Telecom industry

The Indian telecommunications industry is one of the fastest growing in the world. According to the Telecom
Regulatory Authority of India (TRAI), the number of telephone subscriber base in the country reached 653.92 million
as on May 31, 2010, an increase of 2.49% from 638.05 million in April 2010.

With this the overall tele-density (telephones per 100 people) has touched 55.38. The wireless subscriber base has
increased to 617.53 million at the end of May 2010, registering a growth of 2.71%

Value-Added Services (VAS) Market

Mobile value added services (VAS) include text or SMS, menu-based services, downloading of music or ring tones,
mobile TV, videos and sophisticated m-commerce applications. As per an industry report, VAS that accounts for 10-
12 per cent of the telecom operator's revenue is expected to reach 20 per cent growth by 2013. The report further
predicted that after the introduction of 3G services in India, the segment may garner US$ 5.98 billion in turnover by
2013. Currently, the segment stands at US$ 2.07 billion.

Major Investments

The booming domestic telecom market has been attracting huge amounts of investment which is likely to accelerate
with the entry of new players and launch of new services. According to the Department of Industrial Policy and
Promotion (DIPP), the telecommunications sector which includes radio paging, mobile services and basic telephone
services attracted foreign direct investment (FDI) worth US$ 2,554 million during 2009-10. The cumulative flow of FDI
in the sector during April 2000 and March 2010 is US$ 8,930.61 million.

Further, the Indian telecom sector is expected to witness investment of around US$ 40 billion during the current
fiscal, as per the Telecom Equipment and Services Export Promotion Council. With the development of 3G,
expansion of the current networks and widening of Broadband Wireless Access (BSA) network, the investment in the
sector is likely to increase from the US$ 20 billion witnessed last year.

As per an industry report the telecom industry witnessed merger and acquisition (M&A) deals worth US$ 22.73 billion
during April-June 2010, which represented 67.19 per cent of the total valuation of the deals across all the sectors
during the period analysed. The sector had seen M&A deals of around US$ 439.4 million during April-June 2009. The
biggest M&A deal in the sector was made by Anil Ambani's Reliance Communication Ltd that merged GTL
infrastructure Ltd, its telecom tower business, for US$ 11 billion. Other major M&A deals included acquiring of Kuwait-
based Zain telecom's African business for US$ 10.7 billion by Bharti Airtel and acquisition of Infotel broadband for
US$ 1032.26 million by Reliance Industries.

Norway-based telecom operator Telenor has bought a further 7 per cent in Unitech Wireless for a little over US$
431.3 million. Telenor now has 67.25 per cent hold of the company. Telenor has now completed its four-stage stake
buy and has invested a total of US$ 1.32 billion in Unitech Wireless as agreed on with the latter last year.

The government has approved the foreign direct investment (FDI) proposal of the Federal Agency for State Property
Management of the Russian Federation to buy 20 per cent stake in telecom service provider Sistema-Shyam for US$
660.1 million.

Going Global

In March 2010, Bharti Airtel bought the African operations of Kuwait-based Zain Telecom for US$ 10.7 billion, driving
the Indian player into the league of top ten telecom players globally.

The Reserve Bank has liberalised the investment norms for Indian telecom companies by allowing them to invest in
international submarine cable consortia through the automatic route. In April 2010, RBI issued a notification stating
"As a measure of further liberalisation, it has now been decided... to allow Indian companies to participate in a
consortium with other international operators to construct and maintain submarine cable systems on co-ownership
basis under the automatic route." The notification further added, "Accordingly, banks may allow remittances by Indian
companies for overseas direct investment."
Manufacturing

The Indian telecom industry manufactures a vast range of telecom equipment using state-of-the-art technology.

According to the Economic Survey 2009-10, the production of telecom equipment in value terms has increased from
US$ 9 billion in 2007-08 to US$ 10.53 billion in 2008-09 and is expected to be US$ 12.4 billion in 2009-10.

Exports have increased from US$ 86.74 million in 2002-03 to US$ 23.7 billion in 2008-09, accounting for 21 per cent
of the equipment produced in the country.

Further, the Indian mobile companies also strengthened their market position with the launch of various handsets in
the country in 2009-10, as per the annual survey conducted by Voice & Data. As per the survey, the Indian mobile
phone brands registered a significant growth garnering nearly 14 per cent market share. Indian brand Micromax led
the pack with 4.1 per cent share, followed by karbonn with 3 per cent and Spice with 3.9 per cent. However, Nokia is
still the market leader with 52.2 per cent market share.

Telecommunication equipment major Nokia Siemens is planning to source components worth US$ 28.5 billion from
India in 2010-11. In 2009, the company sourced components worth US$ 20 billion from India.

According to a report by technology researcher Gartner Inc, India ranks fourth in manufacturing telecom equipment in
the Asia-Pacific (Apac) region. The country has a 5.7 per cent share of the region's total telecom equipment
production revenue of US$ 180 billion in 2009.

"We expect India to move up to the third spot (after China and South Korea) with a share of 8.5 per cent of the total
(estimated) Apac telecom equipment production revenue of US$ 277 billion by 2014," Gartner said. The firm
estimates India's telecom equipment production revenue to grow at a CAGR of 17.1 per cent to reach US$ 22.6
billion in fiscal 2014. India will be the fastest growing telecom equipment production market in the Apac region over
the next five years, it predicts.

Rural Telephony

According to the Economic Survey 2009-10, rural tele-density has increased from 1.2 per cent in March 2002 to 15.1
per cent in March 2009 and further to 21.2 per cent at the end of December 2009.

Rural telephone connections have gone up from 12.3 million in March 2004 to 123.5 million in March 2009 and further
to 174.6 million in December 2009. The share of private sector players in the total telephone connections has steadily
increased from around 14 per cent in 2005 to 31 per cent as on December 31, 2009. During 2008-09, the growth rate
of rural telephones was 61.5 per cent as against 36.7 per cent for urban telephones. The private sector has
contributed significantly to the growth of rural telephony by providing 81.5 per cent of the rural phones as on
December 31, 2009.

It is proposed to achieve rural tele-density of 25 per cent by means of 200 million rural connections by the end of the
Eleventh Five Year Plan.

The government plans to connect all revenue villages in India either through landline, mobile or WLL by February
2011. “We have already connected about 96 per cent of the revenue villages. The remaining 25,000 villages will have
connectivity by February 2011,” stated Mr Sachin Pilot, Minister of State for Communications and IT. The government
further proposes to provide broadband connectivity to all the panchayats in the country by 2012.

Policy Initiatives

The government has taken many proactive initiatives to facilitate the rapid growth of the Indian telecom industry.

In the area of telecom equipment manufacturing and provision of IT-enabled services, 100 per cent FDI is permitted

No cap on the number of access providers in any service area. In 2008, 122 new Unified Access Service (UAS)
licences were granted to 17 companies in 22 services areas of the country

Revised subscriber based criteria for allocation of Global System of Mobile Communication (GSM) and Code Division
Multiple Access (CDMA) spectra were issued in January 2008
To provide infrastructure support for mobile services a scheme has been launched to provide support for setting up
and managing 7,436 infrastructure sites spread over 500 districts in 27 states. As on December 31, 2009, about
6,956 towers had been set up under the scheme

According to the Consolidated Foreign Direct Investment (FDI) Policy document, the FDI limit in telecom services is
74 per cent subject to the following conditions:

The Road Ahead

According to a report published by Gartner Inc in June 2009, the total mobile services revenue in India is projected to
grow at a compound annual growth rate (CAGR) of 12.5 per cent from 2009-2013 to exceed US$ 30 billion. The India
mobile subscriber base is set to exceed 771 million connections by 2013, growing at a CAGR of 14.3 per cent in the
same period from 452 million in 2009. This growth is poised to continue through the forecast period, and India is
expected to remain the world's second largest wireless market after China in terms of mobile connections.

"The Indian mobile industry has now moved out of its hyper growth mode, but it will continue to grow at double-digit
rates for next three years as operators focus on rural parts of the country," said Madhusudan Gupta, senior research
analyst at Gartner. "Growth will also be triggered by increased adoption of value-added services, which are relevant
to both rural and urban markets."

Mobile market penetration is projected to increase from 38.7 per cent in 2009 to 63.5 per cent in 2013, according to
Gartner.

SWOT analysis of financial services in telecom – http://nceg.gov.in/Notes_Session_2.htm