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Report on FDI in Telecom sector in India

Chapter 1: Overview of Telecom Sector:

1.1: Evolution of Telecom Sector in India:
The telegraph act of 1885 governed the telecommunications sector. Under this act
, the government was in-charge of policymaking and provision of services . Major
changes in telecommunications in India began in the 1980s. Under the Seventh Pl
an (1985-90), 3.6 percent of total outlay was set aside for communications and s
ince 1991, more than 5.5 percent is spent on it (Figure 1). The initial phase o
f telecom reforms began in 1984 with the creation of Center for Department of Te
lematics (C-DOT) for developing indigenous technologies and private manufacturin
g of customer premise equipment. Soon after, the Mahanagar Telephone Nigam Limit
ed (MTNL) and Videsh Sanchar Nigam Limited (VSNL) were set up in 1986. The Telec
om Commission was established in 1989.
When telecom reforms were initiated in 1994, there were three incumbents in the
fixed service sector, namely DoT (Department of Telecom), MTNL and VSNL. Of thes
e, DoT operated in all parts of the country except Delhi and Mumbai. MTNL operat
ed in Delhi and Mumbai and VSNL provided international telephony.
Given its all-India presence and policy-making powers, the DoT enjoyed a monopol
y in the telecom sector prior to the major telecom reforms. However, subsequent
to the second phase of reforms in 1999, which included restructuring the DoT to
ensure a level playing field among private operators and the incumbent, the serv
ice-providing sector of DoT was split up and called Department of Telecom Servic
es (DTS). DTS was later corporatized and renamed Bharat Sanchar Nigam Limited (B
SNL). This meant separation of the incumbent service provider from the policy-ma
ker. Broadly, DoT is now responsible for policy-making, licensing and promotion
of private investments in both telecom equipment and manufacture and provision o
f telecom services. BSNL, a corporate body, is responsible for the provision of
A crucial aspect of the institutional reform of the Indian telecom sector was se
tting up of an independent regulatory body in 1997 – the Telecom Regulatory Auth
ority of India (TRAI), to assure investors that the sector would be regulated in
a balanced and fair manner. TRAI has been vested with powers to ensure its inde
pendence from the government. The government has retained the licensing function
with itself. The main issue with respect to licensing has not been whether it s
hould be with the regulator but that the terms and conditions of licensing shoul
d involve consultations with TRAI to ensure transparency in the bidding process
Some of the main functions of TRAI include fixing tariffs for telecom services,
dispute-settlement between service providers, protecting consumers through monit
oring of service quality and ensuring compliance to license conditions, setting
service targets and pricing policy for all operators and service providers.
Further changes in the regulatory system took place with the TRAI Act of 2000 th
at aimed at restoring functional clarity and improving regulatory quality. TRAI
can frame regulations and can levy fees and charges for telecom services as deem
ed necessary. The regulatory body also has a separate fund (called the TRAI Gen
eral Fund) to facilitate its functioning. To fairly adjudicate any dispute betwe
en licensor and licensee, between service provider, between service provider and
a group of consumers, a separate disputes settlement body was set up called Tel
ecom Disputes Settlement and Appellate Tribunal (TDSAT).
Telecommunications is the transmission of data and information between computers
using a communications link such as a standard telephone line. Typically, a bas
ic telecommunications system would consist of a computer or terminal on each end
, communication equipment for sending and receiving data, and a communication ch
annel connecting the two users. Appropriate communications software is also nece
ssary to manage the transmission of data between computers. Some applications th
at rely on this communications technology include the following:
Electronic mail (e-mail) is a message transmitted from one person to another thr
ough computerized channels. Both the sender and receiver must have access to on-
line services if they are not connected to the same network. E-mail is now one o
f the most frequently used types of telecommunication.
Facsimile (fax) equipment transmits a digitized exact image of a document over t
elephone lines. At the receiving end, the fax machine converts the digitized dat
a back into its original form.
Voice mail is similar to an answering machine in that it permits a caller to lea
ve a voice message in a voice mailbox. Messages are digitized so the caller's me
ssage can be stored on a disk.
Videoconferencing involves the use of computers, television cameras, and communi
cations software and equipment. This equipment makes it possible to conduct elec
tronic meetings while the participants are at different locations.
The Internet is a continuously evolving global network of computer networks that
facilitates access to information on thousands of topics. The Internet is utili
zed by millions of people daily.
Actually, telecommunications is not a new concept. It began in the mid-1800s wit
h the telegraph, whereby sounds were translated manually into words; then the te
lephone, developed in 1876, transmitted voices; and then the teletypewriter, dev
eloped in the early 1900s, was able to transmit the written word.
Since the 1960s, telecommunications development has been rapid and wide reaching
. The development of dial modem technology accelerated the rate during the 1980s
. Facsimile transmission also enjoyed rapid growth during this time. The 1990s h
ave seen the greatest advancement in telecommunications. It is predicted that co
mputing performance will double every eighteen months. In addition, it has been
estimated that the power of the computer has doubled thirty-two times since Worl
d War II (With row, 1997). The rate of advancement in computer technology shows
no signs of slowing. To illustrate the computer's rapid growth, Ronald Brown, fo
rmer U.S. secretary of commerce, reported that only fifty thousand computers exi
sted in the world in 1975, whereas, by 1995, it was estimated that more than fif
ty thousand computers were sold every ten hours (U.S. Department of Commerce, 19
Deregulation and new technology have created increased competition and widened t
he range of network services available throughout the world. This increase in te
lecommunication capabilities allows businesses to benefit from the information r
evolution in numerous ways, such as streamlining their inventories, increasing p
roductivity, and identifying new markets. In the following sections, the technol
ogy of modern telecommunications will be discussed.
Progress of reforms
a. Private Participation in Telecom - For the provision of basic services, the e
ntire country was divided into 21 telecom circles, excluding Delhi and Mumbai (S
ingh et. al. 1999). With telecom markets opened to competition, DoT and MTNL wer
e joined by private operators but not in all parts of the country. By mid-2001,
all six of the private operators in the basic segment had started operating (Tab
le 1). Table 2 shows the number of village public telephones issued by private l
icensees by 2002.
After a recent licensing exercise in 2002, there exists competition in most serv
ice areas. However, the market is still dominated by the incumbent. In December
2002, the private sector provided approximately 10 million telephones in fixed,
WLL (Wireless Local Loop) and cellular lines compared to 0.88 million cellular l
ines in March 1998 (DoT Annual Report, 2002). 72 per cent of the total private i
nvestment in telecom has been in cellular mobile services followed by 22 per cen
t in basic services. After the recent changes, the stage is now set for greater
competition in most service areas for cellular mobile Over time, the rise in cov
erage of cellular mobile will imply increased competition even for the basic ser
vice market because of competition among basic and cellular mobile services.
b. Teledensity and Village Public Phones (VPTs) - India's rapid population incre
ase coupled with its progress in telecom provision has landed India's telephone
network in the sixth position in the world and second in Asia (ITU). The much pu
blicized statistic about telecom development in India is that in the last five y
ears, the lines added for basic services is 1.5 times those added in the last fi
ve decades! The annual growth rate for basic services has been 22 percent and ov
er 100 percent for internet and cellular services. As Dossani (2002) argues, th
e comparison of teledensity of India with other regions of the world should be m
ade keeping in mind the affordability issues. Assuming households have a per cap
ita income of $350 and are willing to spend 7 percent of that total income on co
mmunications, then only about 1.6 percent of households will be able to afford $
30 (for a $1000 investment per line).
Teledensity has risen to 4.9 phones per 100 persons in India compared to the ave
rage 7.3 mainlines per 100 people around the world. Figure 2 shows the growth ra
te of fixed and cellular mobile subscription between 1998 and 2002. Although, th
e coverage is still much higher in urban areas - 13.7 in urban areas compared to
1.4 in rural areas, the government has made efforts to connect villages through
village public telephones (VPT) and Direct Exchange Lines (DEL). This coverage i
ncreased from 4.6 lakhs in March 2002 to 5.10 lakhs in December 2002 for VPT and
from 90.1 lakhs in March to 106.6 lakhs in December 2002 for DELs. BSNL has bee
n mainly responsible for providing VPTs; more than 84 percent of the villages we
re connected by 503610 VPTs with private sector also providing 7123 VPTs .
The overall telecom growth rate is likely to be high for some years, given the i
ncrease in demand as income levels rise and as the share of services in overall
GDP increases. The growth rate will be even higher due to the price decrease res
ulting from a reduction in cost of providing telecom services. A noteworthy feat
ure of the growth rate is the rapid rate at which the subscriber base for cellul
ar mobile has increased in the last few years of the 1990s, which is not surpris
ing in view of the relatively lower subscriber base for cellular mobile.
c. Foreign Participation – India has opened its telecom sector to foreign invest
ors up to 100 percent holding in manufacturing of telecom equipment, internet se
rvices, and infrastructure providers (e-mail and voice mail), 74 percent in radi
o-paging services, internet (international gateways) and 49 percent in national
long distance, basic telephone, cellular mobile, and other value added services
(FICCI, 2003). Since 1991, foreign direct investment (FDI) in the telecom sector
is second only to power and oil - 858 FDI proposals were received during 1991-2
002 totaling Rs. 56,279 crores (Figure 4) (DoT Annual Report, 2002). Foreign inv
estors have been active participants in telecom reforms even though there was so
me frustration due to initial dithering by the government. Until now, most of th
e FDI has come in the cellular mobile sector partly due to the fact that there h
ave been more cellular mobile operators than fixed service operators. For instan
ce, during the period 1991-2001, about 44 percent of the FDI was in cellular mob
ile and about 8 percent in basic service segment. This total FDI includes the ca
tegories of manufacturing and consultancy and holding companies
d. Tariff-setting - An essential ingredient of the transition from a protected m
arket to competition is the alignment of tariffs to cost-recovery prices. In bas
ic telecom for example, pricing of the kind that prevailed in India prior to the
reforms, led to a high degree of cross-subsidization and introduced inefficient
decision-making by both consumers and service-providers. Traditionally, DoT tar
iffs cross-subsidized the costs of access (as reflected by rentals) with domesti
c and international long distance usage charges (Singh et. al. 1999). Therefore,
re-balancing of tariffs - reducing tariffs that are above costs and increasing
those below costs - was an essential pre-condition to promoting competition amon
g different service providers and efficiency in general.
TRAI issued its first directive regarding tariff-setting following NTP 99 aimed
at re-balancing tariffs and to usher in an era of competitive service provision.
Subsequently, it conducted periodic reviews and made changes in the tariff leve
ls, if necessary. Table 4 shows the current level of telephone charges in India
effective from January, 2003. Re-balancing led to a reduction in cross-subsidiza
tion in the fixed service sector. Cost based pricing, a major departure from the
pre-reform scenario, also provides a basis for making subsidies more transparen
t and better targeted to specific social objectives, e.g. achieving the USO.
e. Service Quality - One of the main reasons for encouraging private participati
on in the provision of infrastructure rests on its ability to provide superior q
uality of service. In India, as in many developing countries, low teledensity re
sulted in great emphasis being laid on rapid expansion often at the cost of qual
ity of service. One of the benefits expected from the private sector's entry int
o telecom is an improvement in the quality of service to international standards
. Armed with financial and technical resources, and greater incentive to make pr
ofits, private operators are expected to provide consumers value for their money
. Telephone faults per 100 main lines came down to 10.32 and 19.14 in Mumbai and
Delhi respectively in 2002-03 compared to 11.72 and 26.6 in 1997-98 (Figures 6
and 7). Quality of service was identified as an important reform agenda and TRAI
has devised QOS (Quality of Service) norms that are applicable across the board
to all operators (Singh et. al. 1999).
Pre reform period and Telecommunication in India
Before 1990's Telecommunication services in India were complete government Monop
oly - the Department of Telecommunication (DoT). Government also retained the ri
ghts for manufacturing of Telecommunication equipments. MTNL and VSNL were creat
ed in the year 1986.Early 1990's saw initial attempts to attract private investm
ent. Telecommunication equipment manufacturing was deli censed in the year 1991.
A notable revolution has occurred in the telecom sector. In the pre reforms era,
this was entirely in the hands of the central government and due to lack of com
petition, the call charges were quite high. Further, due to lack of funds with t
he government, the government could never meet the demand for telephones. In fac
t, a person seeking a telephone connection had to wait for years before he could
get a telephone connection. The service rendered by the government monopoly was
also very poor. Wrong billing, telephones lying dead for many days continuously
due to slackness on the part of the telecom staff to attend to complaints, cros
s connections due to faulty / ill maintained telephone lines, obsolete instrumen
ts and machinery in the telephone department were the order of the day in the pr
e reforms era.
Today, there are many players in the telecom sector. The ultimate beneficiary ha
s been the consumer. Prices of services in this sector have fallen drastically.
Telephone connections are today affordable to everyone and are also easily avail
able. Gone are the days, when one had to wait for years to get a telephone conne
ction. The number of telephone connections which was only 2.15 million (fixed li
nes) in 1981 increased to 5.07 million(fixed lines) in 1991. Today (as in 2003),
there are 54.62 million telephone connections of which 41.33 million are fixed
line telephone connections, 12.69 million are cellular mobiles and the remaining
0.60 million are WLL telephones1. Wireless in Local Loop (WLL) telephones and c
ellular mobile telephones were unknown in India a few years ago. Cell phones cha
rges have come down so much that today one can see even a common man going aroun
d with a cell phone in his hand. The private companies are giving various incent
ives to attract customers, a situation which is entirely opposite to the conditi
ons prevailing in the pre reforms era when one had to wait for years to get a te
lephone connection.
The first step toward deregulation and beginning of liberalization and private s
ector participation was the announcement of National Telecom Policy 1994.NTP 199
4 , for the first time, allowed private/foreign players to enter the 'basic' and
the 'new cellular mobile section. FDI up to 49% of total equity was also all
owed in these sectors. The policy allowed one private service provider to compet
e in basic services with the incumbent DoT in each DoT internal circle. It allow
ed duopoly in cellular mobile services in each circle. As part of the implementa
tion of the NTP 94, licenses were issued against license fees through a bidding
process. This policy initiated the setting up of an independent regulator–the Te
lecom Regulatory Authority of India (TRAI), which was established in 1997. The m
ain objective of TRAI is to provide an effective regulatory framework to ensure
fair competition while, at the same time, protect the interest of the consumers.
Liberalization and reforms in Telecom sector since early 1990's till date are br
iefed below:
1. On 24th July 1991, Government announced the New Economic Policy.
2. Telecom Manufacturing Equipment license was delicensed in 1991.
3. Automatic foreign collaboration was permitted with 51 per cent equity by the
Value added services were opened for private and foreign players on franchise or
license basis. These included cellular mobile phones, radio paging, electronic
mail, voice mail, audiotex services, videotex services, data services using VSAT
's, and video conferencing.
1. The Government announced a National Telecom Policy 1994 in September 1994. It
opened basic telecom services to private participation including foreign invest
2. Foreign equity participation up to 49 per cent was allowed in basic telecom s
ervices, radio paging and cellular mobile. For value added services the foreign
equity cap was fixed at 51 per cent.
3. Eight cellular licensees for four metros were finalized.
1. TRAI was set up as an autonomous body to separate the regulatory functions fr
om policy formulations and operational functions.
2. Coverage of the term "infrastructure" expanded to include telecom to enable t
he sector to avail of fiscal incentives such as tax holiday and concessional dut
3. An agreement between Department of Telecommunication (DoT) and financial inst
itutions to facilitate funding of cellular and basic telecom projects.
4. External Commercial Borrowing (ECB) limits on telecom projects made flexible
with an increased share from 35 per cent to 50 per cent of total project cost.
5. Internet Policy was finalized.

FDI up to 49 per cent of total equity, subject to license, permitted in companie
s providing Global Mobile Personal Communication (GMPC) by satellite services.
1. National Telecom Policy 1999 was announced which allowed multiple fixed Servi
ces operators and opened long distance services to private operators.
2. TRAI reconstituted: clear distinction was made between the recommendatory and
regulatory functions of the Authority.
3. DOT/MTNL was permitted to start cellular mobile telephone service.
4. To separate service providing functions from policy and licensing functions,
Department of Telecom Services was set up.
5. A package for migration from fixed license fee to revenue sharing offered to
existing cellular and basic service providers.
6. First phase of re-balancing of tariff structure started. STD and ISD charges
were reduced by 23 per cent on an average.
7. Voice and data segment was opened to full competition and foreign ownership i
ncreased to 100 per cent from 49 per cent previously.
1. TRAI Act was amended. The Amendment clarified and strengthened the recommenda
tory power of TRAI, especially with respect to the need and timing of introducti
on of new services provider, and in terms of licenses to a services provider.
2. Department of Telecom Services and Department of Telecom operations corporati
zed by creating Bharat Sanchar Nigam Limited.
3. Domestic long distance services opened up without any restriction on the numb
er of operators.
4. Second phase of tariff rationalization started with further reductions in the
long distance STD rates by an average of 13 per cent for different distance sla
bs and ISD rates by 17 per cent.
5. Internet Service Providers were given approval for setting up of Internationa
l Gateways for Internet using satellite as a medium in March 2000.
6. In August 2000, private players were allowed to set up international gateways
via the submarine cable route.
7. The termination of monopoly of VSNL in International Long Distance services w
as antedated to March 31, 2002 from March 31, 2004.
1. Communication Convergence Bill, 2001 was introduced in August 2001.
2. Competition was introduced in all services segments. TRAI recommended opening
up of market to full competition and introduction of new services in the teleco
m sector. The licensing terms and conditions for Cellular Mobile were simplified
to encourage entry for operators in areas without effective competition.
3. Usage of Voice over Internet Protocol permitted for international telephony s
4. The five-year tax holiday and 30 per cent deduction for the next five years a
vailable to the telecommunication sector till 31st March 2000 was reintroduced f
or the units commencing their operations on or before 31st March 2003. These co
ncessions were also extended to internet services providers and broadband networ
5. Thirteen ISP's were given clearance for commissioning of international gatewa
ys for Internet using satellite medium for 29 gateways.
6. License conditions for Global Mobile Personal Communications by Satellite fin
alized in November 2001.
7. National Long Distance Service was opened up for unrestricted entry with the
announcement of guidelines for licensing NLD operators. Four companies were issu
ed Letter of Intent (LOI) for National Long Distance Service of which three lice
nses have been signed.
8. The basic services were also opened up for competition. 33 Basic Service lice
nses (31 private and one each to MTNL and BSNL) were issued up to 31stDecember 2
9. Four cellular operators, one each in four metros and thirteen were permitted
with 17 fresh licenses issued to private companies in September/October 2001. Th
e cell phone providers were given freedom to provide, within their area of opera
tion, all types of mobile services equipment, including circuit and/or package s
witches that meet the relevant International Telecommunication Union (ITU)/ Tele
com Engineering Centre (TEC) standards.
10. Wireless in Local Loop (WLL) was introduced for providing telephone connect
ion in urban, semi-urban and rural areas.
11. Disinvestment of PSU's in the telecom sector was also undertaken during the
year. In February 2002, the disinvestment of VSNL was completed by bringing down
the government equity to 26 per cent and the management of the company was tran
sferred to Tata Group, a strategic partner. During the year, HTL was also disinv
12. Government allowed CDMA technology to enter the Indian market.
13. Reliance, MTNL and Tata were issued licenses to provide the CDMA based servi
ces in the country.
14. TRAI recommended deregulating regulatory intervention in cellular tariffs, w
hich meant that operators need no longer have prior approval of the regulator fo
r implementing tariff plans except under certain conditions.
1. International long distance business opened for unrestricted entry.
2. Telephony on internet permitted in April 2002.
3. TRAI finalized the System of Accounting Separation (SAS) providing detailed
accounting and financial system to be maintained by telecom service providers.
1. Unified Access Service Licenses regime for basic and cellular services was in
troduced in October 2003. This regime enabled services providers to offer fixed
and mobile services under one license. Consequently 27 licenses out of 31 licens
es converted to Unified Access Service Licenses.
2. Interconnection Usage Charge regime was introduced with the view of providing
termination charge for cellular services and enable introduction of Calling Par
ty Pays regime in voice telephony segment.
3. The Telecommunication Interconnection Usage Charges Regulation 2003 was intro
duced on 29th October 2003 which covered arrangements among service providers fo
r payment of Interconnection Usage Charges for Telecommunication Services and co
vered Basic Service that includes WLL (M) services, Cellular Mobile Services, an
d Long Distance Services (STD/ISD) throughout the territory of India
4. The Universal Service Obligation fund was introduced as a mechanism for trans
parent cross subsidization of universal access in telecom sector. The fund was t
o be collected through a 5 per cent levy on the adjusted gross revenue of all te
lecom operators.
5. Broadcasting notified as Telecommunication services under Section 2(i)(k) of
1. Budget 2004-05 proposed to lift the ceiling from the existing 49 per cent to
74 per cent as an incentive to the cellular operators to fall in line with the n
ew unified licensing norm.
2. 'Last Mile' linkages permitted in April 2004 within the local area for ISP's
for establishing their own last mile to their customers.
3. Indoor use of low power equipments in 2.4 GHz band de-licensed from August 2
4. Broadband Policy announced on 14th October 2004. In this policy, broadband ha
d been defined as an "always-on" data connection supporting interactive services
including internet access with minimum download speed of 256 kbps per subscribe
5. The Telecommunications (Broadcasting and Cable Services) Interconnection Regu
lation 2004 was introduced on 10th December 2004.
6. BSNL and MTNL launched broadband services on 14th January 2005.
7. TRAI announced the reduction of Access Deficit Charge (ADC) by 41 per cent on
ISD calls and by 61 per cent on STD calls which were applicable from 1st Februa
ry 2005.
1. Budget 2005-2006 cleared a hike in FDI ceiling to 74 per cent from the earlie
r limit of 49 per cent. 100 per cent FDI was permitted in the area of telecom eq
uipment manufacturing and provision of IT enabled services.
2. Annual license fee for National Long Distance (NLD) as well as International
Long Distance (ILD) licenses reduced to 6 per cent of Adjusted Gross Revenue (A
GR) with effect from 1st January 2006.
3. BSNL and MTNL launched the 'One-India Plan' with effect from 1st March 2006 w
hich enable the customers of BSNL and MTNL to call from one end of India to othe
r at the cost of Rs. 1 per minute, any time of the day to phone.
4. TRAI fixed Ceiling Tariff for International Bandwidth, Ceiling Tariff for hig
her capacities reduced by about 70 per cent and for lower capacity by 35 per cen
5. Regulation on Quality of Service of Basic and Cellular Mobile Telephone Serv
ices 2005 introduced on 1st July 2005.
6. BSNL announced 33 per cent reduction in call charges for all the countries f
or international calls.
7. Quality of Service (Code of Practice for Metering and Billing Accuracy) Regul
ation 2006 introduced on 21st March 2006.
11th plan (2007-20012)
FDI in Telecom sector has increased in recent years with value of 81.62 billion
with share of 10% in total inflow during January 2000 to June 2005. This is main
ly in telecom services and not in telecom manufacturing sector. Therefore, it is
essential to enhance the prospect for inflow of increased funds. The NTP 1999 s
ought to promote exports of telecom equipments and services. But till date expor
t of telecom equipment remains minimal. Most of the state-of-the-art telecom equ
ipments including mobile phones are imported from abroad. There is thus immense
potential for indigenous manufacturing in India. Certain measures like financial
packages, formation of a telecom export promotion council, creation of integrat
ed facilities for telecom equipment through SEZ and encouraging overseas vendors
to set up facilities in India, are required for making India a hub for telecom
equipment manufacturing and attract FDI. The telecom sector has shown robust gro
wth during the past few years. It has also undergone a substantial change in ter
ms of mobile versus fixed phones and public versus private participation.
Chapter 2: Introduction of the Project:
Title of the Project: “Scope for Foreign Direct Investments in Telecom Sector in
Statement of the Project: To analyse the scope for growth of Telecom Industry an
d to figure out the potential for Foreign Direct Investments.
Introduction: Project is a research work to elucidate the attractiveness of Indi
an market for the foreign players. Indian market is one of the most attractive d
estinations for the FDI in telecom sector, so, this report is an effort to find
out the real gold for the foreign investors. The report provides with a detailed
description of where to invest and to what extent. The report also presents the
avenues where the host country would be beneficial from these investors.
Purpose of Project:
1.) Checking the potential of the market primarily from secondary data.
2.) Analysis of regulations in the Industry.
3.) Preparation of report based on the analysis and presents a fair idea for
investments in the sector from the foreign players.
Objective of the Project:
1.) To explore the opportunities for FDI’s in the market.
2.) To analyse the potential for the growth in the market.
Importance of the Project:
1.) This project enables to check the potential in the telecom sector and sc
ope for innovation.
2.) The project elucidates over the entry barriers in the sector.
3.) Provides with remedies and recommendations for entry in the sector espec
ially for the global players.
4.) Gives an insight of the current scenario and the future predictions.
1.) With the liberalisation and globalisation the rules are formulated to e
ncourage the foreign investments.
2.) Indian market is an appealing avenue for the Foreign Players.

Scope and limitation:

1.) The study is applicable to Indian Telecom Sector.
2.) Report is primarily for the FDI’s aiming at investing in India.
3.) Analysis is based on the secondary data.

Deliverables: The telecom industry in India is having immense potential and is g

rowing in the past two years like never before. The huge growth have set new rec
ords contributing to about 3% to country’s GDP. The competition in the sector is
increasing day by day with the introduction of new players. The ARPU is also de
clining, so it is mandatory for the companies to upgrade technology to retain th
e customers.
Telecommunications is one of the fastest-growing areas of technology in the worl
d. Because of its rapid growth, businesses and individuals can access informatio
n at electronic speed from almost anywhere in the world. By including telecommun
ications in their operations, businesses can provide better services and product
s to their customers. For individuals, telecommunications provides access to wor
ldwide information and services.

Chapter 3: Literature Review:

One of the most significant contributors to India’s booming economy is the devel
opment of the services sector and the focus of Foreign Direct Investment in the
Telecommunication sector. Over the past two decades, the service sector has expa
nded rapidly and has come to play an increasingly important role in national eco
nomies and in the international economy. Services account for large shares of pr
oduction and employment in most Economies around the world. The share of service
s in world trade and investment too has been increasing. The reason why India wa
s one of the fastest growing economies in the 1990’s was due the rapid growth of
the service sector. The structure of Foreign Direct Investment (FDI) worldwide
has also shifted towards services. In the early 1970s, service sector accounted
for only one quarter of the world FDI stock. In 1990 this shares was less than o
ne half and by 2003, it has risen to about 67 per cent. Now service sectors like
telecommunication, IT enabled services, electricity insurance, air transport ar
e becoming prominent. “As many services are neither tradable nor storable, but m
ust be produced where they are consumed FDI is the dominant means of delivering
them to foreign markets”, states United Nation Conference on Trade, Aid and Deve
lopment (UNCTAD). As another sectors, FDI in services can provide capital, techn
ology and managerial knowledge, enhance skills.
Since the introduction of `Manmohanomics’ during PV Narasimha Rao’s government i
n 1991, Foreign Direct Investment (FDI) has been looked upon as a tool to transf
orm under developed countries into advanced nations. Since then every government
has encouraged the expansion of foreign direct investment.
The liberalization measures post-1990 has changed with foreign investments radic
ally, now portfolio as well as Foreign Direct Investment are not only allowed bu
t also actively encouraged. Initially Foreign Direct investment was introduced o
nly in a few sectors but since then it has been introduced in a variety of secto
rs including the sector of Telecommunications. There are multi-faceted advantage
s of encouraging foreign direct investment in telecom sector. Apart from ensurin
g telecom services at subsidized prices, it can satisfy the dire need of infrast
ructural reforms in rural areas. The inflows will allow multiple benefits such a
s technology transfer, market access, improvement in voice and data quality and
organizational skills. It increases the flow of foreign currency and helps in ma
intaining harmonious relationship with the country from which the investment is
made. Moreover, India offers an unprecedented opportunity for telecom service op
erators, infrastructure vendors, manufacturers and associated services companies
When the Indian government opened up cellular telephony to private industry, sev
eral foreign investors were ready to enter India’s telecom sector. However beati
ng other manufacturing and services sectors, Indian telecom had attracted major
inflow of FDI since August 1991. According to the numbers published by Investind
iatelecom (an online agency which tracks developments in the Indian telecom sect
or), Indian telecom has grossed actual FDI worth Rs 9576.40 crore during the per
iod starting from late 1991 to early 2003. Of the total FDI inflow in Indian tel
ecom sector, the major share has gone towards investment in holding companies fo
llowed by cellular network and manufacturing and consultancy.
While Hutchison Whampoa has a 49 per cent stake in Hutchison telecom, Vodafone h
as 21 per cent in RPG cellular and Verizon has ten percent stake in Reliance tel
ecom. Other foreign companies with similar stake in Indian companies include AT&
T Wireless, Cellnet and First Pacific.
There are two possible channels for Foreign Direct Investment to enter into Indi
a: Firstly, the automatic route under which companies receiving Foreign Direct I
nvestment need to inform the Reserve Bank of India within 30 days of receipt of
funds and issuance of shares to the foreign investor and secondly, for sectors t
hat are not covered under the automatic route, prior approval is needed from the
Foreign Investment Promotion Board (FIPB).
Recently, there has been a hike in the Foreign Direct Investment in the telecom
sector and it has been increased from 49% to 74 %. This move seems to be positiv
e for the sector, as it requires investments of Rs 700 –900 million over the nex
t 5 years. FDI inflow by 2004 was 9950.94 cores in telecom. Countries like Europ
e, Korea, and Japan telecom are likely to enter India, as India is seen as faste
st growing telecom market in world. The increase in the FDI limit is expected to
usher in a 20 per cent jump in foreign investments in the telecom sector within
the next two years from the current Rs10, 000 crore.
There are restrictions related to remote access, transfer of network information
outside India and international transit routing of Indian traffic. It has been
decided to enchance the FDI in telecom services in areas like basic telecom, cel
lular unified access services, Nat /intranet, long distance Vast, public mobile,
radio service & gmdcs. DOT will have the authority to restrict the license comp
any from operating in any of the sensitive areas of the country. Foreign portfol
io investments will be allowed in existing news channels within an existing 26 p
er cent cap on foreign investment holdings for that sector. This comes in time w
hen there is a boom in the Indian stock markets as well and in the consumers sec
tion. This would clearly go on to attract several players in the telecom sector
globally to look forward to investing in India. The highlights of the new policy
are that Foreign Direct Investment up to 74% is permitted in the telecom sector
. Internet service (with gateways); infrastructure providers (category-II); radi
o paging service etc. have been made subject to licensing and security requireme
nts. FDI up to 100% permitted in respect of the following telecom services: Inte
rnet Service Providers not providing gateways, Electronic mail, Voice mail, Infr
astructure providers providing dark fibre. FDI up to 100% is allowed subject to
the stipulation that all such companies would confirm to divest 26% of their equ
ity in favour of the Indian public within five years, if these companies are lis
ted in other parts of the world. The above services would be subject to licensin
g and security requirements, wherever required. This increase in the FDI limit w
ould see a sea change of investment flowing into India, and have a magnanimous e
ffect on the telecom sector by way of economic reforms and also would affect the
economy as a whole, and would have a chain effect on various other sectors.
Due to the increase in the foreign direct investment in the telecommunication ma
rket in India companies like Bharti Tele-Ventures and Hutchison Essar will be ab
le to modulate the foreign stakes in their companies that have already acquired
a range between 67-69 percent of their assets. With respect to the unnerving gro
wth in the telecom industry in India which accounted for nearly 30 percent every
year, the Union Cabinet decided for the hike in foreign direct investment as it
will benefit the country by facilitating the capital inflows in the industry. A
s of now acquires the largest share in the Indian telecom market has been acquir
ed by the mobile segment as it has been estimated to witness a double rise in th
e past 2 years.
It has been proclaimed by the Finance Minister of India, Mr. P. Chidambaram has
that the decision about increasing the foreign direct investiture in the Indian
telecom market have been decided as this sector is viewed as the capital intensi
ve telecom sector and thus the aim is to draw more and more capital investments
in this sector. Moreover the aim was also to make the whole system in the teleco
m market lucid and methodical. This proclamation has also notified that more tha
n 49 percent of foreign direct investment has already been experienced by 2 comp
anies in the telecom sector in India. The majority directors on the board that c
omprise of the Chairman, the Managing Director and the Chief Executive Officer s
hould be non-migratory Indian citizens according to this proclamation on FDI in
Indian Telecommunications Industry.
The 74 shares occupied by the Indian telecommunication industry would involve al
l the foreign direct investments that have mainly come from the non-residential
Indians, foreign currency convertible bonds, foreign institutional investors, co
nvertible preference shares, and depository receipts on a direct and indirect ba
sis. The companies that are receiving or will receive the foreign direct investm
ent in the years to come are prohibited from transferring any sort of informatio
n or data apropos foreign direct investments or things related to that to the co
ntributors or any destinations outside India. The step taken for the increase in
the FDI in Indian telecom industry will boost up the country s economic conditi
on. Post 1991 one of the major contributors in the accretion of India s economy
is Foreign Direct Investment and thereby it has been highly needed by each secto
r in Indian telecommunications industry. As of now the telecom sector requires 1
, 60,000 crores for development purposes among which 30,000 is coming from the l
ocal markets.
FDI in services responds well to openness especially when it comes to the teleco
mmunications sector. This is quite evident looking at the recent boom in the Ind
ian Telecommunication sector. Further liberalization of services involves potent
ial advantages for Indian economy. Benefits can arise from increased competition
, lower prices, and better quality of services. FDI in services like Telecommuni
cations provide key inputs to other productive activities that lead to further i
nvestment and competitiveness of an economy. Efforts should be made towards attr
acting efficiency seeking FDI through a right policy that expands operation, imp
rove local skills, establish linkages and upgrade technology
However, precautions should be taken to avoid the risk of foreign investors out-
competing domestic investors especially in case of infrastructure services like
Telecommunications. Services where domestic investors are not able to cater to t
he growing demand, or where domestic service-providers do not have the ability o
r capacity to provide the required quality of services, are where the least barr
iers exist.
To circumvent such spirals it is important for the region to have appropriate do
mestic regulations in place, which will assure better quality of services at aff
ordable prices. Clear domestic regulations increase transparency in the system a
nd encourage foreign direct investment. To sustain the momentum of growth in ser
vices trade in the region, conscious efforts should be made to improve the compe
titive advantage of the region as a whole. Inclusion of trade in services in SAF
TA may help attract FDI in services and lead to greater intra-regional trade. Ac
cess to more efficient services could lead to higher growth in productivity in o
ther sectors, which, in turn, could improve the overall competitive strength of
the region.
Thus it can be concluded that the recent upward swing in the Telecommunications
sector in India is due to the introduction of FDI in this sector by the Indian G
overnment since 1991 but at the same time we must also be careful and not get ca
rried away by this development and should have proper regulations in place to ac
tually utilize this situation to our advantage.
FDI policy changes announced by the government have caused a lot of brouhaha in
the telecom sector. A press release issued by the Cabinet Committee on Economic
Affairs on Wednesday features amendments to the government’s policies on foreign
direct investment in Indian companies in telecom, media, aviation, banking, def
ence and insurance sectors.
The changes in the FDI policy have been made following recommendations by a grou
p of ministers headed by External Affairs Minister Pranab Mukherjee.
The release says that in an attempt to create “investor friendly, credible and p
redictable regulations that would facilitate greater foreign capital inflows and
send a positive signal in the present difficult economic scenario,” the governm
ent has modified guidelines for calculation of foreign investment and the transf
er of ownership or control of Indian companies to non-resident entities.
FDI In Telecom Now 98%?
The amendment says indirect investment is no longer be part of sectoral ceilings
, so could foreign investors increase their stake through the indirect mode in I
ndian telecom companies?
Currently foreign direct investment in Indian telcos is restricted to 74%. Media
reports, such as this one from TelecomTiger, declare that the announcement real
ly means the FDI cap in Indian telcos is no longer 74 percent but a whopping 98
Amendments in the policy also introduce a new concept of controls and ownership
in the sector. An Indian company that is backed by foreign investments but ultim
ately controlled and owned by Indians can invest without being under the FDI cap
Thomas K. Thomas a member of the United States Telecommunications Sub-committee,
an advocacy body which looks into telecom regulations around the world, has sug
gested a slew of reforms for India to implement in the communications sector.
This includes increasing the FDI limit from 74 per cent to 100 per cent, making
the upcoming 3G auction rules more conducive for foreign players and allowing un
restricted Net telephony.
The sub-committee is part of a joint Indo-US working group, set up to exchange b
est regulatory practices in the ICT sectors.
The sub-committee represents the US side in the working group while the Departme
nt of Telecom’s investment policy section is the Indian representative.
The working group is scheduled to meet on November 3, for which the US side has
sent its recommendations to the DoT.
The subcommittee has stated that India should permit 100 per cent FDI in telecom
sector to increase the investment flows.
3G spectrum
On the 3G spectrum auction rules, it has urged the DoT to resolve the imbalance
between an existing licence holder and a new player.
It pointed out that while the existing operators have been given 2G spectrum bun
dled with their unified access licence, foreign players have to pay $410 million
to acquire a unified access licence to be eligible for 3G services but they are
not assured any 2G spectrum.
The sub-committee has called for a spectrum policy that is in line with internat
ional standards. “A harmonised approach is essential to secure affordable high p
erformance mobile services and easy cross border cooperation and coordination,”
the US body stated.
Auction welcomed
Backing auctioning of all spectrums instead of subscriber-linked criteria, the t
elecom committee has said that this will help the Government get the right value
for spectrum.
It has also expressed concern over the inconsistency in the regulations and has
suggested that rules should not be changed or interpreted differently from time
to time.
The DoT is expected to firm up its views on these issues before the meeting of t
he working group next week.
Siliconindia News Bureau: Telecom is one of the fastest growing industries in In
dia, and everyone, including foreign players and investors, are eager to be a pa
rt of this growth. The last few years have witnessed many activities on the fore
ign direct investment front with world s leading telecom operators picking up la
rge stakes in domestic operators.

The fiscal ended March 31, 2009 has been the high revenue growth period for the
telecom sector. The telecom services industry registered a growth of 20.7 percen
t clocking revenues of Rs.1, 57,542 crore in 2008-09 compared to Rs.1,30,561 cro
re in the previous year.
Sajjan Jindal, President of ASSOCHAM said that during the year 2009, government
had raised the FDI limit in telecom sector from 49 percent to 74 percent, which
has contributed to the robust growth of FDI in the sector.
The telecom sector registered a growth of 103 percent during fiscal 2008-09 as c
ompared to previous fiscal according to the latest Annual FDI Report by ASSOCH
AM. Another interesting find of the study is that the greater chunk of foreign i
nvestments has flown into states that are doing well industrially and commercial
ly and which have an investor-friendly business environment.
Listed telecom operators like Bharti Airtel, Reliance Communication, Idea Cellul
ar and Tata Communication which have emerged as favourites among foreign institu
tional investors on Dalal Street.
Airtel s revenues grew from Rs.1500 crore in FY02 to over Rs.37,000 crore in 200
9, representing a compounded annual growth rate of 58 percent in last seven year
s. If the ongoing $23 billion deal between Bharti Airtel and South African Compa
ny, MTN is successful, it will mark an entry as the biggest overseas deal to dat
e, surpassing Tata s acquisition of Corus for $12.2 billion.
In a similar move last year, Japanese mobile operator NTT Docomo acquired a 26 p
ercent stake in Tata Teleservices (TTL). Other strides in the sector during the
year included policy initiatives pertaining to the allocation of spectrum for th
e 3G and broadband wireless access (BWA) services and mobile number portability.
This has led several players to take advantage and get ahead of their pack.
There are political problems in India that are protecting the FDI flows in India
to the rate they should have been by this time Left Parties demanding that the
government must put a stop to any FDI hike in the telecom sector, announced that
they would organise an all-India protest action against the government’s decisi
on. They also strongly condemned reports in some sections of the media that the
1% hike in EPF interest rates was a quid pro quo for the Left’s acquiescence to
the hike in FDI telecom sector.
Stating that the EPF interest rate hike was announced much after the FDI hike in
the telecom sector was announced, CPI-M politbureau member Sitaram Yechury said
this kind of reportage was mischievous and unethical.
Stating that increasing FDI limits in the telecom sector was detrimental to Indi
a’s economic sovereignty, as were amendments to the Patents Act, some banking re
form proposals and disinvestment in profit-making PSUs, Mr Yechury said the purp
ose of the protest was to send this message to the people, adding that it was wr
ong of the government to make announcements on the telecom and electricity secto
rs when discussions were ongoing with the Left parties.
When asked what form the protest would take, CPI leader AB Bardhan said that if
the government continues to take such decisions despite the Left’s opposition, t
hey may even consider calling for nation-wide strikes,adding that it was becomin
g a “habit of the government to talk to the Left and then make these announcemen
ts without their concurrence.
With regard to the announcement of a new Electricity Bill, the Left leaders said
that this was based on the 2003 Electricity Act, which the CMP had promised to
review. Therefore, until such a review was undertaken, no new policy measures sh
ould be taken.
Mr Bardhan told FE that the Left wanted a total review of the 2003 Electricity A
ct, which paves the way for privatisation. They also wanted cross-subsidation to
continue and more protection for the rural power sector.
Mr Yechury said that they would bring up all these issues at the next UPA-Left c
oordination committee meeting and would also appraise UPA chairperson Sonia Gand
hi of their concerns.
On Goa, Mr Yechury said that the Left was in favour of fresh elections in the st
ate to know the mandate of the people. He, however, said that the Speaker’s acti
on in delegitimising a MLA just before the trial of strenghth was wrong.

Chapter 4: Research Methodology:

Method of data collection:
Secondary sources:
It is the data which has already been collected by some one or an organiza
tion for some other purpose or research study .The data for study has been colle
cted from various sources:
Internet sources
1 month
Statistical Tools Used:
Simple tools like tabulation, diagrams have been used.

Chapter 5: Foreign Direct Investments and there Importance.

5.1: Foreign Direct Investment:
5.2: Regulations for Foreign Direct Investments:
• In basic, cellular mobile, paging and value addition service and global
mobile personal communication by satellite FDI is permitted upto 49% (under auto
matic route). Subject to grant of license from the Department of Telecom.
• FDI 74% permitted subject to licensing and security requeremet for the i
nternet service (with gateways), infrastructure providers(category II), radio pa
ging service.
• Fdi upto 100% permitted in respect of(i) ISPs not providing gateways(bot
h for satellite and submarine cables), (ii) Infrastucture providers providing da
rk fibre(IP category), (iii) Electronic mail, (iv) Voice mail.
• FDI upto 49% is also permitted in an investment company, setup for makin
g investment in the telecom company licensed to operate telecom service. Investm
ent by there investment companies in a telecom service company is treated as par
t of domestic equity and is not set of against the foreign equity cap.
• Manufacturing 100% FDI is permitted under automatic route
• FDi is subject to following conditions:
i) FDI upto 100% is allowed subject to the conditions that such companies w
ould divest 26% of their equity in favour of Indian public in 5years, if these c
ompanies are listed in other part of the world.
ii) Revenues ~ USD 19.5 bn(FY 2006)
-CAGR (FY 2002-2006)-21%
-have doubled in last 3years.
iii) Subscribers ~160 million (Aug 2006)
-CAGR (FY 2002-2006)-38%
-nearly quadrupled since FY2002
-5-6 million being added every month

iv) Tele-Density -14.8 (Aug 2006)

-Had doubled in 3 years
-Target set for 2007 under NTP 1999 achieved during FY 2005.

5.3: Doubts in Regulations:

a. According to the policy, majority of directors and board members includi
ng, chairman, MD and CEO will be resident of India.
b. Foreign firm owns 74 per cent of the Indian telecom, it still has to app
oint the chairman, managing director and CEO "in consultation with serious India
n investors", and a serious Indian investor is defined as someone who owns at le
ast 10 per cent of the firm s equity - why even bother to invest in India if som
eone else decides who s going to run the firm?
c. At a time when the country s police/investigative arms find it impossibl
e to trace people at times, telecom firms "must provide traceable identity of th
eir subscribers".
d. The policy says "No accounting information will be send outside India" i
magine a foreign invester wants to check the usage pattern, clouding, he will no
t be able do it so India will be seen as a black hole for foreign BPO.
e. It also says that network cannot be managed from overseas & the ironical
part is that India is fighting tooth and nil to win Contract to maintain global
network out of India
No wonder it has been one year since the announcement of an increase in FDI limi
ts in telecom from 49% to 74% has been made , and there are still no taker.
5.4: As an indicator of Globalization: Telecommunication has paved way for Globa
lization in India. The two most important factors that facilitated globalization
was the low cost in transportation and communication.
During the mid 1980’s, Rajiv Gandhi had envisioned the growth of IT and Telecom
in India. And with the technical expertise of Sam Pitroda they were able to devi
se plans for the Telecom sector that were brought to effect during Prime Ministe
r Narasimha Rao’s rule.
Globalization in turn has a direct effect in the telecom sector in India. We see
many international companies setting operations in India. Service providers lik
e Vodafone-Essar; Idea Cellular (was a 33% joint venture between Aditya Birla, T
ata teleservices and AT&T. In 2005 AT&T left the joint venture and in 2006 Tata
left so now Idea is owned fully by Aditya Birla) and Spice Communications. Compa
nies like Huawei (China), Cisco (California) and Lucent that provide Network com
ponents and companies like Motorola, Ericsson who provide Hardware components.
5.5: Privatization: Private operators have contributed very largely to the post1
998 growth primarily in mobile services due to cost and fast deployment advantag
es. In 1998, the subscriber base in the public sector was 17.8 million and it wa
s 79.5 million in 2008. Whereas, in the private sector, it was 0.88 million in 1
998 and 220.94 in 2008. The growth of subscriber base in the private sector has
been multi-fold. Privatization was in a phased approach. We could see the privat
ization of the Value-added services initially and then the Cellular and basic se
5.6: Recent trends in Foreign Direct Investments: The cumulative FDI inflow from
August 1991 to March 2007 in the telecommunication sector amounted to US$ 7,513
.22 million. This makes telecommunication the third-largest sector to attract FD
I in India in the post liberalization era. The investment was majorly in handset
manufacturing and telecom service providers.
India has 100% FDI allowed in the networking components and 74% FDI in telecom s
ervices. Examples of some recent FDI are given below:
a) Japanese telecom major NTT DoCoMo acquired a 27.31 per cent equity capital of
Tata Teleservices for about US$ 2.6 billion in November 2008.
b) Vodafone Essar will invest US$ 6 billion over the next three years in a bid t
o increase its mobile subscriber base from 40 million at present to over 100 mil

Chapter 5: Government Regulations and Initiatives:

The government has taken many proactive initiatives to facilitate the rapid grow
th of the Indian telecom industry.
1. FDI in telecom services has been raised to 74%
2. Introduction of unified access licensing for telecom services on a pan-India
3. The government is implementing a program of connecting 66,822 uncovered villa
ges under the Bharat Nirman programme. The government will invest US$ 2 billion
to set up 112,000 community service centres in rural India to provide broadband
connectivity in 2008-09
4. The Department of Telecommunications (DoT) has stated that foreign telecom co
mpanies can bid for 3G spectrum without partnering with Indian companies. Only a
fter winning a bid, would they need to apply for unified access service licence
(UASL) and partner with an Indian company in accordance with the FDI regulations
5. TRAI’s role is to monitor the telecom sector providers, to check if they are
following the policies and regulations issued by DoT.
5.1: Department of Telecommunications: The Department of Telecommunications is p
art of the Ministry of Communications and Information Technology in the executiv
e branch of the Government of India.
Telecom services have been recognized the world-over as an important tool for so
cio-economic development for a nation and hence telecom infrastructure is treate
d as a crucial factor to realize the socio-economic objectives in India. Accordi
ngly, the Department of Telecom has been formulating developmental policies for
the accelerated growth of the telecommunication services. The Department is also
responsible for grant of licenses for various telecom services like Unified Acc
ess Service Internet and VSAT service. The Department is also responsible for fr
equency management in the field of radio communication in close coordination wit
h the international bodies. It also enforces wireless regulatory measures by mon
itoring wireless transmission of all users in the country.

5.2: Major Telecom Policies of DoT:

1. National Telecom Policy – 1994: The new economic policy adopted by the govern
ment aims at improving India s competitiveness in the global market and rapid gr
owth of exports. Another element of the new economic policy is attracting foreig
n direct investment and stimulating domestic investment. Telecommunication servi
ces of world class quality are necessary for the success of this policy. It is,
therefore, necessary to give the highest priority to the development of telecom
services in the country.
2. New Telecom Policy - 1999: This focused on the balance between universal serv
ice to all uncovered areas, including the rural areas, and high-level services c
apable of meeting the needs of the country’s economy, Strengthen research and de
velopment efforts in the country and provide an impetus to build world-class man
ufacturing capabilities, Achieve efficiency and transparency in spectrum managem
ent, Protect the defense and security interests of the country Enable Indian Tel
ecom Companies to become truly global players.
3. Addendum to NTP – 1999: Government has decided that there shall also be the f
ollowing categories of licenses for telecommunication services:
(i) Unified License for Telecommunication Services permitting Licensee to provid
e all telecommunication/telegraph services covering various geographical areas u
sing any technology
(ii) (ii) License for Unified Access (Basic and Cellular) Services permitting Li
censee to provide Basic and /or Cellular Services using any technology in a defi
ned service area.
4. Broadband Policy - 2004: Recognizing the potential of ubiquitous Broadband se
rvice in growth of GDP and enhancement in quality of life through societal appli
cations including tele-education, tele-medicine, e-governance, entertainment as
well as employment generation by way of high speed access to information and web
-based communication.

5.3: Telecom Regulatory Authority of India:

The Telecom Regulatory Authority of India (TRAI) established in 1997 is the inde
pendent regulator established by the Government of India to regulate the telecom
munications business in India.
5.4: Mission of TRAI: The mission of Telecom Regulatory Authority of India (TRAI
) is to ensure that the interests of consumers are protected and at the same tim
e to nurture conditions for growth of telecommunications, broadcasting and cable
services in a manner and at a pace which will enable India to play a leading ro
le in the emerging global information society.
5.5: Responsibilities: Notwithstanding anything contained in the Indian Telegrap
h Act, 1885, the functions of the Authority are to:
1. Make recommendations, either suo motu or on a request from the licensor,
on the following matters, namely:
i. Need and timing for introduction of new service provider;
ii. Terms and conditions of license to a service provider;
iii. Revocation of license for non-compliance for terms and conditions of lic
iv. Measures to facilitate competition and promote efficiency in the operati
on of telecommunication services so as to facilitate growth in such services.
v. Technological improvements in the services provided by the service provi
vi. Type of equipment to be used by the service providers after inspection o
f equipment used in the network.
vii. Measures for the development of telecommunication technology and any oth
er matter relatable to telecommunication industry in general;
viii. Efficient management of available spectrum;
2. Discharge the following functions, namely:
i. Ensure compliance of terms and conditions of license;
ii. Notwithstanding anything contained in the terms and conditions of the li
cense granted before the commencement of the Telecom Regulatory Authority (Amend
ment) Ordinance,2000, fix the terms and conditions of inter-connectivity between
the service providers;
iii. Ensure technical compatibility and effective inter-connection between di
fferent service providers.
iv. Regulate arrangement amongst service providers of sharing their revenue
derived from providing telecommunication services;
v. Lay down the standards of quality of service to be provided by the servi
ce providers and ensure the quality of service and conduct the periodical survey
of such service provided by the service providers so as to protect interest of
the consumers of telecommunication services;
vi. Lay down and ensure the time period for providing local and long distanc
e circuits of telecommunication between different service providers;
vii. Maintain register of interconnect agreements and of all such other matte
rs as may be provided in the regulations;
viii. Keep register maintained under clause (viii) open for inspection to any
member of public on payment of such fee and compliance of such other requirement
as may be provided in the regulations;
ix. Ensure effective compliance of universal service obligations:
3. Levy fees and other charges at such rates and in respect of such service
s as may be determined by regulations.
4. Perform such other functions including such administrative and financial
functions as may be entrusted to it by the Central Government or as may be nece
ssary to carry out the provisions of this Act:
Provided that the recommendations of the Authority specified in the clau
se (a) of this sub-section shall not be binding upon the Central Government:
Provided further that the Central Government shall seek the recommendati
ons of the Authority in respect of matters specified in sub-clauses (i) and (ii)
of clause (a) of this sub-section in respect of new licence to be issued to a s
ervice provider and the Authority shall forward its recommendations within a per
iod of sixty days from the date on which that Government sought the recommendati
Provided also that the Authority may request the Central Government to f
urnish such information or documents as may be necessary for the purpose of maki
ng recommendations under sub-clauses (i) and (ii) of clause (a) of this sub-sect
ion and that Government shall supply such information within a period of seven d
ays from receipt of such request:
Provided also that the Central Government may issue a licence to a servi
ce provider if no recommendations are received from the Authority within the per
iod of specified in the second provision or within such period as may be mutuall
y agreed upon between the Central Government and the Authority.
Provided also that if the Central Government having considered that reco
mmendation of the Authority comes to a prima facieconclusion that such recommend
ation cannot be accepted or needs modifications, it shall, refer the recommendat
ions back to the Authority for its reconsideration, and the Authority may within
fifteen days from the date of receipt of such reference, forward to the Central
Government its recommendation after considering the reference made by the Gover
nment. After receipt of further recommendation, if any, the Central Government s
hall take a final decision.

5.6: Role of TRAI: One of the main objectives of TRAI is to provide a fair and t
ransparent policy environment which promotes a level playing field and facilitat
es fair competition. In pursuance of above objective TRAI has issued from time t
o time a large number of regulations, orders and directives to deal with issues
coming before it and provided the required direction to the evolution of Indian
telecom market from a Government owned monopoly to a multi operator multi servic
e open competitive market. The directions, orders and regulations issued cover a
wide range of subjects including tariff, interconnection and quality of service
as well as governance of the Authority. The functions of TRAI can be divided as
Recommendatory functions and Mandatory Functions.
5.6.1: Recommendatory functions:
• Need and timing for introduction of new service provider
• Terms and conditions of licence to a service provider
• Revocation of license for non-compliance of terms and conditions of license
• Measures to facilitate competition and promote efficiency in the operation to
facilitate growth in industry
• Technological improvement in services by service providers
• Inspection of type of equipment used by service provider
• Measures for Technological development
• Efficient Management of available spectrum
5.6.2: Mandatory Functions:
• Fix the terms and conditions of their inter connectivity between service provi
• Ensure Technical compatibility and effective inter-connection between differen
t service providers
• Regulate arrangements for sharing of revenues amongst service providers
• Lay-down the standards of quality of services to be provided by service provid
er, ensure this by periodical survey
• Lay-down and ensure time period for providing local and long-distance circuits
of telecommunication between different service providers
• Maintain inter-connect agreement register
• Ensure compliance of USO(universal service obligation)

Chapter 6: Understanding Indian Market:

6.1: P.E.S.T. Analysis of Indian Market:
Political: Since liberalization, the timely interventions carried out by the pol
icy and regulatory institutions of Government of India coupled with the operator
s initiative has catapulted India into a coveted exclusive club of high telecom
growth nations. The chart below shows the impact of interventions: National Tele
com Policy 99(NTP 99), Introduction of newer cellular licensees, introduction of
Calling Party Pays (CPP) regime and reduction of Access Deficit Charges (ADC) o
n the cellular tariffs which have fallen by an unprecedented 90% in the last sev
en years and have been the driver for the mobile boom in the country.
The increase in foreign direct investment (FDI) limit to 74% up from the previou
s cap of 49% in the sector coupled with the simplification of the long distance
license conditions resulted in a significant increase in foreign investments, wh
erein the share of telecom in India’s FDI rose from 3-4% to 12-15% in the past 1
2 months.
Going forward, more initiatives in form of reduced regulatory and tax levies and
faster resolution to pending critical issues such as spectrum and interconnecti
on is required to keep the telecom growth on course for India and for it to main
tain its distinction of having the fastest growing Telecom sector in the world.
Economical: The inflation rate in India is stable and fair. Moreover the exchang
e rates are stable. Here is regular and continuous economic growth. The GDP and
GNP figures are increasing. So, country depicts a good opportunity for the compa
nies to invest. Economic factors are one of the most critical factors for this i
ndustry. Repurchasing power of Indian consumer is considerably high and the need
is also increasing with growth and thus the demand for the service.
Social: Telecommunication in India is playing a vital role in strengthening the
social bonds. They are connecting people. These companies are also undergoing CS
R programs where in they are showing their responsibility towards society. There
are various factors that companies consider while tackling with the social resp
onsibility. These companies are socially acceptable as they are directly serving
The market size of India is considerably high and still there is a lot of untapp
ed market. Moreover double income families are coming more into picture. So, the
demand is rising. The demography of Indian market makes it an attractive locati
on for the investors to invest.
Technological: Technological environment for Indian telecom sector is evolving a
t a very fast pace. There are continuous and regular technological up gradations
that are making the sector more intense for business. Some of the recent techno
logical developments in the sector are:
1. 3G (Third generation technology): The Indian government plans to auction the
spectrum for 3G services by inviting bids from domestic as well as foreign playe
rs, and creating a competitive environment that offers better services to consum
ers. Therefore, the 3G spectrum is among the major investment opportunities and
growth drivers of the telecom industry.
• The immense potential for 3G is reflected by the 30–40 percent annual growth i
n Value- Added Services.
• Cell phone manufacturers are striving to develop USD 100 priced 3G handsets fo
r the Indian market.
2. WiMAX (World-wide Interoperability for micro-wave Access): It has been one of
the most significant developments in wireless communication in the recent past.
Since this mode of communication provides network access in inaccessible locati
ons at a speed of more than 4 Mbps, it is expected to be a major factor in drivi
ng telecom services in India, especially wireless services. Thus, it will lead t
o the increased use of telecom services, Internet, value-added services and ente
rprise services. WiMAX is expected to accelerate economic growth and assist in p
roviding better education, healthcare and entertainment services.
• It is estimated that India will have 13 million WiMAX subscribers by 2012.
• Aircel is the pioneer in WiMAX technology in India.
• The state-owned player, BSNL, aims to connect 74,000 villages through WiMAX.
3. Mobile number portability: It is a standard where a customer wishing to port
his/her number is required to contact the Donor to obtain a Port Authorisation C
ode (PAC) which he/she then has to give to the Recipient. Once having received t
he PAC the Recipient continues the port process by contacting the Donor. This fo
rm of porting is also known as Donor-Led and has been criticised by some indus
try analysts as being inefficient. It has also been observed that it may act as
a customer deterrent as well as allowing the Donor an opportunity of winning-ba
ck the customer. This might lead to distortion of competition, especially in th
e markets with new entrants that are yet to achieve scalability of operation.
4. Infrastructure sharing: To reduce their network deployment costs, many servic
e providers are considering infrastructure sharing offers the following advantag
• Improved service quality
• Increased affordability for customers
• Faster roll out of services in rural and remote areas
• Significant reduction in initial set up costs
• Lower operating costs for service providers
• Increased environmental aesthetics
5. Value Added Services (VAS): The VAS industry was worth USD 632 million in 200
6–07. The industry is estimated to grow by 60 percent in 2007–08 and become an U
SD 1,011 million opportunity. The VAS industry is currently focussing on the ent
ertainment sector, such as the Indian film industry and cricket; however, there
is scope for growth in other avenues as utility-based services, such as location
information and mobile transactions.
Thus, analysis of P.E.S.T. factors depicts the charm of India as being a favoura
ble location for the FDIs in telecom sectors. Almost all the factors are favoura
ble and further improvements are taking place with the advent of time.
6.2: SWOT analysis:
1. Enormous customer base in the wireless segment: The Telecom subscription
data as on 31st August 2009 is as follows:
• The number of telephone subscribers in India increased to 494.07 Million at th
e end of August 2009 from 479.07 Million in July 2009
• 15.08 Million new additions in the wireless segment
• Growth rate of 3.13%
2. Decline in Tariffs: There has been a substantial decline in tariffs over
the years.
Local call tariff for mobile @ Rs 15.00 is now less than Re 1.00
One minute STD call between Delhi and Mumbai at the rate of Rs.37.00 now
cost Re 1.00 i.e. at the rate of local call
ISD call to American continent @ Rs. 75.00 now costs less than Rs 7.00
3. The adoption of new technology has been a major factor that has helped s
ervice providers reduce the tariffs considerably.
4. Rural Public Telephony: Rural India had 76.65 million fixed and Wireless
in Local Loop (WLL) connections and 551,064 Village Public Telephones (VPT) as
on September 2008. Therefore, 92 per cent of the villages in India have been cov
ered by the VPTs. Universal Service Obligation (USO) subsidy support scheme is a
lso being used for sharing wireless infrastructure in rural areas with around 18
,000 towers by 2010. It is believed that of the next 250 million people expected
to go mobile; at least 100 million will come from rural areas.
5. India is the fastest growing free market democracy in the world. India’s
emergence as a leading destination for foreign investment is a result of:
• Stable Economic Outlook
• Large Market Potential
• Large talent pool
• Low Labour Cost
1. Weak Infrastructure - Huge initial fixed cost for service providers
2. Limited spectrum availability: With private initiatives increasing in te
lecom and broadcast service provision, demand for spectrum has increased. Digita
l technology has increased the scope of applications and created new areas of se
rvice provision. Cellular telephony and wireless Internet are examples of such s
ervices. Despite technological changes that reduce the demand for spectrum, avai
lability of spectrum continues to be a constraint. In order to allocate spectrum
amongst competing service providers, regulatory agencies often use auctions. Fr
om the regulatory and policy perspective, spectrum auctions ensure efficient usa
ge by allocating it to those entities that value it most, while also generating
revenues for governments. But auctions may lead to unexpected outcomes as, for e
xample, when regulatory agencies have inadequate market information, there may b
e a mismatch between expected and actual bidder behaviour, or auctions may be po
orly designed. The key challenge before regulatory agencies is to design auction
s in such a way as to meet the objective of fostering competition while at the s
ame time ensuring that bidders can effectively use the spectrum for their busine
3. Huge costs for advanced technologies like Mobile Number Portability (MNP
4. Indian companies do not have the expertise in running multi-country oper
1. Emerging Technologies: 3G,WiMax
2. Rural telephony: It is believed that of the next 250 million people expe
cted to go mobile; at least 100 million will come from rural areas. The rural mo
bile penetration is highest in Punjab (20.69 per cent), followed by Himachal Pra
desh (17.09 per cent), Kerala (10.63 per cent) and Haryana (10.20 per cent).
3. World’s largest untapped mobile market: Although the telecom sector in I
ndia is growing strong as compared to other sectors, on a worldwide perspective
India seems to be the largest untapped mobile market as can be seen below.
4. Enormous potential in VAS: There is enormous growth potential in the value ad
ded services (VAS) as can be seen below in the case of penetration of GPRS (Gene
ral Packet Radio Service). The penetration of GPRS enabled handsets are close to
26% in India as against 99% in South Korea and 76% in Japan. Consumers today en
gage more in text based services than the web based applications. Therefore for
MVAS to grow to its full potential the handset manufacturers will have to look a
t ways to manufacture GPRS enabled phones which are affordable and user friendly
. They also need to increase its awareness and educate the consumers on how to u
se GPRS.
5. New players and services bring in huge investments
6. Tier-2, tier-3 cities can accommodate more players
1. Conflict between DoT and TRAI: The absence of clear separations in DoT’s resp
onsibilities for policy, regulation and operations led to several delays and low
ered the credibility of the government. TRAI had earlier told DoT that 3G auctio
n should be restricted to existing operators on the grounds that new players wou
ld find it difficult to roll out services quickly. TRAI had argued that the exis
ting players were best placed to roll out 3G services at affordable rates given
that they already had a full-fledged operations running.
2. Wire line subscriber base declined (37.41 m in July2009 - 37.33 m August
3. Integration during Mergers is challenging
4. Unhealthy Competition: MTNL had refused to allow its spectrum to be used
by other service providers for about 2-3 years and finally came to a compromise
in 2001.
5. Number of operators per circle, are increasing, hence more competition.
6. ARPU is going down.
7. Cost per customer is very high in rural areas.
8. Spectrum a scare commodity.
9. Infrastructure readiness in rural.
10. PC prices are high.
11. Availability of content in local language.
12. Availability of content for rural population.
13. International Bandwidth is costly.
6.5: Recent Trends in Indian Market:
1. License allotment: There were many licenses that were allotted to servic
e providers in 2008.
a. Unitech : license to operate in all 22 circles
b. Etisalat DB (Swan Telecom) : license to operate in 15 circles
c. Sistema Shyam TeleServices Ltd (SSTL) : license to operate in 21 circles
2. The Bharti – MTN deal was a failure. The positive aspect of this is that it r
uled away the possibility of the uncertainty involved in the merger. But the neg
ative aspect is that we lost an opportunity to make an impact in the global aren
a because MTN is the second largest telecom provider in South Africa and it play
s a substantial role in the global arena.
3. The revenue statement misappropriation by RComm: RComm had overstated it
s profits to the shareholders and understated the profits to TRAI. By doing this
they were able to evade a license fee of about 315 crores (the license fee and
the spectrum charges paid to TRAI is a percent of the profits made by the teleco
m provider).
4. TRAI’s announcement of ‘Per second billing’ caused much anxiety and the
stock prices of telecom companies plummeted. Then the TRAI chairman JS Sarma ann
ounced that the ‘Per second billing’ strategy was optional. Currently TTSL under
the brand name Tata DoCoMo and SSTL under the brand name MTS, are the service p
roviders operating with the per second billing strategy. In September, TTSL has
emerged as the top operator for the second consecutive month beating Bharti. TTS
L has added 4.1 million subscribers in September ‘09 and Bharti added 2.5 millio
n subscribers. One disadvantage that the telecom service providers face is that
more than 90% of the subscribers are on a prepaid connection and hence there is
no loyalty to any operator. About 40% of mobile users change their operator ever
y year as they move to new offerings just to try them out.

Chapter 7: Scope for FDIs in India:

7.1: Industry Attractiveness:
Telecom is one of the most favourable and high growth industries in India. The I
ndustry contributes to about 7-8% in the GDP of the country. The attractiveness
of this industry can be well explained by Porter’s 5 forces model.

fig: 7.1
• Rivalry among Competitors: In the telecom industry, rivalry among compet
itors is very fierce. There are scarce customers because the industry is highly
saturated and the competitors try to snatch their share of market. They use all
sorts of tactics from intensive advertisement campaigns to promotional stuff and
price wars etc. so overall the intensity of rivalry is very high. This rivalry
takes customers on a profitable situation wherein they have more room for bargai
Competition is "cut throat". The wave of industry deregulation together with the
receptive capital markets of the late 1990s paved the way for a rush of new ent
rants. New technology is prompting a raft of substitute services. Nearly everybo
dy already pays for phone services, so all competitors now must lure customers w
ith lower prices and more exciting services. This tends to drive industry profit
ability down. In addition to low profits, the telecom industry suffers from high
exit barriers, mainly due to its specialized equipment. Networks and billing sy
stems cannot really be used for much else, and their swift obsolescence makes li
quidation pretty difficult.
• Threat of New Entrants: The entry barriers in the industry are high as c
ompanies need to invest loads of money on setting infrastructure for the operati
ons. But industry as such does not have any measures with which it can control t
he entry of new firms. The resistance is very low and the structure of the indus
try is not so complex that new firms can easily enter and also offer tough compe
tition to the established players. Thus, potential entry of new firms is Low. Th
e players entering in the industry should have strong backup. Then only they can
make a significant entry in the sector.
It comes as no surprise that in the capital-intensive telecom industry the bigge
st barrier to entry is access to finance. To cover high fixed costs, serious con
tenders typically require a lot of cash. When capital markets are generous, the
threat of competitive entrants escalates. When financing opportunities are less
readily available, the pace of entry slows. Meanwhile, ownership of a telecom li
cense can represent a huge barrier to entry. In the U.S., for instance, fledglin
g telecom operators must still apply to the Federal Communications Commission (F
CC) to receive regulatory approval and licensing. There is also a finite amount
of "good" radio spectrum that lends itself to mobile voice and data applications
. In addition, it is important to remember that solid operating skills and manag
ement experience is fairly scarce, making entry even more difficult.

• Threat of Substitute products: Though there are complex and never ending
consumer needs and no firm can satisfy all sorts of needs alone. But substitute
s are very rare for this service. Especially in a country like India, majority o
f population lives in the rural areas and are not exposed to the Internet etc. S
o companies enjoy a very less threat of substitutes. Moreover with the advent of
technology and introduction of innovations this service is becoming unique of i
ts own.
Products and services from non-traditional telecom industries pose serious subst
itution threats. Cable TV and satellite operators now compete for buyers. The ca
ble guys, with their own direct lines into homes, offer broadband internet servi
ces, and satellite links can substitute for high-speed business networking needs
. Railways and energy utility companies are laying miles of high-capacity teleco
m network alongside their own track and pipeline assets. Just as worrying for te
lecom operators is the internet: it is becoming a viable vehicle for cut-rate vo
ice calls. Delivered by ISPs - not telecom operators - "internet telephony" coul
d take a big bite out of telecom companies core voice revenues.
• Bargaining power of suppliers: The bargaining power of suppliers of raw
materials and intermediaries is not very high. There is ample number of substitu
te suppliers available and the raw materials are also readily available. There i
s no monopoly situation in the supplier side because the suppliers are also comp
eting among themselves.
At first glance, it might look like telecom equipment suppliers have considerabl
e bargaining power over telecom operators. Indeed, without high-tech broadband s
witching equipment, fibre-optic cables, mobile handsets and billing software, te
lecom operators would not be able to do the job of transmitting voice and data f
rom place to place. But there are actually a number of large equipment makers ar
ound. There are enough vendors, arguably, to dilute bargaining power. The limite
d pool of talented managers and engineers, especially those well versed in the l
atest technologies, places companies in a weak position in terms of hiring and s

• Bargaining power of buyers: With increased choice of telecom products an

d services, the bargaining power of buyers is rising. Let s face it; telephone a
nd data services do not vary much, regardless of which companies are selling the
m. For the most part, basic services are treated as a commodity. This translates
into customers seeking low prices from companies that offer reliable service. A
t the same time, buyer power can vary somewhat between market segments. While sw
itching costs are relatively low for residential telecom customers, they can get
higher for larger business customers, especially those that rely more on custom
ized products and services.
Bargaining power of consumers very high. This is because in telecom industry the
switching costs of most of the goods is low and there is no threat of buying pr
oduct from different service providers. So, the cost of switching is low. Moreov
er with the advent of technology it is increasing day by day. There are various
schemes like ‘Number Portability’ which levy Customers with very high bargaining
power. Now customers would never feel reluctant to buy or try new service provi
ders from time to time.

Rivalry among competitors.
Very High
Threat of new Entrants.
Presence of substitute products.
Very Low
Bargaining power of suppliers.
Bargaining power of Buyers.
Very High
Table: 7.1
Thus the following analysis makes it clear that the Industry is fairly attractiv
e. It has a huge potential for growth aswell.
7.2: What does the future holds for FDIs:
1. Managed services: Completely or partially outsource infrastructure or network
management operations.
2. Infrastructure sharing: Reduce their network deployment costs
3. Enterprise Telecom Services:
a. Voice over Internet protocol (VoIP)
b. Dedicated telecom communication systems
c. IT infrastructure enabled unified communication services
d. Virtual Private Network: Private data network that provides connectivity
within closed user groups via public telecommunication infrastructure
4. WiMAX: Worldwide Interoperability for Microwave Access. It provides network a
ccess in inaccessible locations at a speed of more than 4 Mbps. It is estimated
that India will have 13 m WiMAX subscribers by 2012.
5. Value Added Services:
a. Entertainment news (movies, cricket)
b. Location information
c. Mobile transactions
d. 3G: Offers better services to consumers
6. 4G or Fourth Generation Networks (deployment expected : 2010 – 2015)
7. Rural Telephony: Government targeting to increase rural teledensity to 25 per
cent by 2012.
7.3: Position of current players:
The Telecom Subscriber base in India is 494 million (August 2009) and the Major
players can be segmented into the below three categories:
o State owned companies - BSNL and MTNL
o Private Indian owned companies - Reliance, Tata Teleservices
o Foreign invested companies - Vodafone-Essar, Bharti Tele-Ventures, Idea
Cellular, Loop Mobile, Spice Communications
These players can be ranked based on the subscriber base, growth rate and profit
ability as:
1) Reliance Communications Limited
2) Bharti Airtel Limited
5) Hutchison Essar(Vodafone)
6) Ericsson
7) Nokia
8) Siemens Communications
9) Idea Cellular Limited
10) Tata Teleservices

On October 1, 2000 the Department of Telecom Operations, Government of India bec
ame a corporation and was renamed Bharat Sanchar Nigam Limited (BSNL). BSNL is n
ow India’s leading telecommunications company and the largest public sector unde
rtaking. It has a network of over 45 million lines covering 5000 towns with over
35 million telephone connections.
The state-controlled BSNL operates basic, cellular (GSM and CDMA) mobile, Intern
et and long distance services throughout India (except Delhi and Mumbai). BSNL w
ill be expanding the network in line with the Tenth Five-Year Plan (1992-97). Th
e aim is to provide a telephone density of 9.9 per hundred by March 2007. BSNL,
which became the third operator of GSM mobile services in most circles, is now p
lanning to overtake Bharti to become the largest GSM operator in the country. BS
NL is also the largest operator in the Internet market, with a share of 21 per c
ent of the entire subscriber base.
Established in 1985, Bharti has been a pioneering force in the telecom sector wi
th many firsts and innovations to its credit, ranging from being the first mobil
e service in Delhi, first private basic telephone service provider in the countr
y, first Indian company to provide comprehensive telecom services outside India
in Seychelles and first private sector service provider to launch National Long
Distance Services in India. Bharti Tele-Ventures Limited was incorporated on Jul
y 7, 1995 for promoting investments in telecommunications services. Its subsidia
ries operate telecom services across India. Bharti’s operations are broadly hand
led by two companies: the Mobility group, which handles the mobile services in 1
6 circles out of a total 23 circles across the country; and the Infotel group, w
hich handles the NLD, ILD, fixed line, broadband, data, and satellite-based serv
ices. Together they have so far deployed around 23,000 km of optical fiber cable
s across the country, coupled with approximately 1,500 nodes, and presence in ar
ound 200 locations. The group has a total customer base of 6.45 million, of whic
h 5.86 million are mobile and 588,000 fixed line customers, as of January 31, 20
04. In mobile, Bharti’s footprint extends across 15 circles.
Bharti Tele-Ventures strategic objective is “to capitalize on the growth opport
unities the company believes are available in the Indian telecommunications mark
et and consolidate its position to be the leading integrated telecommunications
services provider in key markets in India, with a focus on providing mobile serv

MTNL was set up on 1st April 1986 by the Government of India to upgrade the qual
ity of telecom services, expand the telecom network, introduce new services and
to raise revenue for telecom development needs of India’s key metros – Delhi, th
e political capital, and Mumbai, the business capital. In the past 17 years, the
company has taken rapid strides to emerge as India’s leading and one of Asia’s
largest telecom operating companies. The company has also been in the forefront
of 5 technology induction by converting 100% of its telephone exchange network i
nto the state-of-the-art digital mode. The Govt. of India currently holds 56.25%
stake in the company. In the year 2003-04, the company s focus would be not onl
y consolidating the gains but also to focus on new areas of enterprise such as j
oint ventures for projects outside India, entering into national long distance o
peration, widening the cellular and CDMA-based WLL customer base, setting up in
ternet and allied services on an all India basis.
MTNL has over 5 million subscribers and 329,374 mobile subscribers. While the ma
rket for fixed wireline phones is stagnating, MTNL faces intense competition fro
m the private players—Bharti, Hutchison and Idea Cellular, Reliance Infocomm—in
mobile services. MTNL recorded sales of Rs. 60.2 billion ($1.38 billion) in the
year 2002-03, a decline of 5.8 per cent over the previous year’s annual turnover
of Rs. 63.92 billion.
Reliance is a $16 billion integrated oil exploration to refinery to power and te
xtiles conglomerate (Source: It is also an i
ntegrated telecom service provider with licenses for mobile, fixed, domestic lon
g distance and international services. Reliance Infocomm offers a complete range
of telecom services, covering mobile and fixed line telephony including broadba
nd, national and international long distance services, data services and a wide
range of value added services and applications. Reliance IndiaMobile, the first
of Infocomm s initiatives was launched on December 28, 2002. This marked the be
ginning of Reliance s vision of ushering in a digital revolution in India by bec
oming a major catalyst in improving quality of life and changing the face of Ind
ia. Reliance Infocomm plans to extend its efforts beyond the traditional value c
hain to develop and deploy telecom solutions for India s farmers, businesses, ho
spitals, government and public sector organizations.
Until recently, Reliance was permitted to provide only “limited mobility” servic
es through its basic services license. However, it has now acquired a unified ac
cess license for 18 circles that permits it to provide the full range of mobile
services. It has rolled out its CDMA mobile network and enrolled more than 6 mil
lion subscribers in one year to become the country’s largest mobile operator. It
now wants to increase its market share and has recently launched pre-paid servi
ces. Having captured the voice market, it intends to attack the broadband market
Tata Teleservices is a part of the $12 billion Tata Group, which has 93 companie
s, over 200,000 employees and more than 2.3 million shareholders. Tata Teleservi
ces provides basic (fixed line services), using CDMA technology in six circles:
Maharashtra (including Mumbai), New Delhi, Andhra Pradesh, Tamil Nadu, Gujarat,
and Karnataka. It has over 800,000 subscribers. It has now migrated to unified a
ccess licenses, by paying a Rs. 5.45 billion ($120 million) fee, which enables i
t to provide fully mobile services as well.
The company is also expanding its footprint, and has paid Rs. 4.17 billion ($90
million) to DoT for 11 new licenses under the IUC (interconnect usage charges) r
egime. The new licenses, coupled with the six circles in which it already operat
es, virtually gives the CDMA mobile operator a national footprint that is almost
on par with BSNL and Reliance Infocomm. The company hopes to start off services
in these
11 new circles by August 2004. These circles include Bihar, Haryana, Himachal Pr
adesh, Kerala, Kolkata, Orissa, Punjab, Rajasthan, Uttar Pradesh (East) & West a
nd West Bengal.
On April 1, 1986, the Videsh Sanchar Nigam Limited (VSNL) - a wholly Government
owned corporation - was born as successor to OCS. The company operates a network
of earth stations, switches, submarine cable systems, and value added service n
odes to provide a range of basic and value added services and has a dedicated wo
rk force of about 2000 employees. VSNL s main gateway centers are located at Mum
bai, New Delhi, Kolkata and Chennai. The international telecommunication circuit
s are derived via Intelsat and Inmarsat satellites and wide band submarine cable
systems e.g. FLAG, SEA-ME-WE-2 and SEA-ME-WE-3.
The company s ADRs are listed on the New York Stock Exchange and its shares are
listed on major Stock Exchanges in India. The Indian Government owns approximate
ly 26 per cent equity, M/s Panatone Finvest Limited as investing vehicle of Tata
Group owns 45 per cent equity and the overseas holding (inclusive of FIIs, ADRs
, Foreign Banks) is approximately 13 per cent and the rest is owned by Indian in
stitutions and the public. The company provides international and Internet servi
ces as well as a host of value-added services. Its revenues have declined from R
s. 70.89 billion ($1.62 billion) in 2001-02 to Rs. 48.12 billion ($1.1 billion)
in 2002-03, with voice revenues being the mainstay. To reverse the falling reven
ue trend, VSNL has also started offering domestic long distance services and is
launching broadband services. For this, the company is investing in Tata Telserv
ices and is likely to acquire Tata Broadband.
Hutch’s presence in India dates back to late 1992, when they worked with local p
artners to establish a company licensed to provide mobile telecommunications ser
vices in Mumbai. Commercial operations began in November 1995. Between 2000 and
March 2004, Hutch acquired further operator equity interests or operating licen
ces. With the completion of the acquisition of BPL Mobile Cellular Limited in Ja
nuary 2006, it now provides mobile services in 16 of the 23 defined licence area
s across the country.
Hutch India has benefited from rapid and profitable growth in recent years. it h
ad over 17.5 million customers by the end of June 2006.
Indian regional operator IDEA Cellular Ltd. has a new ownership structure and gr
and designs to become a national player, but in doing so is likely to become a t
horn in the side of Reliance Communications Ltd. IDEA operates in eight telecom
“circles,” or regions, in Western India, and has received additional GSM license
s to expand its network into three circles in Eastern India -- the first phase o
f a major expansion plan that it intends to fund through an IPO, according to pa
rent company Aditya Birla Group .

All these players are using different strategies for gaining profitability and
enhancing customer base. These strategies used by the players can be seen by the
Porter’s Generic strategies (fig 7.2) which are:
Target scope
Low Cost
Product Uniqueness

(industry wide)


(Market Segment)

Siemens Communications
Idea cellular services

fig: 7.2
Chapter 8: Conclusion and Recommendations:
8.1: Conclusion:
8.2: Recommendations:
1. Increase FDI cap in the telecommunication sector.
2. Acquiring new subscribers by expanding in Semi Urban and Rural India.
3. Selling more value added services to existing subscribers at cheaper pri
4. Tap volume and revenue potential of next generation services.
5. Technological improvement in services by service providers.
6. Technical compatibility and effective inter-connection between different
service providers.
7. Efficient Management of available spectrum.