Indian Telecom Sector

9 September 2016

A Decadal Profile Telecom Regulatory Authority of India Mahanagar Doorsanchar Bhawan, Jawaharlal Nehru Marg, (Old Minto Road), New Delhi – 110 002 Telecom Regulatory Authority of India Telecom Sector in India: A Decadal Profile Mahanagar Doorsanchar Bhawan, Jawaharlal Nehru Marg, (Old Minto Road), New Delhi – 110 002 Telecom Regulatory Authority of India Telecom Regulatory Authority of India, 2012 All rights reserved, no part of this publication may be in any form or by any means, electronic, mechanical, prior written permission of the Telecom Regulatory Authority of India, New Delhi. Prepared at the behest of by reproduced, stored in a retrieval system, or transmitted, photocopying, recording and/or otherwise, without the Telecom Regulatory Authority of India

National Council of Applied Economic Research, Parisila Bhawan, 11, Indraprastha Estate, New Delhi–110 002 i | Telecom Sector in India: A Decadal Profile Telecom Sector in India: A Decadal Profile | iii iv | Telecom Sector in India: A Decadal Profile CONTeNTS List of Tables List of Boxes Foreword List of Figures Executive Summary vii iii ix xi 1 x 3.

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5 Spectrum Management 3. 7 Regulatory Timeline 3. 6 Recommendations made by TRAI 53 55 55 59 4 Investment 4. 2 Total Investment 4. 4 Conclusion 4. 1 Introduction 1 Introduction 59 59 62 69 1. 2 Brief Overview of the Telecommunications Sector 1 1. 3 Importance of the Telecommunications Sector 3 . 1 Backdrop 1 4. 3 Foreign Direct Investment (FDI) 5 Socioeconomic Impact 5. 1 Introduction 5. 2 Macro Impact 2 Trends in the Telecommunications Sector 2. 1 Introduction 2. 2 International Comparisons 2. 4 Regional Variations 2. 6 Conclusion 71 71 71 74 75 80 86 96 97 5 5 5 5. 3 ICT and Economic Development 5. 5 Individual Sections of Society 5. 6 Applications of Technology 5. 7 Conclusion 2. 3 Growth of Telecommunication Services in India 9 2. 5 Trends in Telecommunication Manufacturing 39 46 48 49 5. 4.

Micro Studies on the Impact of ICT 6 Conclusions 6. 2 Challenges and Suggested Policies 6. 3 Other Challenges Appendix 6. 1 Introduction 3 evolution of Telecom Regulation 3. 2 New Telecom Policy (NTP), 1999 3. 3 Institutional Framework for Telecom Policy 3. 4 Licensing Framework Regulation in India 3. 1 National Telecom Policy (NTP), 1994 49 50 50 52 97 97 99 101 105 Abbreviations vi | Telecom Sector in India: A Decadal Profile LIST Of TABLeS 1. 1 2. 1 2. 2 2. 3 2. 4 2. 5 2. 6 2. 7 2. 8 2. 9 2. 10 2. 11 2. 12

Snapshot of the Telecommunications Sector Estimates of Share of Expenditure on Mobile Phones PCO and VPT, March 2000–December 2011 (million) Number of Subscribers for Other Value Added Services, March 2000– December 2011 (million) Market Share of Leading ISPs in Terms of Subscribers, December 2011 Sector-wise EBITDA, PBIT, PBT (Rs crore) Sector-wise Profitability Ratios (%) Quality of Service Performance of Wireless Service Providers, December 2011 Quality of Service Performance of Wireline Service Providers, December 2011 Parameter-wise Status of QoS Benchmarks for Broadband Service, December 2011 Service Area-wise Teledensity, December 2011 Mobile Ownership by Households 1 14 21 21 24 29 29 2. 13 2. 14 2. 15 2. 16 2. 17 3. 1 4. 1 4. 2 4. 3 5. 1 5. 2 5. 3 5. 4 5. 5 5. 6 5. 7 State-wise Broadband Subscribers as on March 31, 2011 e-Readiness Index Universal Service Obligation Fund Position (Rs crore) Telecom Equipment Manufacturing in India (Rs crore) Revenue of Top 10 Telecom Equipment Players (Rs crore) Regulatory Reforms 43 43 46 47 48 56

Total Plan Outlay and Outlay for Communications in Five Year Plans (Rs crore) 59 Foreign Direct Investment Policy FDI in Telecommunications Sector: April 2000–August 2010 Summary of ICT4D Phases Mobile Information Services for Farmers Status of Women Increased Use of Mobile Devices (%) Bandwidth Required for Various Applications Super Specialty Consultations Some Applications with Mobile Governance 63 66 74 77 83 86 87 90 91 Composition of Revenue, December 2011 (%) 30 33 35 37 40 41 Telecom Sector in India: A Decadal Profile | vii viii | Telecom Sector in India: A Decadal Profile LIST Of fIguReS 1. 1 2. 1 2. 2 2. 3 2. 4 2. 5 2. 6 2. 7 2. 8 2. 9 2. 10 2. 11 2. 12 2. 13 2. 14

Share of Telecommunications as per cent of GDP, 2000–01 to 2009–10 India’s Position in Telephone Subscriptions India’s Position in Mobile Cellular Prepaid Tariffs (US$ per month), 2008 Internet Users in India and in the World, 2010 India’s Position in Fixed Internet Subscriptions in the World, 2010 Total Number of Telephone Subscribers in India, 1981–2011 (million) Total Number of Wireline Subscribers and Growth Rate in India, 1981–2011 Total Number of Wireless Subscribers and Growth Rate in India, 1996–2011 Teledensity, March 2000–February 2012 Mobile Phone Prices in India Internet Subscriptions and Growth Rate, March 2000–December 2011 Wireless Subscribers Capable of Accessing Data Services/Internet March 2007– December 2011 2 6 7 8 9 10 11 11 14 16 16 17 2. 15A Share of Service Provider in Wireline Subscriptions, 2001 (%) 2. 15B Share of Service Provider in Wireline Subscriptions, December 2011 (%) 2. 16 2. 17 2. 18 2. 9 Share of Service Provider in Wireless Subscriptions, February 2012 (%) Share of Service Provider in Wireless Subscriptions based on GSM, December 2011 (%) Share of Service Provider in Wireless Subscriptions based on CDMA, December 2011 (%) Service Provider-wise Details of Data Services, December 2011 (%) 22 22 23 23 23 24 24 24 25 25 26 28 28 30 2. 20A Service Provider-wise Shares in PCO, December 2011 2. 20B Service Provider-wise Shares in VPT, December 2011 2. 21 2. 22 2. 23 Market Share of PMRTS Providers (%) Market Share of VSAT Service Providers (%) Average Outgo* per Outgoing per Minute (Rs per minute) for Postpaid, Prepaid and Blended (GSM and CDMA), 2007–11

Market Share of Internet Access Technologies including Broadband, December 2011 17 Broadband Access, Technologies and Market Share, December 2011 Public–Private Wireline Subscriptions, March 2000–December 2011 (million) 18 22 2. 24A Telecom Sector Revenue, 2005–06 to 2010–11 (Rs crore) 2. 24B Telecom Sector Revenue, 2005–06 and 2010–11 (Rs crore) 2. 25 ARPU and MoU for Wireless Subscribers, 2000–01 to 2010–11 Telecom Sector in India: A Decadal Profile | ix 2. 26 2. 27 2. 28 2. 29 2. 30 2. 31 4. 1 4. 2 4. 3 4. 4 Revenue of Internet Service Providers, June 2008–December 2011 Minutes of Usage per Subscriber per Month of Dial-Up Access, 2005–06 to 2010–11 31 31 4. 5 4. 6 4. 7 4. 8 FDI in Telecommunications (Rs crore) and Wireless Subscribers (million), 2000–01 to 2011–12 FDI in Telecommunications (Rs crore) and ARPU Rs per minute (GSM), 2000–01 to 2011–12 67 68

Total Duration of Usage for Internet Telephony, 2004–05 to 2010–11 (million minutes) 32 Quality of Services for Wireless, 2003–10 Average of Percentage of Calls Answered by the Wireline Operators (Voice-to-Voice) within 60 Seconds across States, 2006–10 Percentage of Village Panchayats having Broadband, March 2011 Public and Private Sector Live Projects, 2001–11 (Rs crore) 33 35 42 62 FDI and Gross Revenue in Telecommunications Sector (Rs crore), 2000–01 to 2010–11 68 FDI Inflow, Exports and Imports in Telecommunications Sector (Rs crore), 2000–01 to 2010–11 Relationship between Economic Growth and Telecom Services: 2008 Total Teledensity ( June 30, 2010) and Share of GSDP as a percentage of Indian GDP (2008–09) Factors Influencing Tele-health Utilisation in Developing Countries Diagrammatic Representation of the Process of Transfer of Funds 69 71 73 89 94 5. 1 5. 2 5. 3 5. FDI in Telecom Sector (Rs crore) and Growth Rate of FDI in Telecom, 2000–01 to 2011–12 64 Share of FDI in Telecom Sector as Percentage 65 of Total FDI, 2000–01 to 2011–12 Sector-wise FDI Inflows: April 2000– August 2010 65 LIST Of BOxeS 2. 1 2. 2 2. 3 2. 4 2. 5 2. 6 4. 1 The Budget Telecom Network Model Global System for Mobile Communication (GSM) Code Division Multiple Access (CDMA) Broadband Technologies Competition in the Telecommunications Sector USOF Schemes Currently Undertaken Capital Employed, Return on Capital Employed and Capital Investment (Gross Block) in the Telecom Services Sector 7 12 13 18 27 45 60 4. 2 5. 1 5. 2 5. 3 5. 4 5. The Impact of the Crisis on Foreign Direct Investment in Telecommunications Rural Initiatives in ICT Impact of Information Technology Helps Deliver a Big Catch: Taking a Chance on New Information 64 76 78 79 BPO Opportunities for Rural Women in India: The Case of Source for Change 81 Improvement in Productivity due to Mobile Phone: Case Study of a Woman 82 x | Telecom Sector in India: A Decadal Profile exeCuTIve SuMMARy he report presents the evolution of the telecommunications sector in India in the last decade. The telecommunications sector plays an increasingly important role in the Indian economy. It contributes to Gross Domestic Product (GDP), generates revenue for the government and creates employment.

From 2001 to 2011, the total number of telephone subscribers has grown at a Compound Annual Growth Rate (CAGR) of 35 per cent. The comparable rates in the 1980s and 1990s were 9 per cent and 22 per cent, respectively. However, the composition of the subscribers shows that mobile subscribers have led the way. The increase in teledensity has mainly been driven by the increase in mobile phones. Demand side factors—ultra low cost of handsets, low tariffs and ultimately the ease of using a phone—as well as supply side factors have made mobiles popular in India. The number of Internet subscribers has increased but the number of data subscribers far exceeds the former.

The Digital Subscriber Line (DSL) is the most favoured technology to access the Internet through the personal computer (PC). Other services like Village Public Telephones (VPTs), Public Call Offices (PCOs), Public Mobile Radio Trunk Service (PMRTS) and Very Small Aperture Terminal Services (VSAT) show slower growth. The data show that private providers dominate the four services including wireless subscriptions, data services, T PMRTS and VSAT, while public service providers dominate the other sectors. International comparisons show that India has one of the lowest mobile tariffs in the world. Between 2007 and 2010, prepaid and blended rates show a decline of 25. and 21. 5 per cent, respectively. In contrast, postpaid tariffs show a decline of only 8. 23 per cent. The majority of the subscriptions in India are of the prepaid type. This has been termed as the budget telecom network model, an innovation that took birth in South Asia. Usage statistics also show that Indians talk more on the phone than their international counterparts. The revenue statistics show that service providers are earning 50 per cent of their revenue from calls and 8. 3 per cent from Short Message Service (SMS). Ringtones form the dominant category of value-added services (VAS). The size of the VAS market is also growing over time.

Teledensity shows wide regional variations across states. There is widespread variation in broadband availability across regions too. However, the states are making efforts to improve their ICT abilities over time. The roles of three main agencies in the telecommunications sector—DoT (Department of Telecommunications), TRAI (Telecom Regulatory Authority of India) and TDSAT (Telecommunications Dispute Settlement and Appellate Tribunal)—are an important aspect of the policy making and regulatory processes. Telecom Sector in India: A Decadal Profile | xi The Indian telecom sector has undergone major transformations through significant policy reforms.

The regulatory reforms in the telecom sector from 2000 to 2011 can be broadly classified into the following three distinct phases. Phase 1 – 2000–2003: Telecom sectors were opened up to competition. Phase 2 – 2004–2007: Regulator encouraged competition and also set the stage for future growth. Phase 3 – 2008–2011: More choices were brought in for consumers in terms of technology and services. Planned investment outlay in the telecommunications sector has increased over time. Majority of the investment over the decade has come from the private sector. The private sector performs better in terms of return on average capital employed. The telecom sector has received on average 8. per cent of total inward FDI between 2000–01 and 2010–11. Most of the Foreign Direct Investment (FDI) has gone to the cellular mobile segment. Mobile telephony and economic growth positively reinforce each other. The micro studies on the impact of mobile phones are more telling. Fisheries, as an industry, has hugely benefited from introduction of mobile phones. The impact of mobile phones on agricultural productivity and revenue varies on the type of service, literacy status of farmers and the type of complementary infrastructure available. However, middle men and traders in both fisheries and farming are dependent on the mobile to monitor their business needs.

Small and medium enterprises are also realizing the benefits of mobile telephony either through increases in productivity or finding new business ventures through the use of mobile phones. Several studies have also examined the impact of mobiles on individual sections of society. Mobiles are now being seen as an empowerment tool since research has shown that mobiles have a positive impact on the social status of women in India. Studies indicate that mobile phones make women feel more secure. The urban poor also show evidence of economical benefits from using mobiles. Mobiles also affect people interaction by increasing their tele-interaction with each other.

Mobiles are now being used to deliver services like health, education, banking, commercial services, and so on. The three major challenges of the next decade are (i) to overcome the digital divide, (ii) growth of broadband sector, and (iii) development of the telecommunications manufacturing sector. xii | Telecom Sector in India: A Decadal Profile 1 INTRODuCTION 1. 1 BACkDROP The ubiquitous sight of a shop offering to re-charge your mobile phone is symbolic of the telecom revolution that has changed the face of India in the first decade of the twenty-first century with significant social and economic impact. The total number of telephone subscribers in India stood at 943. 49 million in February 2012 as against 28. 53 million in April 2000. The purpose of this report is to review the extraordinary journey of the Indian telecom sector in the 2000s. The report presents the growth story in telecom sector in India in terms of significant policy changes and regulatory initiatives and consequent socioeconomic impacts. Table 1. 1 : Snapshot of the Telecommunications Sector variable Teledensity† Urban teledensity† Rural teledensity† Total number of subscribers Total number of wireless subscribers Total number of wireline phones Number of Internet subscribers Number of broadband subscribers Number of wireless data subscribers Production of telecom equipment# Total exports of telecom items# Total imports of telecom items # India’s export of telecom consultancy# Date

February 2012 February 2012 February 2012 February 2012 February 2012 February 2012 December 2011 February 2012 February 2012 2010–11 Status 78. 10 169. 37 38. 53 943. 49 million 911. 17 million 32. 33 million 22. 39 million 13. 54 million 431. 37 million Rs 535 billion* (Rs 510 billion in 2009–10) Rs140 billion* (Rs 135 billion in 2009–10) Rs 450. 3 billion Rs 12. 7 million up to September 2010 (Rs 72. 70 million in 2009–10) Rs 75. 46 billion Rs 1,717 billion 1. 2 BRIef OveRvIew Of The TeLeCOMMuNICATIONS SeCTOR The subscriber base for telecom services in India is large but skewed in favour of urban areas. Urban teledensity is 4. 4 times that of rural density (Table 1. 1).

Further, wireless phones dominate the market in India and wireline phone segment constitutes merely 3. 4 per cent of the total subscriber base. The numbers of Internet and broadband subscribers are a very small fraction of the population. However, the number of people capable of accessing the net through mobile phones is substantially higher, if wireless data subscription through mobile is an indication. 2010–11 2009–10 2010–11 FDI in telecom‡ Gross revenue of telecom services sector 2010–11 2010–11 1 Telecom Regulatory Authority of India. Source: Telecom Regulatory Authority of India. † Number of telephone subscribers per 100 people. * Projected. Annual Report 2010–11, Department of Telecommunications, Ministry of Communications and Information Technology, Government of India (2011), www. dot. gov. in ‡ Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India (http://dipp. nic. in/). Telecom Sector in India: A Decadal Profile | 1 The share of revenue from telecom services is higher than manufacturing/production of telecom equipment. About a quarter of the domestic telecom production is exported and the needs of telecom equipment in India are largely met by imports. Most of the Foreign Direct Investment (FDI) has gone to the cellular mobile segment.

The pace of growth of the telecom sector, particularly the telecom services has increased its significance to the overall economy in the past two decades. The share of telecommunication services (excluding postal and miscellaneous services), as per cent of the total GDP, has increased from 0. 96 in 2000–01 to 3. 78 in 2009–10 (Figure 1. 1). The importance of telecommunications sector for the Indian economy can be judged by its contribution to GDP, tax revenue, and jobs. Studies have suggested that mobile phones have a positive impact on GDP. 2 The potential impact of wireless broadband is also estimated to be highly positive. 3 Further, the industry generates tax revenues for the government. The 3G spectrum auction combined with the bid values for broadband wireless access licenses yielded more than Rs 100,000 crore in 2010 to the Government of India, amounting to approximately 1 per cent of the GDP. 5 Employment data shows that the share of employment in the transport, storage and communication sectors went up from 3. 7 per cent in 1999–2000 to 3. 8 per cent in 2004–05. Figure 1. 1 : Share of Telecommunications as per cent of GDP, 2000–01 to 2009–10 Share of telecommunications (excluding postal and telecommunication services) as a per cent of GDP (%) 4. 00 3. 50 3. 00 2. 50 2. 00 1. 50 1. 00 0. 50 0. 00 01 0– 00 2 02 1– 00 2 03 2– 00 2 04 3– 00 2 05 4– 00 2 Year 06 5– 00 2 07 6– 00 2 08 7– 00 2 09 8– 00 2 10 9– 00 2 Sources: National Accounts Statistics of India (2009) and various issues (NAS); EPW Research Foundation, Mumbai.

Note: The telecommunications sector of Gross Domestic Product (GDP) is sum of the GDP of the phones of the public sector and private sector. Intermediate consumption in the overall public telecommunications sector has not been subtracted out but they form a relatively small proportion of the sector. 2 3 4 5 McKinsey and Company (2006), Wireless Unbound: The Surprising Economic Value and Untapped Potential of the Mobile Phone, http://ww1. mckinsey. com; and Vodafone (2009), India: The Impact of Mobile Phones, Vodafone Policy Paper Series No. 9, http://www. vodafone. com Analysys Mason (2010), Assessment of Economic Impact of Wireless Broadband in India, Report for GSMA.

COAI and OVUM (2005), OVUM Report on Economic Benefits of Mobile Services in India: A Case Study for the GSM Association, http://www. coai. com/; and Bhide, S. (2010), The 3G Auction: What will we do with the extra money? Macrotrack, National Council of Applied Economic Research, 12(5). Bhide, S. (2010), The 3G Auction: What will we do with the extra money? Macrotrack, National Council of Applied Economic Research, 12(5). 2 | Telecom Sector in India: A Decadal Profile The employment in BPO (Business Process Outsourcing) shows high rates of growth throughout the 2000s. 6 The mobile telephone industry generated 3. 6 million jobs both directly and indirectly. 7 In 2008–09 2. million people were directly employed in the IT–BPO industry with 1. 9 million in Tier 1 cities and 0. 17 million in Tier 2/3 cities. 8 During the same period the IT–BPO industry employed 7. 3 million people indirectly in Tier 1 cities. Mobile phones are popular due to their personal, portable, and digital nature, enabling people to be always connected. There are increasing innovations, especially development of mobile applications. The low cost of handsets in India and the innovative budget telecom network have lowered the barrier to entry of consumers to the market. 9 On the supply side, mobile connections are relatively cheaper than fixed line telephony. 0 The telecommunications sector plays an increasingly important role in the Indian economy. It contributes to economic growth and the GDP and generates revenue for the government and generates jobs. In short, telecom sector has a multiplier impact on the economy. We have come a long way. However, certain challenges such as encouraging telecom manufacturing in India, spreading teledensity, and Internet services across India to bridge the digital divide are still to be fully met. 1. 3 IMPORTANCe Of The TeLeCOMMuNICATIONS SeCTOR The interplay of three factors—regulation, liberalisation, and technology—makes this sector an interesting study. There are continuous technological changes and evolving regulatory climate. While Indian elecommunication companies, increasingly buoyant and confident, have started venturing outside the country and investing abroad, the telecom manufacturing in India is still to attract investment on a sustained basis. 6 7 8 9 10 Planning Commission, Government of India (2008), Report of the High Level Group on the Services Sector, www. planningcommission. nic. in, accessed August 11, 2010. COAI and OVUM (2005), OVUM Report on Economic Benefits of Mobile Services in India: A Case Study for the GSM Association, http://www. coai. com NASSCOM (National Association of Software and Service Companies) (2010), Impact of IT-BPO Industry in India: A Decade in Review, www. nasscom. in Figure 2. shows that most of the mobile phone models available in the market fall within the range of Rs 1,000–4,000, with the models in other price ranges being substantially smaller. With increasing prices, the number of models available in each range is falling. Bhavnani, A. , Chiu, R. W. , Janakiram, S. and Silarzsky, P. (2008), The Role of Mobile Phones in Sustainable Rural Poverty Reduction, ICT Policy Division, World Bank, www. worldbank. org Telecom Sector in India: A Decadal Profile | 3 4 | Telecom Sector in India: A Decadal Profile 2 TReNDS IN The TeLeCOMMuNICATIONS SeCTOR 2. 1 INTRODuCTION The last decade, especially since 2003, has seen tremendous growth and dynamism in the Indian telecommunications sector.

A phone has been transformed from a “luxury” good to a “necessity” connecting millions of people. Earlier India was primarily concerned with increasing teledensity, i. e. telephones. Now, the idea of phones has itself changed from fixed line/wireline phones to mobile/wirless phones connecting people everywhere and anywhere (except perhaps the rural areas where unfortunately majority of Indians reside). The concept of connectivity itself has changed. The term telecommunications now includes many other services namely Internet services, radio paging services, Very Small Aperture Terminals (VSATs), Public Mobile Radio Trunk Service (PMRTS) and global mobile personal communication by satellite (GMPCS).

Of all the above mentioned segments, wireless and Internet have registered the highest growth in the last few years. The number of total telephone subscribers in India increased from 28. 53 million in March 2000 to 943. 49 million in February 2012. 11 Wireless subscriptions increased from 1. 88 million in March 2000 to 911. 57 million in February 2012 and wireline subscriptions increased from 26. 65 million in March 2000 to 32. 33 million in February 2012. As a result, India has the 11 12 13 14 second largest mobile market in the world after China. India reached its Eleventh Five Year Plan (EFYP) target of 600 million subscribers in 2010 itself. 12 The number of total Broadband subscribers in India is 13. 4 million in February 2012. 2. 2 INTeRNATIONAL COMPARISONS The total number of telephone subscriptions in the world including fixed line and cellular sector grew at a Compound Annual Growth Rate (CAGR) of 17. 43 per cent between 2000 and 2010. 13 A total of more than US$ 3,670 billion (6 per cent of the world’s GDP) was spent on telecommunication services by governments across the world in 2008. 14 India’s expenditure on telecommunication services in 2008 was to the tune of US$ 52 billion. This was 4. 3 per cent of the country’s total GDP. Government’s expenditure on telecommunications in India increased at the rate of 14 per cent during 2005–08.

This section compares India’s position to that of the world in telephones and Internet availability and usage. India has risen through the ranks to be amongst the top telephone and Internet users in the world in absolute numbers but on a relative scale (to population) it still ranks low. All Indian subscription numbers in this paragraph are from Telecom Regulatory Authority of India. Planning Commission, Government of India (2010), Mid-Term Appraisal of Eleventh Five Year Plan. Available online at www. planningcommission. nic. in International Telecommunications Union. Available online at www. itu. int The rest of the data in this paragraph are from World Development Indicators. Available online at www. worldbank. org

Telecom Sector in India: A Decadal Profile | 5 2. 2. 1 Telephones 2. 2. 1. 1 Telephone Subscriptions Available international comparisons till 2010 show that India has the second largest number of telephone subscribers in the world (222 countries), accounting for 12 per cent of the world’s total telephone subscribers as shown in Figure 2. 1. It is also one of the fastest growing in terms of telecom subscribers. Total telephone subscribers in India have increased at a CAGR of 32 per cent in 2000–10 against the world average growth rate of 17. 34 per cent. However, India’s teledensity, 64, is still lower compared to the world average of 108 (Teledensity as on February 2012 is 78. 1).

This indicates low penetration of telephones in the rural areas. Figure 2. 1 : India’s Position in Telephone Subscriptions 1,400 Total Telephone Subcribers (Fixed-Line and Mobile) in 1,200 1,000 million, 2010 64 800 20 600 400 200 0 139 198 108 126 127 182 184 171 15 10 5 0 86 Total Telephone Subscribers in Average Growth Rate of Telephone Subscribers in the World: 17. 43% 25 30 CAGR of Telephone Subscribers (2000–10) the World: 6,559 Million 35 40 a R Fe uss de ian ra tio n In do ne si a a pa n US Ch in Br az m an UK di In Ja Total Telephone Subscribers (Fixed Line and Mobile) in million, 2010 Ge r CAGR: 2000–2010 Source: International Telecommunication Union (ITU). Available online at www. itu. nt Note: Teledensity numbers are shown in the circles above the bars of the respective countries. Teledensity has increased in India and around the world especially in the developing countries due to the rise of mobile phones. As of 2010, the ratio of mobile phones to fixed lines in the world ranged from 0. 4:1 to 386. 5:1. 15 The average ratio of mobile phones to fixed lines in the world stood at 21. 5:1 in 2010. In India the same ratio is 21. 4:1 in 2010 whereas the comparable numbers for China and U. S. are 2. 9:1 and 1. 8:1, respectively. 15 16 2. 2. 1. 2 Tariffs Mobile cellular prepaid tariffs ranged between US$ 1. 3 and 37 per month across countries in 2008 (Figure 2. 2). 6 Average mobile cellular prepaid tariff in the world is US$ 10. 1 per month. Mobile tariffs are the lowest in countries such as Bangladesh, India, Pakistan, Sri Lanka, Nepal, Bhutan, and so on. Mobile tariffs in India are the International Telecommunication Union (ITU). Available online at www. itu. int Mobile cellular prepaid tariff is based on OECD’s (Organisation for Economic Co-operation and Development) low-user definition, which includes the cost of monthly mobile use for 25 outgoing calls per month spread over the same mobile network, other mobile networks, and mobile to fixed line calls and during peak, off-peak, and weekend times as well as 30 text messages per month. | Telecom Sector in India: A Decadal Profile I ta ly il y second lowest (US$1. 6 per month) in the world after Bangladesh. Countries with the highest mobile tariffs in the world include Austria, Venezuela, Greece, Portugal, Australia, Japan, Spain, Switzerland, France, and Brazil. This particularly low tariff in South Asia was an innovation (driven by intense competition, low purchasing power and strict regulatory environments) from this region called the “budget telecom network model” (Box 2. 1). 17 Figure 2. 2 : India’s Position in Mobile Cellular Prepaid Tariffs (US$ per month), 2008 40 35 30 25 20 15 10 5 0 2. 6 2. 8 2. 9 3. 0 3. 0 3. 1 1. 3 1. 6 1. 9 2. Pakistan Nepal Bhutan Austria Portugal Australia Japan Bangladesh Sri Lanka Macao SAR, China Ethiopia Venezuela, R. B. de Switzerland Lao P. D. R. Greece France India Spain Hong Kong SAR, China Brazil World average: 10. 1 24. 3 24. 7 25. 1 26. 4 26. 5 Countries with the lowest mobile cellular prepaid tariff Countries with the highest mobile cellular prepaid tariff 32. 2 35. 5 35. 7 33. 3 37. 0 Source: World Development Indicators. Available online at www. worldbank. org Box 2. 1 : The Budget Telecom Network Model This model first emerged in South Asian markets of India, Pakistan and Bangladesh to cater to “customers who only use a few calling minutes per month.

This innovation rests on the reduction of transaction costs of generating and transmitting a monthly bill for prepaid customers. Low-value recharge cards, especially electronic reload, give the greatest payment flexibility making this model work” (OECD, 2009). This model is advantageous for people with low, irregular incomes, no permanent address and no credit history (Castell et al. , 2005 and Sinha, 2005). Also, these contracts allow exact monitoring of use (Waverman et al. , 2005 and Sinha, 2005). Low purchasing power of customers forced companies competing against each other to innovate. Vodafone (2009) estimates that the own-price elasticity of mobile is minus 2. 12, i. e. 10 per cent price fall would increase demand by approximately 21 per cent, keeping everything else constant. This implies that the fall in prices of mobile phones brought in more customers, increasing total revenue of operators. Operators in South Asia are as profitable as their Western counterparts (OECD, 2009). Lately Indian operators have experienced a decline in their profits Margins. Sources: Castells, M. , Qiu, J. L. , Fernandez-Ardevol, M. , and A. Sey (2005), Mobile Community and Society: A Global Perspective, Annenberg Research Network on International Communication. Organisation for Economic Co-operation and Development (2009), ICTs for Development: Improving Policy Coherence. Paris, France. Sinha, C. 2005), Effect of Mobile Telephony on Empowering Rural Communities in Developing Countries, International Research Foundation for Development (IFRD) Conference on Digital Divide, Global Development and the Information Society. Available online at www. irfd. org Vodafone (2009), India: The Impact of Mobile Phones, Vodafone Policy Paper Series No. 9. Available online at http://www. vodafone. com Waverman, L. , Meschi, M. and M. Fuss (2005), The Impact of Telecoms on Economic Growth in Developing Countries, Vodafone Policy Paper Series: Africa: The impact of mobile phones, No. 2, Vodafone Group. Available online at www. umich. edu 17 OECD (Organisation for Economic Co-operation and Development) (2009), ICTs for Development: Improving Policy Coherence. Paris, France. Telecom Sector in India: A Decadal Profile | 7 2. 2. 2 Internet 2. 2. 2. Internet Users India is ranked fourth amongst Internet users in the world, accounting for 4. 56 per cent of the world’s total Internet users in 2010 as shown in Figure 2. 3. Internet users in India expanded at a significantly high CAGR of 32. 27 per cent during the period 2000–10 while those in the world 18 expanded at an average rate of 17. 46 per cent. However, India ranks low in terms of Internet users per 100 people in the world (143 out of 186) with only 7. 5 per 100 people using Internet, compared to the world average of 30. 48. The growth numbers in terms of users are dazzling but as the next section will show, India is still far behind in Internet subscriptions.

Figure 2. 3 : Internet Users in India and in the World, 2010 Nigeria France United Kingdom Russian Federation Germany Brazil India Japan United States China 0. 0 50. 0 100. 0 150. 0 200. 0 250. 0 300. 0 350. 0 400. 0 450. 0 500. 0 Total Internet users in the world: 2 billion World average (Internet users per 100 people): 30. 48 India (Internet users per 100 people): 7. 5 India’s rank in Internet users per 100 people: 143 Total countries reported: 186 Internet users (million) Internet users (per 100 people) Source: World Development Indicators, World Bank. Available online at www. worldbank. org 2. 2. 2. 2 Internet Subscriptions19 Out of the 91. million people using Internet in India, there were only 18. 7 million fixed Internet subscribers in 2010 as shown in Figure 2. 4. India was ranked the seventh highest (out of 214 countries) in this category in 2010. The country accounted for 3. 54 per cent of the world’s total fixed Internet subscribers in 2010. The number of fixed internet subscribers per 100 inhabitants in 2010 was 1. 53 as compared to the world figure of 7. 73. 18 19 Internet users include subscribers who pay for Internet access (dial-up, leased line, and fixed broadband) and people with access to the worldwide computer network without paying directly, either as the member of a household, or from work or school.

Therefore, the number of Internet users will always be much larger than the number of subscribers, typically by a factor of 2–3 in developed countries and more in developing countries (International Telecommunication Union). Internet subscribers include people who pay for access to the Internet (dial-up, leased line, or fixed broadband). The number of subscribers measures all those who pay for Internet use, including the so-called “free Internet” used by those who pay via the cost of their telephone call, those who pay in advance for a given amount of time (prepaid), and those who pay for a subscription (either flat rate or volume-per-usage based) (International Telecommunication Union). 8 | Telecom Sector in India: A Decadal Profile Figure 2. 4 : India’s Position in Fixed Internet Subscriptions in the World, 2010 Mexico Italy Korea (Rep. India United Kingdom Brazil France Russia United States China 0. 0 20. 0 40. 0 60. 0 80. 0 100. 0 120. 0 Total Internet subscribers in the world : 0. 53 billion World fixed Internet subscribers per 100 inhabitants : 7. 73 Fixed Internet subscriptions (million) Fixed Internet subscriptions per 100 inhabitants Brazil: Dial up portion estimated based on CETIC. br (CGI. br). Source: International Telecommunication Union. Available online at www. itu. int Notes: The 2009 numbers have been used for the China and Russia figures. Mexico: Preliminary estimates. Italy: In terms of broadband lines (excluding internet dial-up subs. ). Source: Agcom-Cocom. 2. 3 gROwTh Of TeLeCOMMuNICATION SeRvICeS IN INDIA

Telecom services in India can be basically divided into two major segments: (a) telephones, wireline and wireless, and (b) Internet services. In addition, it also comprises of other smaller segments including radio paging services, VSATs, PMRTS and global mobile personal communication by satellite (GMPCS). As mentioned earlier, wireless phones and Internet services have registered the highest growth in the last few years. 2. 3. 1 Total Subscriptions of Telephones and Stage III: post-2001. This refers to mainly the era of wireless. As can be seen in Figure 2. 5, the total subscriptions of telephones witnessed a sluggish growth (CAGR of 10 per cent) in the state owned era corresponding to the period 1981–90.

The foundation of growth of this sector was laid with the introduction of reforms in 1992 mainly in the form of increased competition due to opening up of the sector to private players. This facilitated easy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices. As a result, telephone subscriptions grew at a CAGR of 20 per cent during 1991–2000. The introduction of wireless phone in mid-1990s coupled with increased competition has completely changed the picture. The number of mobile phone connections crossed Growth of telephones sector can be summarised in three stages (Figure 2. 5). Stage I: Before 1990.

This refers to the period when the telecom sector was mainly state owned; Stage II: 1991–2000. This refers to the period between the onset of reforms but the absence of wireless phones; Telecom Sector in India: A Decadal Profile | 9 fixed line connections in September 2004. 20 As a result the number of telephone subscriptions grew at a CAGR of 35. 3 per cent during the period 2001–11. Total telephone subscribers in India increased from 28. 53 million in March 2000 to 943. 49 million in February 2012. 21 Wireless subscriptions increased from 1. 88 million in March 2000 to 911. 17 million in February 2012 and wireline subscriptions increased from 26. 65 million in March 2000 to 32. 33 million in February 2012. Figure 2. : Total Number of Telephone Subscribers in India, 1981–2011 (million) 1000 900 800 Total Subscriber (million) 700 600 500 400 300 200 100 0 CAGR 10% CAGR 20% State-Owned Introduction of Private Competition Growth in Cellular Mobile CAGR 35% Sources: World Development Indicators. Available online at www. worldbank. org Note: These are subscriptions at the end of each calendar year. Telecom Regulatory Authority of India. 2. 3. 1. 1 Wireline Subscriptions Wireline subscriptions increased from 2. 3 million in 1981 to 32. 44 million in 2000 to reach its peak at 50. 18 million in 2006. Thereafter, it started registering negative growth (Figure 2. 6). By the end of February 2012, wireline subscriptions came down to 32. 33 million.

India has followed the worldwide trend where the mobile phone is 20 21 Bhavnani, A. , Chiu, R. W. , Janakiram, S. and P. Silarzsky (2008), The Role of Mobile Phones in Sustainable Rural Poverty Reduction. ICT Policy Division, World Bank. Available online at www. worldbank. org All Indian subscriber numbers in this paragraph are taken from Telecom Regulatory Authority of India. 10 | Telecom Sector in India: A Decadal Profile 19 8 19 1 82 19 83 19 84 19 85 19 86 19 8 19 7 88 19 8 19 9 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 0 20 1 02 20 0 20 3 0 20 4 05 20 0 20 6 0 20 7 08 20 0 20 9 1 20 0 11 Fixed Line Subscriber (million) Mobile Cellular Subscriber (million) substitute to fixed line phone, through competition has forced the landline services to become more efficient in terms of quality of services. The landline network quality has improved and landline connections are now usually available on demand. Figure 2. 6 : Total Number of Wireline Subscribers and Growth Rate in India, 1981–2011 60 Number of Subscriber (million) 50 40 30 20 10 0 19 8 19 1 82 19 8 19 3 8 19 4 85 19 8 19 6 8 19 7 8 19 8 8 19 9 9 19 0 9 19 1 92 19 9 19 3 9 19 4 95 19 9 19 6 9 19 7 98 19 9 20 9 0 20 0 0 20 1 02 20 0 20 3 0 20 4 05 20 0 20 6 0 20 7 08 20 0 20 9 1 20 0 11 25. 0 20. 0 15. 0 10. 0 5. 0 0. 0 -5. 0 -10. 0 -15. 0 -20. 0 -25. 0 Annual Growth Rate (%) Number of Subscribers

Annual Growth Rate Sources: World Development Indicators. Available online at www. worldbank. org Telecom Regulatory Authority of India. Note: These are subscriptions at the end of each calendar year. 2. 3. 1. 2 Wireless/Cellular/Mobile Phone Subscriptions Cellular or mobile segment has been the key contributor to record growth in telephone subscriptions with its wide range of offers of services. It has led the growth wave of telecom sector in the country. After triple digit growth rate in the first two years, growth rate reduced to 35. 6 per cent in 1998. The annual growth rate of wireless phones increased again till 2003 and peaked at 159. 2 per cent.

Since then the growth rate has tapered down and has averaged around 51. 8 per cent during 2004–11. In 2011, growth rate significantly came down to 18. 8 per cent (Figure 2. 7). Mobile phones accounts for nearly 96. 6 per cent of the total telecom subscriptions as of February 2012. 22 Figure 2. 7 : Total Number of Wireless Subscribers and Growth Rate in India, 1996–2011 1000 Mobile Cellular Subscribers (million) 900 800 700 600 500 400 300 200 100 0 150. 0 100. 0 50. 0 0. 0 350. 0 300. 0 250. 0 200. 0 Annual Growth Rate (%) 20 00 20 02 20 05 20 03 20 04 20 08 20 06 20 01 20 09 20 07 19 98 19 96 19 97 20 10 19 99 Mobile Cellular Subscribers Annual Growth Rate Sources: World Development Indicators.

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