growth
The Telecom Sector Transformed
Other Sectors Boost to dependent sectors
The country Huge Development, Income &
Prosperity as a whole
who gained what
16. Key Regulatory Authorities
Telecom Commission : Policy making
DOT : Licensing
WPC : Spectrum allocation & management
TRAI : Regulator
TEC : Telecom Equipment Approval
Role of TRAI:
Provide a fair and transparent policy environment which facilitates fair
competition
To provide level playing field
Price Ceiling
In pursuance of above objective TRAI has issued from time to time a large
number of regulations
17. The young generation is attracted more and more towards cell
phones and this has become a trend. This assures a high growth in
the industry
Most of the service providers have covered majority of the urban
population
The untapped rural population further ensures growth in the
industry
Significant growth each year due to the impact of economic
reforms and pro-active policies of the government.
18. The share of private sector in total telephone connections is now
77% as against a meager 5% in 1999
It is also envisaged that internet and broad-band subscribers will
increase to 50 million and 25 million, respectively, by 2014
Investor-friendly FDI environment for the growth. At present, 74%
to 100% FDI is permitted for various telecom services
19. Degree of Concentration : The telecommunications industry is a vast
one with a large number of private players who are constantly
bringing down the cost to consumers thereby making services more
affordable and helping improve life in general and business in
particular
Ease of entry: Friction exists between existing players and the newer
entrants, as also between the providers of services based on different
technologies. The same is resolved through the regulator in order to
further improve the services
Although the industry requires huge capital investments and due to
high entry barrier the sector is monopolized by small number of
players
20. Industry capacity: Conservative estimates put a tag of a 3%
increase in the growth of GDP for every 1% rise in the tele-density
in the nation
Accordingly, the sector has received a great thrust from the
government for investments and development
21. The supply of spectrum by the Government is not meeting the
demand of the service providers
The supply for landline telephones are more but the demand for
landline telephones are getting reduced as a result extensive use of
mobile phones
There is a demand for hi-speed internet connection in different parts
of the country but those demands are not met by the service providers
in telecom industry and the supply of broadband connection by
service providers are not meeting the demand in market
22. The spectrum prices have increased considerably and as the result
the expansion requires huge capital investment.
Though the subscriber is increasing year on year, but due to heavy
competition the tariff rates are lowest in the world
The call rates dropped from INR 16.80 in 1995 to INR 0.30 in
2013
Operators have been announcing new promotional schemes
including reduction in tariffs for voice call, slashing roaming
charges and many more such lucrative offers.
23. Due to the fierce price war the profit margin and return of capital
has been declining over the years
Providers are trying to maintain the profit margins by “economics
of scale” and by providing “value added services”
Customers, due to competitive pricing have become “elastic” and
easily switch to the provider who provides the services at a lower
tariff
There is not much of brand loyalty as there is hardly any
differentiation in the services
25. Market dominated by few players
Barrier to entry of new firms
Barriers are economy of scale
High input cost
Govt imposed barriers – spectrum
Game theory
Linking of spectrum with subscriber base – incentive
were so great that firms acted in ways that resulted in
lower profit
Characteristics of Oligopoly
26. Oligopolistic Market Structure (Wireless)
Top 5 players have 77% of market share
– Market Oligopolistic in Nature
Each player takes into account other player’s activities –
Importance of Strategic Interdependence on certain parameters
like prices, promotional schemes, etc
Barriers to Entry - Investment and licensing impediments –
Sector exhibits characteristics of Oligopoly
27. Declining ARPU: Average revenue per user (ARPU) has been
falling year on year and most of the major players have been losing
between 10 to 20% in ARPU and going to decline further. This trend
is having negative impact on the bottom-line of all the players
The EPS for almost all telecom companies are going down and a
result share prices is in a declining path
The tariff war and the trend in declining revenue per user is not a
sustainable model going forward as bottom line growth is seems
muted in the coming years
Challenges faced by the Industry
30. The Indian mobile subscriber base is likely to sustain the growth
Presence of skilled labour pool, improving telecom infrastructure,
favourable demographics, rising disposable incomes of consumers,
declining tariffs, increasing demand, growing attraction for mobiles with
new features and greater availability of handsets at lower prices, are
expected to continue driving the growth of the telecom sector, going
forward.
However, the companies are likely to encounter a more challenging
business environment in the near future, given the sustained fall in ARPUs,
rapidly increasing competition and consequent pressure on margins and
regulatory risks
31. Companies with good rural coverage, better operational efficiency, and
superior quality of service are likely to stay ahead of competitors
The industry will also witness the mergers of relatively smaller companies
with the big players. Only big three or four players will dominate the
market and direct price war may stop and Industry will agree on a standard
pricing and competition will on the services and offerings