India still in growth mode

Shaker Ibne Amin, Frost & Sullivan
15 Mar 2011

Sweeping regulatory and policy reforms over the past decade have dramatically changed the nature of the telecom industry in India. Surpassing government projections, teledensity reached 66% last year and the market continues to be one of the fastest growing markets in the world.

The country's wireless subscription reached 752.2 million after adding 22.6 million new connections in December. While broadband subscription increased to 10.9 million in December from 10.71 million the previous month, total wireline subscribers dropped to 35.1 million from 35.19 million the previous month.

There is no doubt that most of the steps taken by country's telecom regulator have created an impressive momentum for the industry. But issues such as the recent 2G scam have tainted its image. The latest revelations suggest that 85 of the 122 licenses, which were given out by the Telecom Ministry in 2008, headed by then minister A Raja, were issued to companies that suppressed facts, disclosed incomplete information and submitted fictitious documents to the ministry.

A host of recent pro-competition policies, such as the changes to the 2G spectrum allocation criteria and reduction in interconnect user charges, has facilitated the entry of many new networks, both from green-field operators as well as from regional incumbents entering into new service areas. Moreover, the government's decision to allow MVNOs to offer mobile services is expected to increase competition and lower prices even further.

The country now has 15 operators, with some 9-10 competing for the same revenue pie in each telecom circle. Revenue growth in 2009 was just 12% compared to 22% during 2008.

Despite the pricing pressure, Frost & Sullivan expects revenue to grow at a CAGR of 11.3% from 2010 to 2015 and reach 42.77 billion by 2015. Revenues are expected to remain buoyant largely due to strong monthly additions and, to some extent, increasing revenues from value-added services.

In addition, operators are finding new ways to reduce the cost of operating mobile networks and serving customers. Outsourcing of construction as well as operation of networks, a model which has been pioneered by Bharti, has brought down operating costs significantly. Another key contributor to cost reduction has been infrastructure sharing. India's Department of Telecommunications now permits operators to share the active component of their tower networks.

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