Overview:

With more than 1 billion telecom subscribers as on January 31, 2017, the Indian

telecom sector, which is the fastest-growing as well as second-largest after China,

continues to be on path of recovery. The sector during the past year has seen

improvements in various operating parameters like rising MOUs (minutes of usage),

increasing tele-density, double-digit growth in Internet subscribers and increasing

data-consumption levels. The government on its part has also supported the sector

with lots of positive initiatives such as Digital Literacy Scheme for rural India, NOFN

project, launching of payments banks, new spectrum trading rules, Digital India and

Make in India programs, which are helping in tapping the unexplored areas of the

sector. However, in spite of all these positives, the telecom industry is facing some

concerns in terms of spectrum crunch, quality of services, under-investment in passive

infrastructure, and intense competition among players; therefore, it would be crucial

for the whole telecom industry to tackle these issues before they escalate into major

hurdles for the sector in the coming years.

India is gearing to have full tele-density by 2020 and the target seems to be fully

achievable with telecom service operators who are expanding their reach every

quarter and with renewed focus on rural areas. However, lack of adequate telecom

infrastructure in semi-rural and rural areas could be one of the major hindrances in

tapping the potential rural telecom market, as service providers have to incur a

significant amount of capital expenditure in order to set up their presence in rural

areas. Moreover, these untapped areas not only lack basic infrastructure such as

roads and power but also face scarcity of trained personnel, which further creates

obstacles in deployment of services in these areas. On another front, in order to cater

to the growing demand for data consumption the telecom service operators have to

invest in improving passive infrastructure in the urban areas. The major challenge and

concern is the heavy cost of investment coupled with low investment returns along

with the lengthy process of getting clearances from various departments and

opposition from the RWAs on account of the widespread perception about health

hazards from the radiation emitted from such infrastructure. Furthermore, during the

year the problem of call-drops escalated which resulted in Telecom Authority of India

(TRAI) coming up with a proposal to penalize the operators for call-drops forcing them

to invest and improve the quality of service (QoS).

The operators in certain areas, however, are also facing the issue of lack of adequate

spectrum leading to higher capital expenditure on deployment of network as they need

more cell sites to improve their service quality. In addition, the sector continues to be

one of the most competitive resulting in thin operating margins and volatile trends in

realizations for the service providers as intense pressure and competitive pricing has

resulted in volatile ARPUs. Although the ARPUs are growing on y-o-y basis, yet they

are not having a stable growth curve.

However, on the brighter side, the guidelines on spectrum trading by the sector

regulator are pushing the sector toward consolidation. This will not only help in

optimum utilization of the resources including spectrum and tower infrastructure, but

will also improve the QoS. Moreover, the impending entry of Reliance JIO will not only

intensify the competition but also catalyse the mergers among smaller players, leading

to consolidation in the sector. The recent merger of MTS into RCom and spectrum-

buying agreements by Bharti Airtel from Videocon Telecommunications and Aircel are

the examples of the same. The fiscal year 2017 is evidently going to be a challenging

year for the telecom industry. Not only it faces the task to deal with the existing issues,
it also has to heavily invest in building ecosystem for new technologies that are most

likely to dominate the market.

Data as on 31st March 2017

Telecom subscribers wireless+wireline

Total Subscribers 1,194.58 Million
Urban Subscribers 692.97 Million
Rural Subscribers 501.61 Million
Market share of Private Operators 89.81%
Market share of PSU Operators 10.19%
Teledensity 92.98
Urban Teledensity 171.80
Rural Teledensity 56.91

Wireless Subscribers
Total Wireless Subscribers 1,170.18 Million
Urban Subscribers 672.42 Million
Rural Subscribers 497.76 Million
GSM Subscribers 1,157.59 Million
CDMA Subscribers 12.59 Million
Market share of Private Operators 91.06%
Market share of PSU Operators 8.94%
Teledensity 91.08
Urban Teledensity 166.71
Rural Teledensity 56.47

Wireline Subscribers
Total Wireline Subscribers 24.40 Million
Urban Subscribers 20.56 Million
Rural Subscribers 3.85 Million
Market share of Private Operators 29.71%
Market share of PSU Operators 70.29%
Teledensity 1.90
Urban Teledensity 5.10
Rural Teledensity 0.44
No. of Village Public Telephones (VPT) 2,29,685
No. of Public Call Office (PCO) 4,52,036

Source :TRAI(www.trai.gov.in)
Trends:Consumption & Production

Overall Data: March 2016 –March 2017

%age %age %age %age

QE Mar QE Jun QE Sep QE Dec QE Mar change change change change

over over over over

2016 2016 2016 2016 2017 Mar- Jun- Sep- Dec-

2016 2016 2016 2016

(12 (9 (6 (3

months) months) months) months)

1) Subscriber Base (in

million)

Wireline 25.22 24.74 24.49 24.40 24.40 -3.27% -1.39% -0.38% -0.02%

Wireless 1033.63 1035.12 1049.74 1127.37 1170.18 13.21% 13.05% 11.47% 3.80%

Total 1058.86 1059.86 1074.24 1151.78 1194.58 12.82% 12.71% 11.20% 3.72%

Rural 449.17 450.41 449.86 468.64 501.61 11.67% 11.37% 11.50% 7.04%

Urban 609.69 609.45 624.38 683.14 692.97 13.66% 13.71% 10.99% 1.44%

Analysis :
 The number of telephone subscribers in India increased from 1,151.78

million at the end of Dec-16 to 1,194.58 million at the end of Mar-17,

registering a growth of 3.72% over the previous quarter. This reflects year-

on-year (Y-O-Y) growth of 12.82% over the same quarter of last year. The

overall Teledensity in India increased from 89.90 as QE Dec-16 to 92.98 as

on QE Mar-17.
 Trend Subscriber Base 2016-2017
1400
1127.37 1170.18
1200 1033.63 1035.12 1049.74
1000
800
600
400
200
25.22 24.74 24.49 24.4 24.4
0
2016 2016 2016 2016 2017
QE Mar QE Jun QE Sep QE Dec QE Mar

Subscriber Base (in million) Wireline Wireless

Rural vs Urban Subscriber Base 2016-17

800 683.14 692.97
609.69 609.45 624.38
600 468.64 501.61
449.17 450.41 449.86
400

200

0
2016 2016 2016 2016 2017
QE Mar QE Jun QE Sep QE Dec QE Mar

Subscriber Base (in million) Rural Urban

 From the data available i.e. March 2016 –March 2017 the consumption pattern

has clearly seen a Y-O-Y growth of 11.67% in rural subscriber base and 13.65%

in urban subscriber base respectively which shows a promisable trend within a

year and positive signs for the years to come. The overall consumption pattern

of last year has increased as the number of subscribers ultimately leading to th

sm
 Year Total Subscribers
2017 1,194.58
2016 1,151.78
2015 996.49
2014 933.01

Total Subscribers(in millions)

1400
1151.78 1194.58
1200
996.49
1000 933.01

800
600
400
200
0
2014 2015 2016 2017

 From the data trend in consumption pattern can be seen increasing over the

last 4 years with a CAGR of 6.373% from 2014-2017 which can be seen as the

substantial growth rate from 2014-2017.

 The increasing number of subscribers over the years shows that there is a great

demand of telephone usage and will continue to grow and telecom companies

will have a major role to play in this. With the entry of Reliance Jio and providing

unlimited data for free as an entry level offer to its users for six months made a
 huge impact on the demand of internet usage in India increasing the demand

of internet has increase drastically.

Year 2014 2015 2016 2017

Total Internet subscribers (in Millions) 251.59 302.35 391.5 422.19

Total Internet subscribers (in Millions)

450
422.19
400 391.5
350
300 302.35
250 251.59
200
150
100
50
0
2014 2015 2016 2017

The total number of internet subscribers from past four years have been

increasing continuously showing Y-O-Y growth as 20.71%,29.48%,7.8% in

between 2014-15,2015-16,2016-17 respectively and CAGR of 13.81% from

2014 -2017 which shows that demand of mobile internet subscribers has been

increasing at a good rate.

 Year 2014 2015 2016 2017
Data usage per subscriber per month(in MB) 61.66 99.46 878.63 1000

Data usage per subscriber per month(in MB)

1200

1000 1000
878.63
800

600

400

200
99.46
61.66
0
2014 2015 2016 2017

The data usage per subscriber has increased from the year 2014 to 2017

hugely. In the year 2014 it showed that only 61.66 mb is consumed per

Person , which rose to almost 1000 mb in the year 2017. This was largely

caused due to the introduction of Reliance Jio in the market which offered free

net subscription to its subscribers, and thus increased the craze of data

consumption by the subscribers.

Pricing Trends

YEAR 2014 2015 2016 2017

Monthly ARPU (GSM + CDMA) in INR 218 228 245 214

Monthly ARPU (GSM + CDMA) in INR

250
245 245
240
235
230
228
225
220
218
215 214
210
205
200
195
2014 2015 2016 2017

Monthly ARPU Includes Rental Revenue, Revenue from calls, Revenue from

SMS, Revenue from data usage, Revenue from other VAS

2016 was the year in which revenue reached its peak. After the introduction of

Reliance Jio in the market, the revenue of the all companies fell drastically and

thus in the year 2017, the monthly ARPU was reduced to 214 from a peak of

245.
 Unlimited calling Unlimited calling
Companies Amount within network to all networks Free data
145-149,
Airtel 354-399 Y,Y N,Y 300MB, 1GB/day
144-149,
Vodafone 344-349 Y,Y Y,Y 300MB, 1GB/day

idea 148,350 Y,Y N,Y 300MB, 1GB/day

Reliance
Communications 149 Y Y 300MB, 1GB/day

BSNL 3,39,149 Y,Y Y,Y 1GB/day,300MB

JIO 149,309 Y Y 2 GB, 1GB/day

Tata Docomo 348 Y Y 5GB

Recent Pricing Trends Of Major Companies

The recent pricing trends of tariffs which majority of the subscribers purchase

from the major companies have been shown in the table with the amount

ranging in between 145-399 in which the companies are offering attractive

offers like unlimited voice calling bundled with data packs of 1GB/day for more

than 60 days. The pricing has been cut throat and gives an insight on how the

telecom industry is waging the price wars to lure the customers.This pricing war

has been going on for a long time since the inception of more and more telecom

operators.

With the entry of JIO in September 2016 and giving free data and voice calling

to the customers it paved the way for new pricing war and increased the

competition to a great extent.

 Skill Work force Analysis

Workforce in the telecom industry will be increasing by the end of 2022 as predicted

by Primary Interactions: KPMG Analysis in comparison from 2013-2017 but the share

percentage will not be effected much in Infrastructure providers and service providers

showing only 1% drop in share percentage from 4% to 3% and 30 % to 29%

respectively. The share percentage predicts increase in Retail workforce of handsets

from 22% to 35%, drop in percentages by 7 % from 22 % to 15% in

telecommunications equipment manufacturing companies but increasing in the

number of employees and 4% drop in the share percentage of network and IT vendors

similarly with increase in number of employees.

As from the graph it can be seen that the workforce projection in 2017 is 804,254 and

will increase to 1,438,865 requiring 634,611 more skilled workers in telecom retail

which is 44.1 % more workforce than today in 2017.

As from the graph it can be seen that the workforce projection in 2017 is 110,227 and

will increase to 130,888 requiring 20611 more skilled workers in infrastructure

providers in 2022 which is 15.78% more workforce than today in 2017.

As from the graph it can be seen that the workforce projection in 2017 is 536,344 and

will increase to 635,821 requiring 99377 more skilled workers in Telecommunications

equipment 2022 which is 15.64% more workforce than today in 2017.

As from the graph it can be seen that the workforce projection in 2017 is 827,078

and will increase to 1,187,378 requiring 360,300 more skilled workers in

Telecommunications equipment 2022 which is 30.34% more workforce than today in

2017.
The overall industry analysis according to Primary Interactions ,KPMG analysis shows

the number of workforce available in 2017 as 2.85 million and will require 1.31 million

more workforce in 2022 to the predicted number of 4.16 million. The CAGR of

workforce required in industry from 2013 to 2022 is 8% within last 9 years as calculated

from the data available.

Technology in the Telecom Industry

Innovation has been an increasing source of dramatic change within the

telecommunications industry over the last 100 years. In fact, since deregulation first

allowed competitors into certain market segments, a series of important systemic

changes has dramatically affected the industry. With its history of innovations spawned

from Bell’s famous New Jersey laboratory, the industry is teeming with opportunities

to revisit and extend our theories. Dissecting any industry that attracts both top

engineers to solve its problems and leading government officials to craft its complex

regulations can only help further the academic study of the process of innovation.

Before diving too deeply, it is useful to highlight some important distinctions that define

the context within which this innovation and change has occurred.
Key segments in the wireless market:

Fixed wireless:

 Instead of laying cables everywhere, Fixed wireless can be used as a

substitute for high-speed telecommunication services. It is known as wireless

cable. e.g., MMDS

802.11/ wireless LAN:

 LAN refers to Local Area Network. 802.11 is the network standard for provision

of high-speed data in local area.

Satellite services:

 Using satellites as mechanism to send data and voice transmissions.

Cellular wireless services:

1G: Analog Cellular Networks

The main technological development that distinguished the First Generation mobile

phones from the previous generation was the use of multiple cell sites, and the ability

to transfer calls from one site to the next as the user travelled between cells during a

conversation. The first commercially automated cellular network (the 1G generations)

was launched in Japan by NTT in 1979.

In 1984, Bell Labs developed modern commercial cellular technology, which employed

multiple, centrally controlled base stations (cell sites), each providing service to a small

area (a cell). The cell sites would be set up such that cells partially overlapped. In a

cellular system, a signal between a base station (cell site) and a terminal (phone) only
need be strong enough to reach between the two, so the same channel can be used

simultaneously for separate conversations in different cells.

As the system expanded and neared capacity, the ability to reduce transmission power

allowed new cells to be added, resulting in more, smaller cells and thus more capacity.

2G: Digital Networks

In the 1990s, the 'second generation' (2G) mobile phone systems emerged, primarily

using the gsm standard. These 2G phone systems differed from the previous

generation in their use of digital transmission instead of analog transmission, and also

by the introduction of advanced and fast phone-to-network signalling. The rise in

mobile phone usage as a result of 2G was explosive and this era also saw the advent

of prepaid mobile phones.

The second generation introduced a new variant to communication, as SMS text

messaging became possible, initially on GSM networks and eventually on all digital

networks. Soon SMS became the communication method of preference for the youth.

Today in many advanced markets the general public prefers sending text messages

to placing voice calls.

Some benefits of 2G were Digital signals require consume less battery power, so it

helps mobile batteries to last long. Digital coding improves the voice clarity and

reduces noise in the line. Digital signals are considered environment-friendly. Digital

encryption has provided secrecy and safety to the data and voice calls. The use of 2G

technology requires strong digital signals to help mobile phones work properly.

“2.5G” using GPRS (General Packet Radio Service) technology is a cellular wireless

technology developed in between its predecessor, 2G, and its successor, 3G. GPRS

could provide data rates from 56 kbit/s up to 115 kbit/s. It can be used for services
such as Wireless Application Protocol (WAP) access, Multimedia Messaging Service

(MMS), and for Internet communication services such as email and World Wide Web

access.

2.75 – EDGE is an abbreviation for Enhanced Data rates for GSM Evolution. EDGE

technology is an extended version of GSM. It allows the clear and fast transmission of

data and information up to 384kbit/s speed.

3G: High-speed IP data networks

As the use of 2G phones became more widespread and people began to use mobile

phones in their daily lives, it became clear that demand for data services (such as

access to the internet) was growing. Furthermore, if the experience from fixed

broadband services was anything to go by, there would also be a demand for ever

greater data speeds. The 2G technology was nowhere near up to the job, so the

industry began to work on the next generation of technology known as 3G. The main

technological difference that distinguishes 3G technology from 2G technology is the

use of packet switching rather than circuit switching for data transmission.

The high connection speeds of 3G technology enabled a transformation in the

industry: for the first time, media streaming of radio and even television content to 3G

handsets became possible.

In the mid-2000s, the evolution of 3G technology begun to be implemented, namely

High-Speed Downlink Packet Access (HSDPA). It is an enhanced 3Gmobile telephony

communications protocol in the High-Speed Packet Access (HSPA) family, also

coined 3.5G, 3G+ or turbo 3G, which allows networks based on Universal Mobile

Telecommunications System (UMTS) to have higher data transfer speeds and

capacity. Current HSDPA deployments support downlink speeds of 1.8, 3.6, 7.2 and
14.0 Mbit/s. Further speed increases are available with HSPA+, which provides

speeds of up to 42 Mbit/s downlink and 84 Mbit/s with Release 9 of the 3GPP

standards.

4G: Growth of mobile broadband

Consequently, the industry began looking to data-optimized 4th-generation

technologies, with the promise of speed improvements up to 10-fold over existing 3G

technologies. It is basically the extension of the 3G technology with more bandwidth

and services offers in the 3G. The expectation for the 4G technology is basically the

high-quality audio/video streaming over end to end Internet Protocol.The first two

commercially available technologies billed as 4G were the WiMAX standard and the

LTE standard, first offered in Scandinavia by TeliaSonera.

One of the main ways in which 4G differed technologically from 3G was in its

elimination of circuit switching, instead of employing an all-IP network. Thus, 4G

ushered in a treatment of voice calls just like any other type of streaming audio media,

utilizing packet switching over the internet, LAN or WAN networks via VoIP and it is

called Voice over LTE (VoLTE).

4G LTE data transfer speed can reach peak download 100 Mbit/s, peak upload 50

Mbit/s, WiMAX offers peak data rates of 128 Mbit/s downlink and 56 Mbit/s uplink.
Profitability Analysis
TRENDS IN THE INDIAN TELECOM INDUSTRY:

Green Telecom-

 The green telecom concept is aimed at reducing carbon footprint of the telecom

industry through lower energy consumption.

 Tata has invested around US$16.38 million to convert its 10,000 base stations

from indoor to outdoor to reduce energy consumption and carbon footprint

across its 20 telecom circles in India so far.

Expansion to Rural Markets-

 There are over 62,443 uncovered villages in India; these would be provided

with village telephone facility with subsidy support from the government’s

Universal Service Obligation Fund (thereby increasing rural teledensity) .

 In March 2016, the rural subscriber base accounted for 42.42 per cent of the

total subscriber base, thereby fuelling growth across the sector.

Emergence of BWA Technologies-

 The most significant recent developments in wireless communication include

BWA technologies such as WiMAX and LTE.

 In 2015, Airtel launched its 4G services in 296 cities across the India

 In 2015, BSNL started its 1st 4G Wireless Broadband Internet Service- WiMax.

 Reliance Jio, launched 4G services across pan- India

Internet Of Things (IOT)-

 IoT is the concept of electronically interconnected and integrated machines,

which can help in gathering and sharing data. The Indian Government is

planning to develop 100 smart city projects, where IoT would play a vital role

in development of those cities.

Telecom Finance Commission-

 Department of Telecommunication is planning to issue a global tender for

inviting applications for setting up a Telecom Finance Corporation (TFC). The

government has fixed a deadline according to which TFC is expected to be

operational by March 31, 2017.

Rising investments-

 In 2017, Vodafone disclosed its plans to invest US$1310 million to upgrade and

expand Vodafone India network coverage and US$655 million to upgrade its

technology centre.

 In February 2017, Japanese Telecom company - Docomo, re-invested US$

1.18 billion in Tata Telecom, to gather a stake of 26.5 per cent in the company.

Outsourcing non-core activities-

 As part of the recent outsourcing trend, operators have outsourced functions

such as network maintenance, IT operations and customer service.

Mobile banking-

 In December 2016, 39.5 million mobile banking transactions were made, as

compared to 16.8 million in the same period in 2015.

 In May 2016, about 37 lakh mobile banking transaction attempts were able to

reach NPCI’s platform

 In March 2017, the government set a target of achieving 25 billion digital

transactions for banks with the help of PoS machines, transactions enabled &

merchants, which have been added in firms

 In March 2017, Samsung launched its mobile payment service, Samsung Pay,

to facilitate smooth payment at retail outlets, instead of using mobile wallets,

credit or debit cards.

Forecasting Challenges

Data realisation per MB to continue to fall and decrease by 20–25% in 2017: The Jio

pre-launch unleashed a price war on mobile data in India. Consequently, telcos will

experience reduced data realisation in 2017 as the increase in data traffic will not

compensate for the reduction in data revenues. Telcos will have no choice but to

accelerate the transformation of their delivery model towards a low cost per MB model,

leading to large cost-efficiency initiatives and optimisation of their 2G/3G/4G network.

Acceleration of fiberisation in India: Data price reduction, along with a consequent

surge in data demand, will accelerate focus on fibre deployment. Poor fibre

infrastructure is a bottleneck in providing cheap data services in India. With less than

20% of towers fiberised, India has a lot of ground to cover. We forecast the strong

acceleration of the fiberisation of networks in 2017.

Market to witness very affordable LTE- and VoLTE-compliant smartphones in 2017:

With its LYF smartphones, Jio has been a game changer both in terms of reduced

price points and LTE and VoLTE compliance across models. We expect that the other

players will follow suit and further reduce price points so that LTE and VoLTE become

default features. Such smartphones will also have a market demand pull on the back

of reduced data prices expected in 2017.

GST-related tax impact on telecoms expected to be minimal but telecoms to face

significant compliance costs in the new GST regime: Output tax will increase and will

be offset to a large extent by input tax credits and supply chain efficiencies. However,

GST compliance costs related to multiple state registrations will be a significant burden

on telecoms.

Mobile advertising to be a key talking point but traditional advertising to continue to get

lion’s share: The industry is predicting 30+% growth in mobile Internet users from the

existing nearly 370 million user base. A recent survey shows that these users are

spending nearly 70% of their time online. This finding, coupled with predictions on

smartphone growth and lower data charges, indicates that mobile advertising will

attract attention. Nevertheless, the traditional advertising media of print and broadcast

will continue to dominate, accounting for nearly 90% of advertising spends.

Major Challenges
 Performance Summary of top companies in India
The quantity of subscribers for the organizations that hold a noteworthy piece of the

overall industry has been expanded from step by step.

Bharti Airtel was ahead of the pack of the considerable number of organizations and

constantly played in the highest position.

The quantity of subscribers has expanded in 2015 keeping the same Bharti Airtel in

any case. The relative increment in alternate organizations and the aggregate number

of supporters has ascended.

The generous development of subscribers has been up for the year 2016 moreover.

Before the finish of DEC 2016 the Airtel had very nearly 22% of the new supporters

and over 18.5% aggregate number of endorsers looked at.

Looking at the general development the subscribers the expansion in the aggregate

number of supporters has be clearly high and the significant players has likewise got

the endorsers expanded the year on year development of endorsers from 2014 – 2015

and 2015 - 2016 has given underneath.

 Subscribers of top 4 companies
1,036.41
1400
1,151.78
1200
970.97
1000

800
321.87
600 246.89
193.69 399.04
400 171.91 102.05 313.6
269.68
220.6 204.82
178.75 150.54 190.52 107.48
200 87.72
0
Bharti Vodafone Idea Reliance Others Total

2014 2015 2016

The above picture speaks to the subscribers’ base of the individual organization in

millions and that of the various players which share extensively low piece of the pie

among the players. Watching all, lone Reliance has got decrease in the subscriber

base and all the others have encountered a generous development

The year on year growth of the top 4 companies and the other small companies are

shown in

YoY Growth of Subscribers

30%
24%
25%
20%
14%
15% 12% 11% 11%
9% 8%
10% 6% 7%
5% 3%
0%
-5% Bharti vodafone idea reliance others total
-10% -5%
-15%
-14%
-20%

2014 2015

The year on year development level of subscribers for the year 2015 has diminished

contrasted with 2014. All the significant players has a normal lessening of 2% while
Reliance Group had a fall of 9%. The general subscribers of the business had done

up by 4% contrasted with the earlier year.

Gross revenues of the top companies:

The gross revenue of the main 4 players in the market has a positive surge from the

year 2015 to 2016. While there are players whose incomes has cut down definitely in

the expressed period, the general business had a positive development. The

credentials of the organizations are as per the following.

Gross revenues of top companies

160000
140000
120000
100000
80000
60000
40000
20000
0
Bharti vodafone idea reliance others total

2014 2015

The above graph talks about the development of gross revenues of the significant

players and in addition the other little players including the aggregate income of all

organizations. Reliance group has produced lesser income than the earlier year. The

various organizations had a development in their incomes similarly. The general

8.57% development of income has been produced in 2015 contrasted with 2014.