Micro and Macro environment

factors affecting Indian Telecom

Industry

Submitted By:
Rajat Rana
A3221619010
B.COM LLB (H)
Semester-3
2019-2024
Introduction

India is the world's second-largest telecommunications market. The telecom

market can be split into three segments – wireless, wireline and internet
services.

The wireless market segment accounted for 98.25 per cent of the total
subscriber base as of January 2020. Rural subscribers comprised 43.69 per cent
of the total telephone subscribers as of January 2020.

India is also the second largest country in terms of internet subscribers. As of

2019, India holds the world’s highest data usage per smartphone, averaging 9.8
GB per month. It is expected to double to 18 GB by 2024.

The internet user base in India is likely to reach 627 million by end 2019. App
downloads in the country increased from 12.07 billion in 2017 to 19 billion in
2019 and is expected to reach 37.21 billion by 2022F.

Total wireless data usage in India grew 10.58 per cent y-o-y to 19,838,886 TB
(terabytes) during Q2FY20. The contribution of 3G and 4G data usage in total
volume of wireless data usage was about 5.72 per cent and 93.65 per cent,
respectively, during Q2FY20.

Share of 2G data usage remained 0.62 per cent during this quarter. India had
over 500 million active internet users (accessed Internet in the last one month)
as of May 2020.

Gross revenue of the telecom sector stood at Rs 121,527 crore (US$ 17.39
billion) in FY20 (till September 2019). Strong policy support from the
Government has been crucial to the sector’s development.

Foreign Direct Investment (FDI) cap in the telecom sector has been increased to
100 per cent from 74 per cent. FDI inflow in the telecom sector totalled US$
37.27 billion during April 2000-March 2020.  

The Government of India, through its National Digital Communications Policy,

foresee investment worth US$ 100 billion in the telecommunications sector by
2022.
Macro Environment factors

The macro environment is the environment in the economy itself. It has an

effect on how all business groups operate, perform, make decisions, and form
strategies simultaneously. It is quite dynamic, which means that a business has
to constantly track it s changes. It consists of external factors that the company
itself doesn’t control but is certainly affected by.

1. Political environment:

 Foreign Direct Investments (FDI): FDI has played a vital role in

shaping the telecom sector in telecom infrastructure and financial
expansion over the past years. FDI’s during the financial year 2018- 2019
was US$2.67 million. However, there was a fall in FDI inflow in 2019.
The reasons behind the fall in FDI is because of the reduction of the
number of telecom companies through mergers. Another reason was the
lack of certainty over telecom regulations and the absence of a conducive
environment to operate in.

 National Digital Communication Policy 2018: The Government of

India has introduced National Digital Communication Policy (NDCP) –
2018. It fulfils the communication and information needs of enterprises
and citizens. This policy establishes resilient, secure, ubiquitous and
affordable digital communications services and infrastructure. It
facilitates digitally empowered society and economy. The main goal of
the policy will be achieved by 2022. It will provide broadband for all,
create additional 4 million jobs in the Digital Communications Sector and
increase the contribution of digital communications sector by 8%,
towards Indian’s Gross Domestic Product

2. Economic environment:

 Goods and Service Tax: The Goods and Service Tax rate (GST) is 18%
for the telecom services. The rate varies based on the place in which
telecommunication services are offered. Integrated Goods and Service
Tax (IGST) is charged for inter-state supply. In case the location of the
supplier and the place of supply are in other states the CGST + SGST
charges will apply. The petroleum products are excluded from GST but it
is necessity for telecommunication sector. This sector has to maintain
round the clock continuous supply of services to the telecommunication
towers because towers run’s on diesel i.e. electricity, lithium cell batteries
 and DG sets. As a result, this has a huge cascading effect on the
telecommunications sector.

 Domestic and export share: TRAI had made some recommendations on

exports. The telecom body said that India has to transform its imports to
exports for the indigenous manufacturing of telecommunication
equipment. It has instructed that India should target in bringing down the
import of telecom equipment’s to the level of net-zero within 2022. To
promote this target of TRAI a collective fund of amount of 10 Billion
Dollars should be allocated to develop the Research and Development of
telecom products in our country. The primary reasons for decreasing
exports and increasing imports is continuous competition from China.
There was large scale production and low-cost export of telecom
equipment’s in China. On the other hand, in India imported telecom
equipment from Sweden, the United States, and Finland.

 Revenue Growth: Telecom industry is set to reverse previous two years

of declining trend with a 7% revenue growth in 2020. Fiscal owing has
expected that average revenue per user (ARPU) will increase by 11%.
Debt protection metrics will remain to improve even though debt metrics
will be weak. Sponsors support and deleveraging plans will give
continuous support for overall credit profile. Due to elevated Capex and
weak cash accruals, the telecom industry has been pushing into debt since
the last three years of fiscal 2019.

 Productivity Growth: The technological revolution has remained ahead

of the curve. The hyper-competition in the telecom industry has made a
great impact on the country. According to Reserve Bank of India data, the
productivity of telecommunication sector is high when comparing the
other sectors from the reforms since 1991. Its productivity is also growing
over 10% in the present. On the other hand, other sectors are not
achieving even 5% of productivity growth in the same. Telecom sector
has been taken up to 7% of growth from the last decade.

3. Social factors:

 Education: Telecommunications can promote access to education in

rural areas. It can help the student to access content directly. It also helps
teachers in developing knowledge and skills. Telecommunication can
also assist a lot to improve literacy for adults. Additionally, mobile phone
education has drastically changed the mindsets of students. They provide
education anytime anywhere throughout the year without time lag. By
 leveraging the increasing penetration of mobile value-added services and
mobile phones, significant progress can be produced towards attaining
100% literacy. According to KPMG report, the Indian digital education
sector is expected to expand from 1.6 million customers in 2016 to 9.6
million customers by 2021. India has 43 crore children at the age of 0 to
18 years. The rural-urban school enrolment ratio is 7:5, approximately
60% of students from rural areas, up to 10 years of age, absence
fundamental reading skills. Digital education has opportunities to expand
services to rural areas because more of the students are in rural areas
only.

 Health: Healthcare delivery is set to change its course in the future.

Telecom development and other associated techniques contribute
enhanced results of quality. In several instances, these interrelated
technological innovations also decreased the need for hospitalization. The
significant development is in the field of telemedicine. Telemedicine and
M- health application changed patient mindsets. Doctors are rare in rural
areas and their time is precious. By eliminating unnecessary journeys,
telemedicine can enable physicians to see more patients every day. The
networks established between 22 super speciality hospitals with the 78
remote rural hospitals in the country through geostationary satellites
proves the efficacy of the telemedicine.

4. Technological environment:

 Telecom industry is capital intensive. Therefore, the product cycle and

services must stay for long before the returns are felt. Licensed operators
and equipment manufacturers are under pressure because technology is
uncertain. The revenue of the firm will decline when technology changes.
Telecom sector needs constant upgrades in order to meet its technological
advancements. Telecom capital expenditure was considered to be non-
discretionary and this expenditure increases or decreases, depending on
the technological changes, which occur on a time-to-time basis and which
require an increase in the CAPEX (Capital expenditures) to be incurred
by the operator. Indian telecom sector needs more investment in basic
infrastructure to provide services in large scale and geographically
widespread population and to boost the present insufficient spectrum.

 The government has taken initial steps towards the development of India
such as Smart City Project, Make in India, Payment banks, and Digital
India. The 4G LITE services created a good platform for the exponential
growth of cloud, Internet of Things, Machine to Machine, big data and
analytics which led to huge development of voice, video, and data.
 Revolution is taken place in trends and technology. It has been accepted
across the world operators. Now slowly 5G is becoming a reality
worldwide and will evolve naturally from current 4G networks. The 5G
will constitute a turning point for communications in the future, bringing
instant high-power connectivity to devices. The telecommunications
industry is on the verge of technological revolution and digital
transformation in order to offer its consumers a wider range of services.
Consumers demand better service quality from service providers. The
solution to this problem is to embrace artificial intelligence and machine
learning.

5. Legal environment:

It involves changes in laws, court judgments etc. which might have an impact
on a business either negative or positive. Some examples of these are as
follows.

 AGR dues: The Supreme Court on its judgement granted 10 years to the

telecom companies to pay their AGR dues amounting to 1.43 lakh crore
to centre providing much relief to the telecoms which could have faced
the prospect of winding up its business especially vulnerable ones like
Vodaphone idea now VI. This change in legal environment will really
change the telecom sector as if the telecoms were force to pay the
lumpsum Vi wouldn’t have been able to survive hence leading to a
duopoly in the market where consumers might have suffered.

 Tax arbitration battle:

The issue goes back to 2007 when Vodafone bought a 67 percent

stake in Hutchison Essar for USD 11.1 billion. At the time, the Indian
tax authorities had termed the structure of the multi-billion dollar
transaction as a tax avoidance scheme and had slapped a demand of
Rs 20,000 crore, including a penalty. The issue saw litigation,
stretching all the way up to the Supreme Court. And in 2012, the
Supreme Court of India had quashed the tax demand, ruling on
Vodafone’s favour.

Soon after the SC verdict, the then Finance Minister Pranab

Mukherjee, moved an amendment bill in the Parliament, which
featured retrospective amendments going back to 1962. These
amendments, after vetting from the parliament, allowed the tax
 department to overturn the Supreme Court Judgment in Vodafone’s
favour and to again raise the Rs 20,000 crore tax bill.

In April 2014, Vodafone International Holdings initiated Arbitration

Proceedings under the India – Netherlands Bilateral Investment
Treaty.  It is under this treaty, that the Permanent Court of Arbitration
in Hague had conducted hearings between the two sides

The Arbitral Tribunal held that it has jurisdiction to consider

Vodafone’s claims on breach of the BIT between the two countries.
The Tribunal also held that given the facts of the case, Vodafone was
entitled to protection under the BIT’s norms of “fair and equitable”
treatment. Here, the Hague based Tribunal held the levy of
retrospective tax of Rs 20,000 crore by the Indian authorities was in
breach of the BIT.

This provided a much needed win for the already cash strapped telecom
and as a result of this victory public confidence in the telecom increased
as its stock surged 6% after the announcement.

6. Environment factors:

As a result of the rapid growth of the Indian telecom sector, TRAI estimates that
close to 70% of the 3,10,000 odd telecom towers are in rural areas. Collectively,
almost 40% of the power requirements of these towers is met through grid
electricity and remaining 60% through captive diesel generators. The total
annual diesel consumption by these towers works to almost 2 billion litres
resulting in 5.3 million litres of CO2 being produced. Alternatively for every
kWh of grid electricity consumed, 0.84 Kg of CO2 is emitted generating around
8 million tons per annum.

With increasing effects of climate change, changing public opinion on

environment pollution and increased scrutiny from the government and TRAI,
the telecoms are being forced to go green resulting in huge investments in green
infrastructure.

Airtel has launched a green shelter concept at 7000 odd sites to reduce energy
consumption. Primarily these green shelters use high insulation material and
passive cooling techniques like PCM, a thermal salt, for indoor Base
Transceiver Stations (BTS). Due to its high freezing points, PCM provides
cooling for 4 to 5 hours without any Air conditioning, thus negating any need of
Electrical power or diesel generator during that time .This not only saves cost
but also minimizes pollution. These green shelters also keep noise at a
minimum. 

Idea- currently has many sites running on biodiesel in India. The biodiesel for
these base stations comes from used cooking oils from restaurants.

BSNL- has taken up pilot projects for 10KW solar plants at 14 sites and Wind
power project at 6 USO funded sites in Rajasthan, Gujarat, Tamil Nadu,
Karnataka and Maharashtra.

These only represent initial steps – much more needs to be done given the new
recommendations from TRAI. The industry can ill-afford not to prioritize and
implement the interventions required to adhere to the recommendations as the
overall policy environment in India rapidly promotes the low carbon growth
path thus are forced to undertake these huge investments in a market where
margins are really low.

Micro Environment Factors:

The micro environment is the operating environment of the firm. The
functioning of the micro environment has a direct and immediate bearing on
the company. They are more interlinked with the company than macro
environmental factors.

1. Customers:
According to Peter. F. Drucker, “There is only one valid definition of business
purpose, that is to create a customer.” The business enterprises aim to earn
profit through serving the customer demand. It now thinks more in terms of
profitable sale rather than more sales volume for its sake. Today marketing of a
firm begins and also ends with the customers. 
Now a days, a business firm to be successful, must find customers for its
products. This is the reason the customers thus constitute the most important
element in the micro environment of business. Products sales depend mainly on
the degree of consumer satisfaction. 
In fact, this is a reason that gives more importance to customer satisfaction
surveys. Now every business firm set-up systems to regularly watch customer
attitude and customer satisfaction, because today it is universally accepted that
the satisfaction of customers is the base for company’s success. Normally the
customers are not in a same group, they are individuals, business enterprises,
institutions and government.
4 Ways Telecommunications Operators Ensure Customer Satisfaction

(a) Anticipating Customer Needs and Preparing Operations to Meet Them

How do you anticipate customer needs? A telecommunications provider can

engage and interact with customers as well as interpret their usage patterns to
know customer needs and meet them. As you meet customer needs, it is
essential to offer customers plans that benefit them, not only the ones that have
the most Average Revenue per User (ARPU). Meeting customer needs will
build customer loyalty and increase satisfaction with your brand.

(b) Handling Issues Before Customers Detect Them

In a bid to offer a good customer experience, the telco adopted a monitoring

technology that shrank the response time to 30 minutes. Also, it developed a
practice of letting customers know when a network outage is unavoidable and
assuring them that technicians are working to resolve the issue. This approach
of addressing issues before customers detect them had positive outcomes for the
telecommunications company. It decreased complaints by 34% and churn rate
by 1.5%. Intraway’s QX smart probes can help you solve network issues before
customer spot them.

(c) Provide Omnichannel Support

For example, a customer might contact technical support through chat to report
a problem with his subscription. Later, the customer may want to talk to an
agent without having to repeat everything they have said in the chat. This
requires excellent omnichannel functionality whereby you can continue
conversations and transactions across devices while maintaining effective and
unbroken communication. Customers also want 24/7 support. They want to live
with the assurance that they can get help whenever they need it.

(d) Harness Customer Data

For example, a company can analyse the consumption data of clients to

determine customers that are high-maintenance, price-sensitive, and those who
upgrade frequently. With such data, the organization can identify opportunities
for upselling and cross-selling and offer discounts and incentives.

2. Competitors:
The competitive environment consists of certain basic things which every firm
has to take note of. No company, howsoever large it may be, enjoys monopoly.
In the original business world a company encounters various forms of
competition. The most common competition which a company’s product now
faces is from differentiated products of other companies.

Present Scenario of Telecom Sector in India:

After a series of disruptions, mergers and a number of telecom players exiting
the market, India now has 3 major players in the telecom sector.

Vodafone Idea, Bharti Airtel and Reliance JIO. Once the sector had more
than 10 players is now operating with just 3 players. In fact, Vodafone
has expressed its concerns about repaying the debts and clearly
announced that after paying the outstanding amount against Vodafone,
it might not be able to operate and might exit the Indian market.
Vodafone, Idea and Bharti Airtel once reported recording-breaking
userbase has now shrunk like a crushed paper ball and it seems
impossible for them to compete against Reliance JIO.

Rise of Duopoly in Telecom Sector in India:

After Vodafone being vulnerable, the risk of a duopoly in the sector is really
high. In all, as many as 15 entities owe the government INR 1.47 lakh crores in
unpaid license fee and another INR 55,054 crore in outstanding spectrum
usage charges.

3. Public:

Literally the word ‘public’ refers to people in general. According to Philip

Kotler, “A public is any group that has an actual or potential interest in or
impact on a company’s ability to achieve its objectives.” The environmentalists,
consumer protection groups, media persons and local people are some of the
well-known examples of publics. 

The company has a duty to satisfy the people at large along with competitors
and the consumers. It is an exercise which has a larger impact on the well-being
of the company for tomorrow s stay and growth. Create goodwill among public,
help to get a favourable response for a company. Kotler in this regard has
viewed that. 

With coming of jio into the market the price of data have fallen by 90% and jio
offering 1 year of service for free to to its early consumers made it one of the
most popular telecom among the public in the market replacing the established
brand airtel. The public opinion and brand loyalty towards jio is really high.
4. Suppliers:

Regarding the suppliers, the organisation can think of availing the required
material or labour according to its manufacturing programme. It can adopt such
a purchase policy which gives bargaining power to the organisation. 

According to Michael Porter, “the relationship between suppliers and the firm
epitomises a power equation between them. This equation is based on the
industry conditions and the extent to which each of them is dependent on the
other.”
Majority of the telecom technology is imported from china but with the recent
tensions with china the government is scrutinising industries importing products
and equipment’s from china. As a result the existing deal for supplying 5g
equipment’s from Chinese firms hangs in the balance and supply of these
equipment’s for 5g revolution in India looks uncertain.