In todays information age, the telecommunication industry has a vital role to play.
It is considered as the backbone of industrial and economic development, the industry has been aiding delivery of voice and data services at rapidly increasing speeds, and thus, has been revolutionizing human communication. India is the fastest growing mobile phone market in the world. The booming telecom industry has been attracting large amount of investments in the country. Indian Telecom sector, like any other industrial sector in the country, has gone through many phases of growth and diversification. Starting from telegraphic and telephonic systems in the 19th century, the field of telephonic communication has now expanded to make use of advanced technologies like GSM, CDMA, and WLL to the great 3G Technology in mobile phones. Day by day, both the Public Players and the Private Players are putting in their resources and efforts to improve the telecommunication technology so as to give the maximum to their customers. Telecom industry in India has a big market potentiality and is a fast growing sector. Government of India is eager to reconstitute this telecom industry by enacting effective policies for more investments from foreign companies, which results in a very competitive and deregulated market in the world. Telecommunication sector in India is primarily subdivided into two segments, which are Fixed Service Provider (FSPs) and Cellular Services. Telecom industry in India constitutes some essential telecom services like telephone, radio, television and Internet. Telecom industry in India is specifically emphasizing on latest technologies like GSM( Global System for Mobile Communications), CDMA(Code Division Multiple Access), PMRTS(Public Mobile Radio Trunking Services), Fixed Line and WLL(Wireless Local Loop ). India has a prospering market specifically in GSM mobile service and the number of subscribers is growing very fast.
Economic perspective of telecom industry in India
Telecom industry in India has a major role in Indian economy. The Indian government is also enforcing some effective telecom policies and regulations for the infrastructural growth of this industry. A number of leading multinational telecommunication companies are approaching and showing their interest to invest for the telecom industry in India. Telecommunication industry of India ranked sixth among all the telecommunication sectors in the world.
Michael Porters Five Forces Analysis of Telecom Industry
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Evolution Of Telecom Industry
Michael Porters Five Forces Analysis of Telecom Industry
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Role in Indias Development
Employment The Indian telecommunication industry employs over 400,000 direct employees and about 85% of these employees are from government-owned companies. The ratio of number of subscribers to employees, an indication of efficiency and profitability, is much higher for private companies than for government companies. Foreign Direct Investment (FDI) Foreign direct investment has been one of the major contributors in the growth of the Indian economy, and therefore, the need for higher FDI is felt across sectors in the Indian economy. The telecom sector has played a crucial role in attracting FDI in India
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Factors Facilitating Growth of the Sector
The phenomenal growth in the Indian telecom industry was brought about by the wireless revolution that began in the nineties. Besides this, the following factors also aided the growth of the industry. Liberalization The relaxation of telecom regulations has played a major role in the development of the Indian telecom industry. The liberalisation policies of 1991 and the consequent influx of private players have led the industry on a high growth trajectory and have increased the level of competition. Increasing Affordability of Handsets The phenomenal growth in the Indian telecom industry was predominantly aided by the meteoric rise in wireless subscribers, which encouraged mobile handset manufacturers to enter the market and to cater to the growing demand. Further, the manufacturers introduced lowerpriced handsets with add-on facilities to cater to the increasing number of subscribers from different strata of the society. Prepaid Cards Bring in More Subscribers In the late nineties, India was introduced to prepaid cards, which was yet another milestone for the wireless sector. Prepaid cards lured more subscribers into the industry besides lowering the credit risk of service providers due to its upfront payment concept. Introduction of Calling Party Pays (CPP) The CPP regime was introduced in India in 2003 and under this regime, the calling party who initiated the call was to bear the entire cost of the call. This regime came to be applicable for mobile to mobile calls as well as fixed line to mobile calls. Changing Demographic Profile The changed profile is characterized by a large young population, a burgeoning middle class with growing disposable income, urbanisation, increasing literacy levels and higher adaptability to technology. These new features have multiplied the need to be connected always and to own a wireless phone and therefore, in present times mobiles are perceived as a utility rather than a luxury. Increased Competition & Declining Tariffs Liberalization of the telecom industry has fuelled intense competition, especially in the cellular segment. The ever-increasing competition has led to high growth of subscribers and has put pressure on tariffs, which have seen a sharp drop over the years.
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TELECOM ECOSYSTEM
Indian Telecom Industry Framework: The telecom framework in India consists of
Government bodies and Independent bodies.
Government Bodies: They formulate various policies & pass laws to regulate the Telecom
Industry in India.
Wireless Planning and coordination (WPC)
Handles spectrum allocation and management
Department of telecommunications
DoT- licence and frequency management for telecom
Telecom Commission
Exclusive policy making body of DoT
Group on Telecom & IT (GOT-IT)
Handles ad hoc issues of telecom industry
Independent Bodies: They undertake various research activities and monitor the quality of
services provided by telecom industry. TRAI i.e., Telecom Regulatory Authority of India and TDSAT i.e., Telecom Disputes Settlement and Appeallate Tribunal are the two independent bodies.Major services and market potentiality of Telecom industry in India
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Porter's Five Forces
A MODEL FOR INDUSTRY ANALYSIS
The model of pure competition implies that risk-adjusted rates of return should be constant across firms and industries. However, numerous economic studies have affirmed that different industries can sustain different levels of profitability; part of this difference is explained by industry structure. Michael Porter provided a framework that models an industry as being influenced by five forces. The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates. Diagram of Porter's 5 Forces SUPPLIER POWER
Supplier concentration Importance of volume to supplier Differentiation of inputs Impact of inputs on cost or differentiation Switching costs of firms in the industry Presence of substitute inputs Threat of forward integration Cost relative to total purchases in industry
THREAT OF NEW ENTRANTS
Barriers to Entry Absolute cost advantages Proprietary learning curve Access to inputs Government policy Economies of scale Capital requirements Brand identity Switching costs Access to distribution Expected retaliation Proprietary products
THREAT OF SUBSTITUTES
-Switching costs -Buyer inclination to substitute -Price-performance trade-off of substitutes
BUYER POWER
Bargaining leverage Buyer volume Buyer information Brand identity Price sensitivity Threat of backward integration Product differentiation Buyer concentration vs. industry Substitutes available Buyers' incentives
DEGREE OF RIVALRY -Exit barriers -Industry concentration -Fixed costs/Value added -Industry growth -Intermittent overcapacity -Product differences -Switching costs -Brand identity -Diversity of rivals -Corporate stakes
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Analysis of Telecom Industry using Porters five forces model
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Rivalry among competitors
The Indian Telecom industry is comprised of three types of players. The state owned companies, private companies and foreign invested companies. Main State owned companies are BSNL and MTNL. Major private Indian owned companies include Tata Teleservice, Tata Communications, Reliance communications. And finally, the major foreign invested companies in this sector are Vodafone, Idea cellular, Bharti Airtel Limited.
Leading telecommunication service providers of telecom industry in India
1. Bharti Airtel Bharti Airtel retained its leading position among telecom service providers. The company is structured into four strategic business units -- mobile, telemedia, enterprise and digital TV. 2.BSNL BSNL offers both fixed line and mobile services with broadband connections.With over 71.68 million subscribers, BSNL currently is the largest wireline service provider in India. All major towns and cities are covered through BSNL network. . 3. Vodafone Essar The company commenced operations in 1994 when its predecessor Hutchison Telecom acquired the cellular license for Mumbai. It is the world's leading international mobile communications group. 4. Reliance Communications
Reliance ADA Group's flagship company, Reliance Communications is India's largest private
sector information and communications company, with over 100 million subscribers. 5. Idea Cellular
Idea Cellular is part of the Aditya Birla Group and
is a leading GSM mobile services operator in India. Idea offers both prepaid and post paid services. It is a pan-India operator with services being made available in all parts of the country. Idea was the first cellular service provider to launch General Packet Radio Service (GPRS) and Enhanced Data rates for GSM Evolution (EDGE) in the country.
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6. Tata Communications The company holds leadership position in emerging markets. Tata Communications leverages its advanced solutions capabilities and domain expertise across its global and pan-India network to deliver managed solutions to multi-national enterprises, service providers and Indian consumers. 7. Tata Teleservices
Tata Teleservices spearheads the Tata Group's presence in the telecom sector. It is the first
company to launch CDMA mobile services in India. It launched mobile operations in January 2005 under the brand name Tata Indicom. It enjoys a pan-India presence through existing operations in all of India's 22 telecom circles. Tata Teleservices operates under five different brands -- Tata Indicom (CDMA services), Tata DOCOMO (GSM services), Virgin Mobile, Tata Walky (which is the brand for fixed wireless phones), Tata Photon (the company's brand that provides a variety of options for wireless mobile broadband access) and T24. 8. Aircel
Aircel
is a joint venture between Maxis Communications Berhad of Malaysia and Sindya Securities Investments Private Limited. It emerged a market leader in Assam and in the North Eastern provinces within 18 months of operations. 9. MTNL
Mahanagar Telephone Nigam Limited
has achieved a customer base of 8.06 million in the two metro cities of Delhi and Mumbai. The government currently holds 56.25 per cent stake in the company. Today it has more than 9,00,000 GSM mobile connections. 10. TTML
The third Tata group company Tata Teleservices Maharashtra Limited (TTML) leads the Tata
group's presence in the telephony sector in the telecom circles of Maharashtra and Goa, including Mumbai. TTML commenced landline operations in 1998 and has the largest wireline base in Mumbai and Maharashtra amongst all private operators.
Threat from competitors: The threat of internal and external rivalry is high in
this industry as it is a deregulated industry and there is high exit cost and barriers.
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Market Shares of Telecom Service Providers
Currently the Public Players have more than 75% of the market share.
Players Private Players Public players
Market Share 78% 22%
Market Shares
22%
Private Players Public Players
78%
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Market shares of Public and Private Players
Telecom service providers Bharti Airtel BSNL Vodafone Essar Reliance Communications Idea Cellular Tata Communications Tata Teleservices Aircel MTNL TTML TOTAL
Revenue (Rs in crores) 38000 30240 23200 22130 11390 11000 6900 4700 3650 2300 153510
Market Share (in %) 24.75 19.69 15.11 14.41 7.43 7.17 4.49 3.07 2.38 1.49 100
Market Share
30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 24.75% 19.69% 15.11% 14.41%
7.43%
7.17% 4.49% 3.07% 2.38% 1.49%
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Customers or Buyers bargaining power
The customer bargaining power is high due to lack of differentiation among service providers, cut throat competition, low switching costs and number portability.
The leading cellular service providers have the following number of subscribers:
Service Providers Reliance Tata Airtel MTNL BSNL Vodafone Idea TTML Tata Teleservices Aircel
No. of CDMA Subscribers 2.75 crores 1.07 crores
No. of GSM Subscribers 38.76 lakhs
3.37 crores 24.98 lakhs 2.44 crores 2.44 crores 1.3 crores 25.56 lakhs 10.62 lakhs 48 lakhs
Bharti Airtel has the largest customer base followed by Vodafone and BSNL
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Suppliers Bargaining power
The suppliers bargaining power is medium due to multiple equipment suppliers and scarce technical and management human resources.
Outsourcing deals
Network outsourcing and management
Vendors
ERICSSON NOKIA SIEMENS NETWORK IBM Bharti Infratel Indus Towers IBM Daksh Mphasis Hinduja TMT Aegis BPO Nortel
Information Technology Passive Infrastructure
Call center outsourcing
Threat of substitutes
Threat of substitute is high or rising due to efficient backbone technologies, lower switching costs, cheaper alternatives and packaged services.
Landline CDMA
DIMINISHING MARKET
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Video conferencing VOIP- Skype, Gtalk, Yahoo messenger E-mail and social networking websites
BROADBAND SERVICES
Threat of new entrants
The threat of new entrants is low due to high capital fixed cost and high operational cost and regulatory approval and high licensing cost.
IndustryAttractiveness
The telecom industry in India has experienced exponential growth over the past few years and has been an important contributor to economic growth; however, the cut-throat competition and intense tariff wars have had a negative impact on the revenue of players. Despite the challenges, the Indian telecom industry will thrive because of the immense potential in terms of new users. India is one of the most-attractive telecom markets because it is still one of the lowest penetrated markets. The government is keen on developing rural telecom infrastructure and is also set to roll out next generation or 3G services in the country in massive scale. Operators are on an expansion mode and are investing heavily on telecom infrastructure. Foreign telecom companies are acquiring considerable stakes in Indian companies. Burgeoning middle class and increasing spending power, the governments thrust on increasing rural telecom coverage, favorable investment climate and positive reforms will ensure that Indias high potential is indeed realized.
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