BETTING ON INDIA

We focus on two key sectors—first power which has lagged in growth but has great potential, and telecom which is exploding, as 3 million new customers sign up every month

Empire Bureau

TELECOMMUNICATIONS

India is the fourth largest telecom market in Asia after China, Japan and South Korea. The Indian telecom network is the eighth largest in the world and the second largest among emerging economies. At current levels, telecom intensiveness of Indian economy measured as the ratio of telecom revenues to GDP is 2.1 percent as compared with over 2.8 percent in developed economies.

Beating other manufacturing and services sectors, Indian telecom had attracted major inflow of FDI since August 1991. According to the numbers published by Investindiatelecom (an online agency which tracks developments in the Indian telecom sector), Indian telecom has grossed actual FDI worth Rs 9576.40 crore during the period starting from late 1991 to early 2003. Of the total FDI inflow in Indian telecom sector, the major share has gone towards investment in holding companies followed by cellular network and manufacturing and consultancy.

Several studies have indicated that an FDI flow of approximately $10 billion a year is required to achieve the desired 8 percent annual gross domestic product growth in India. Adds Vivek Mehra, executive director of global consultant PricewaterhouseCoopers "More FDI in such a scenario is, therefore, imperative given the lack of domestic sources for such huge investments. The telecom industry is facing tough times and foreign investors will invest large amounts in India only if they have majority stake."

1. India is the fifth largest telecom services market in the world; $17.8 billion revenues in FY 2005 
2. Industry grew by about 36% in FY 2005 over FY 2004 
3. 119 million subscribers - 48 million fixed lines and 71 million wireless - November 2005 
4. Telecom market has grown at about 25% p.a. over the last 5 years 
5. Wireless segment subscriber base grew at 85% p.a.; fixed line segment at about 10% p.a.  

STRUCTURE

1. The Indian telecom market has both public and private sector companies participating: 
   Public sector has over 60% market share, down from over 90% in 2000; 
   Private companies have added subscribers at a CAGR of 192% since 2000 
2. Mobile operators have deployed both CDMA (16 million users) and GSM (55 million users) wireless networks 
3. Value-added service features constitute 10% of revenue today (2% in 2001) 

POLICY

1. 74% to 100% FDI permitted for various telecom services
2. 100% FDI permitted in telecom equipment manufacturing. 
3. India has a telecom policy that aims to encourage private and foreign investment. 
   Highlights are: 

• An independent regulator—the Telecom Regulatory Authority of India (TRAI)
• Revenue-share model for licences issued by the Government for telecom services in India. Unified access licences are available for providing telecom services on a pan-India basis 
• Planned opening up of National Long Distance (NLD), International Long Distance (ILD) and other value-added services. 

MAJOR PLAYERS AND PRESENCE IN VALUE CHAIN
Company Services Investor Cellular Basic NLD1, ILD2
1. Bharti Televentures: Vodafone, SingaporeTelecom, Warburg Pincus 
2. Reliance Infocomm: Reliance Group 
3. Tata Indicom: Tata Group 
4. BSNL: Government of India 
5. Hutchison Essar: Hutchison Whampoa, Essar Group 
6. IDEA Cellular: AT&T, Tata Group,Birla Group 

Note: 1 National Long Distance
         2 International Long Distance Source: TRAI, DoT, TSMG Analysis 

OPPORTUNITY

1. Over 150% growth in telecom services is projected in 5 years
2. India will require large investments in network infrastructure 

OUTLOOK

1. India expected to be among the fastest growing telecom markets in the world 
2. Projected growth of 30-40% p.a. to reach 250 million subscribers by 2009-2010 
3. Over 3 million new users are added every month - mostly in wireless 

POTENTIAL

1. Favourable demographics and socio economic factors leading to high growth:
   Growth of disposable income combined with changes in lifestyle; Increasing affordability—low tariffs, easy payment plans and handset financing; Increased coverage and availability of mobile services 
2. Investment opportunity of $22 billion across many areas: 
   Telecom devices and software for Internet, broadband and direct to home services. Set top boxes, gateway exchange, modem, mobile handsets and consumer premise equipment, gaming devices, EPABX, telecom software Telecom services for voice and data via a range of technologies, applications and content development ranging from gaming to education.

click here for Power sector

June 2006