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Telecom Sector Analysis Report

[Key Points | Financial Year '16 | Prospects | Sector Do's and dont's]

  • India's teledensity has improved from under 4% in March 2001 to around 83.36% by the end of March 2016. The mobile subscriber base (GSM and CDMA combined) has grown from under 2 m at the end of FY 99-00 to 1033.63 m at the end of March 2016. Tariff reduction and decline in handset costs has helped the segment to gain in scale. The cellular segment is the dominant segment in the industry by making itself available in the rural areas where the teledensity is far lower (51.37%) than that in urban India (154.01%).
  • The fixed line segment continues to decline in terms of the subscriber base. It has declined to 25.23 m subscribers in March 2016 from 26.59 m subscribers in March 2015.
  • As far as wireless broadband connections (>= 512 kbps) are concerned, India's internet users have risen considerably from 50 million in FY08, to almost 150 m in FY16 with close to 90% users accessing internet via mobiles. This makes India the world’s second-largest internet market after China. Consumption of data services continues to grow at an exponential pace.

How to Research the Telecom Sector (Key Points)

  • Supply
  • Intense competition has resulted in prompt service to the subscribers.
  • Demand
  • Given the low tariff environment and relatively low rural and semi urban penetration levels, demand will continue to remain higher in the foreseeable future across all the segments.
  • Barriers to entry
  • Complex regulations, high capital investments, well-established players who have a nationwide network, license fee, continuously evolving technology and lowest tariffs in the world.
  • Bargaining power of suppliers
  • Improved competitive scenario, mobile number portability (MNP), and commoditisation of telecom services has led to reduced bargaining power for services providers.
  • Bargaining power of customers
  • A wide variety of choices available to customers both in fixed as well as mobile telephony has resulted in increased bargaining power for the customers.
  • Competition
  • Competition is expected to increase when Reliance Jio Infocomm (RJio) enters the industry in 2016. Reduced tariffs have hurt all incumbent operators.

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Financial Year '16

  • After the fall in mobile subscriber base in FY13 due to the cancellation of spectrum licenses of some of the operators in February 2012, the sector continues to grow in terms of subscriber additions. The industry added about 63.7 m wireless subscribers in FY16. At the end of March 2016, the country's total telecom subscriber base (fixed plus mobile) stood at about 1058.86 m. The tele-density level stood at about 83.36% by the end of the fiscal.
  • In November 05, 2015, the Department of Telecommunications issued the Guidelines on Liberalisation of Administratively allotted spectrum in 800 MHz and 1800 MHz band in a service area for the balance validity period of right to use of spectrum, after payment of auction determined price, prorated for the balance validity period. The entry fee paid will be pro-rated for the balance validity period of the right to use spectrum; and will be deducted from the total amount to be paid by the TSP for liberalising the spectrum. In case the spectrum gets liberalised, the One Time Spectrum Charges (OTSC) will be charged and the same has to be paid by the license.
  • In October 2015, the DoT issued the guidelines on Spectrum Trading. Spectrum Trading shall be allowed between two access service providers, holding appropriate licenses. All access spectrum bands earmarked for Access Services by the Licensor will be treated as tradable spectrum bands. Only that spectrum can be traded that has been assigned through an auction in 2010 or afterwards, or on which TSP has already paid the prescribed market price.
  • In September, 2015 the Department of Telecommunications issued the guidelines on Spectrum Sharing. Spectrum sharing will be allowed only for the access service providers holding CMTS license, UASL, UL (AS) and UL with authorisation of Access Service in a Licensed Service Area (LSA), where both the licensees are having spectrum in the same band. Both the licensees shall ensure that they fulfilled their respective obligations and quality norms.

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Prospects:

  • The fixed line business continues to remain muted despite the low penetration levels in the country. The increasing demand for data based services such as the Internet is the major catalyst in the growth of the sector. The scale of the mobile opportunity in India is therefore immense.
  • Increasing choice and one of the lowest tariffs in the world have made the cellular services in India attractive for the average consumer. The teledensity in urban areas is about 150%. Therefore, the main driver for future growth would be the rural areas where wireless tele-density is around 51.37%.
  • The operator's competitive position improved during FY16. Due to reducing competition, tariffs remained stable. However, operators did not see better realizations. In fact, realisations fell due to the aggressive push for subscriber additions. While operators succeeded in achieving good growth in subscriber additions, they will be tested with the entry of RJio.
  • Balance sheets of operators came under additional pressure due to the debt taken for the spectrum auctions. Additionally, capex requirements have increased significantly in recent times as operators have been improving capacity and efficiency of their networks to accommodate the exponential growth in data consumption.

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Related Links for Telecom Sector
Quarterly Results | Sector Quote | Over The Years

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