The Indian telecom market is among the largest and fastest growing globally.
With over 900 million mobile subscribers, it has witnessed staggering and
relentless growth over the past decade. The Indian telecom market has
emerged as the third-largest sector in attracting Foreign Direct Investment
(FDI), accounting for more than 8 percent of cumulative FDI inflows from
2005-10. Not only is the market more dynamic, but it remains largely
untapped for services and applications beyond voice.The sector is faced with
challenges in terms of regulatory hurdles, spectrum allocation, and hyper
competition; leading to low Average Revenue per User (ARPU), lack of
infrastructure, and under penetrated rural areas. These challenges
notwithstanding, recent spate of developments have been quite revolutionary,
making the sector particularly attractive with the emergence of smartphones,
3G-enabled handsets, and introduction of next-generation networks.
KEY TRENDS
*The telecom regulatory environment, plagued with uncertainties, has
posed quite a challenge in India
* The recent 2G spectrum scam led to the Supreme Court cancelling 122
licenses in February 2012, which had a negative impact on concerned
players
* The Empowered Group of Ministers (EGoM) on the 2G auction decided
to opt for partial spectrum reframing, allowing operators to retain 2.5
MHz in the 900 MHz spectrum category. However, they will be required
to pay an auction-determined price for the same, which will be fixed in
2013
* The sector was hit hard by reduced sales, negligible telecom
infrastructure spending in network rollouts and increasing regulatory
uncertainties and scams
* Tower companies’ growth was affected by lower than expected take-off
of 3G and slow rollout of 3G/BWA networks. Telecom sector found it
difficult to raise any capital making operators spend bare minimum on
network expansion
2G auction at the end of 2012 could only accumulate revenues of USD
1.7 billion for the Government
* Sustained increase in the subscriber base has put immense pressure on
the existing telecom infrastructure
* On the positive side, the proposed implementation of dual Goods and
Service Tax will boost growth of the telecommunications industry
* Indigenous manufacturing drive by the Indian Government to source 65
percent of annual hardware and network-related equipment from Indian
companies by 2020
*Affordability of an average end user has also increased. Even though
pricing still continues to assume paramount importance, providing
high-quality services at a nominal price range is key to success in the
Indian market
* In India, 3G (HSPA) and 3.5G (EVDO/HSPA+) commercial services were
launched in 2010. 4G Long Term Evolution (4G LTE) was launched in
April 2012 by Bharti Airtel
* Consolidation picked up pace in the telecom tower market in the 2009-
2011 period, leading to lower tower valuations.
* Operators renting towers: Setting pace for tower companies to
outgrow one another to get a bigger share of the tenancy pie
* Mobile Number Portability (MNP) is expected to drive improvement in
network quality of operators. MNP will drive operators to install more
Base Transceiver Station (BTS) leading to a drop in number of
subscriber/BTS from current 1,400 to 1,000; creating further demand for
towers.
MARKET OUTLOOK
Strategic Outlook for 2013
* LTE rollout pan India by license holders
* Reliance set to launch ‘MiFi’ devices, which would allow smartphone and
tablet users to access high-speed internet on-the-go from existing
devices
* Government to put rest of the 2G spectrum up for auction
* Competition expected to bring down LTE tariff. Tikona has announced
tariff of as less as 2-5 paisa for 1 MB of data usage on LTE
* Data services to continue on growth trajectory. Data-hungry devices,
applications, and services will push for even higher data consumption
* Mobile gaming and mobile utility services like education, health,
agriculture, etc. should continue to evolve. Gaming has immense potential,
with social gaming on the rise
* Microsoft’s Win8 app store will boost sales of Windows smartphones
* Intra circle MNP to be launched in early 2013
* Mobile roaming charges to be abolished in 2013
Strategic Outlook for 2020 (Mega Trends)
* Social networking: Users to reach 550 Million in India in 2020
* Rising middle class: The middle-class population in India is expected to
reach 267.0 million by 2015-16, according to a report by the National
Council for Applied Economic Research (NCAER). As per the same
report, the population would rise to 547.0 million, with more than 110.0
million households by 2025-26. With an increase in population, there will
be increased spending and a rising demand for mobility and related
services.
* Rising disposable income and high-net-worth individuals (HNWIs): India
is expected to have over 1 Million HNWIs (wealth over $1M) and over
6,000 ultra-high-net-worth individuals (UHNWIs) (wealth over $50M) by
2020. The per capita income at current prices during 2011-12 is estimated
at $1,212, compared to $1,067 during 2010-11 (i.e. recording 14.3
percent growth) as per the Advanced Estimates of National Income
released by the Central Statistical Office (CSO). In future, per capita
income of India is expected to increase about 18 times by 2039, according
to the Emerging Markets Forum. High disposable income will result in
increased spending and a rising demand for consumer and mobility services
Connectivity and Convergence: Studies reveal there would be more than
80 Billion connected devices globally and more than 5 Billion in India by
2020; close to 1.5 Billion telecom subscribers in India by 2020 and more
than 600 million broadband subscribers. Frost & Sullivan expects that by
2017, the smartphones installed base will reach 361.3 million units and
the Tablet PC installed base will reach 23.39 million units
l Online Retail: Global online retail sales to account for 16.6 percent of
total retail sales by 2020, and up to 20 percent in countries like the US.
Globally, the total online retail sales market would get close to USD
2.5 trillion
* World Population in 2020: Out of the projected 2.56 Billion Gen Y
Population (between 15-34 years), around 61 percent will hail from Asia
alone. More than a third of the Gen Y population will belong to India and
China. This assumes significance for the fact that this age group will be
very proactive in driving the mobility space in the respective regions. This
age group will be tech savvy and will drive most of the data intensive
devices, applications and services off take
Segment-wise Market Forecast
* Broadband Equipment: The broadband equipment vendors’ revenue is
expected to increase at a compound annual growth rate (CAGR) of 15.7
percent, and to grow to $15.8 billion in 2018 from $5.7 billion in 2011.
Backhaul Telecom Infrastructure: Frost & Sullivan expects an all-IP net
work by 2020 in India. The backhaul equipment vendors’ revenue is
expected to increase at a CAGR of 12.6 percent, to rise to $5.02 billion
in 2018 from $2.19 billion in 2011.
3G/LTE: By 2018, 3G (HSPA/HSPA+) NodeB will contribute to over 70
percent of the radio frequency spending. Currently, the total number of
3G/LTE BTS in the country is around 42,350. This is expected to reach
727,750 by 2018 at a CAGR of 50.1 percent. 3G usage on handsets is
expected to lead mobile broadband growth in India.
* Broadband: Between 2011 and 2018, the broadband subscriber base in
India is expected to witness a 14-fold increase. Fixed broadband segment
is slated to contribute to only about 10 percent of the overall broadband
subscriber base in 2018. Fixed broadband (subscriber) CAGR is expected
to be 21.5 percent, while Mobile broadband (subscriber) CAGR is
expected to be 53.1 percent.
Mobile Value Added Services (MVAS): By 2018, data and utility mobile
applications will contribute almost 50 percent of overall operator
revenues in South Asia. Mobile commerce will remain major contributor
to overall utility services revenue (34 percent), followed by mobile
healthcare (29 percent), and mobile education (25 percent) by end of
2018. Overall mobile VAS segment will experience CAGR of 22.4 percent
during 2011-2018, expected to reach USD 11.2 billion mark. Utility
mobile applications and services will grow at CAGR close to 57 percent,
expected to reach USD 3.7 billion mark revenue. Mobile agriculture,
healthcare, commerce, gaming, as well as education will emerge as the
sectors of significance, with each getting close to the Billion dollar
revenue mark. As of 2011, utility applications contributed to about 4
percent of the overall operator revenue in the country. However, this is
expected to reach 33 percent by end of 2018.
Smart Devices: As of 2011, smartphone shipments in the country
reached 13.4 million units. This is expected to reach 102.7 million by
end of 2017. Also, India had over 0.3 million tablet PC users, which is
expected to reach 23.38 million by 2017. Average price of a smartphone
in 2011 was $274.9. Presence of several sub-$100 devices is aiding
growth of the smartphone segment.
Mobile Subscriptions: Gross mobile subscriptions will inch closer to the
1.5 billion mark by 2020. The average revenue per user (ARPU) will inch
closer to the USD 3.5 mark.
* Pay TV Market: The direct-to-home (DTH) market is on an
unprecedented growth trajectory and challenges notwithstanding, India
is set to become the largest DTH market in the world. The DTH
subscriber base in India is projected to increase at a CAGR of around
13.2 percent during 2011-2018, from 44 million in 2011 to more than a
100 million by 2018. Internet Protocol Television (IPTV) subscribers in
India are projected to increase at a CAGR of around 79.48 percent
during 2011-2018, from a subscriber base of 0.1 million in 2011 to 6
million by 2018. After complete digitization, pay TV will comprise mainly
digital cable and DTH, with very little scope for IPTV.
Impact of Government directives
* The 2G spectrum auction to be held early next year (2013) by the
Government is of significance, given failure of the recently concluded
auction wherein a part of vacated/cancelled spectrum was put on the
block
OVERALL STRATEGIC CONCLUSION
With increased and improved round-the-clock connectivity being essential
in today’s era, operators encounter unprecedented data traffic. Operators
need to ensure their networks are capable of handling market demand, with
mobile data traffic in the country expected to increase exponentially in near
future. Quality of service and service differentiation will be prime drivers in
sustaining market momentum. Partnerships with device manufactures and
content providers are essential, and new business models will need to be
explored and fine-tuned. Only then can the industry tap emerging
opportunities optimally.
