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8/6/2019 A Shende f s Ppt Assocham Telecom Conf 2006v3
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Agenda
1
2
Making the Case
3 Challenges in Indian Telecom Equipment Manufacturers Space
4
5
Challenges in Indian Telecom Handset Manufacturers Space
Challenges in Indian Telecom Service Providers Space
Recommendations
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1
2
Recommendations
Making the Case
3 Challenges in Indian Telecom Equipment Manufacturers Space
4
5
Challenges in Indian Telecom Handset Manufacturers Space
Challenges in Indian Telecom Service Providers Space
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The Indian Telecommunications Industry at a Glanceü~ 125 million subscribers as of Dec 2005
üMore than 4 million subscribers added per month
üThe sector has grown at ~ 35% p.a. in 2005
üTotal current investments of the telecom industry are over INR 90,000 crores
ØTotal FDI till September 2005 was INR 41,800 crores
üNetwork connecting close to 4500 towns & cities and more than 65,000 villages
üA sector, which in less than 10 years, has increased Indian tele-density to 12
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While the tariffs have decreased, the subscriber base has exploded
14 14
6
3.58
2
1.60.44
0.4
0.881.2 1.88
3.58
6.5
13
33.31
51.53
0
10
20
30
40
50
60
0
2
4
6
8
10
12
14
16
1998 1999 2000 2001 2002 2003 2004 2005
M o b i l e s u b s c r i b e r b a s e ( i n M i l l i o n ) E f f e c t i v e c h a r g e ( i n R s . p e r m i n )
Effe ctive cha rge (in Rs. Pe r Su bscribe r Ba se (in m
3rd & 4th Cellular Operator
CPP Introdu ced
Low ering of ADC from 30
to 10% of sector revenueNTP'99
Source: TRAI Study paper No 2/2005
•The minutes of usage per month per subscriber has also increased from 114 minutes in 1999 to 367 minutes in 2005
•The per subscriber mE usage has increased from 12-15 mE per subscriber in 1999 to ~30 mE per subscriber in 2005
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But the biggest challenge is decreasing ARPU …
Source: TRAI Performance Indicators
1299
1160
821
740
512
399374
0
200
400
600
800
1000
1200
1400
A R P U
i n I N R
p e r S u b s c r i b e r p e r M o n
t
1999 2000 2001 2002 2003 2004 2005 2006
? –> What Next
•Global average ARPU – USD 21•Indian Average ARPU – USD 8
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Legacy
Telecom
FixedLineWi
reless
Diversified
Telecom
Solutions
Wir eless
Applications
E/MPayment
NewTelecomBusiness
Ecosystem
Telecom ServiceFocused Business
Telecom Service Blendedwith Emerging Areas likeVAS & Mobile Applications
Transform to be Telecom Ecosystem Enabler
Early VerticalSpecificprograms
Mobile Wallets andPayment
Third-partyconsumer andearly enterprise
Access and earlyapplications
Historic
Transition
Future
The New Business Strategy: From Services to Business Ecosystem
Radio
Paging
FixedLine
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The New Telecom Ecosystem – Feeder Model
NewTelecom
BusinessEcosystem
WirelessServiceProvider
Fixed LineServiceProvider
TelecomHandset
Manufacturers
TelecomNetwork
EquipmentManufactur
ers
TelecomTransmissionEquipment
Manufacturer
s
Application&
ContentProviders
Active &Passive
Infrastructur e
Providers
Drive Indian EconomyTowards the 10%Economy Growth
Target
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What the New Ecosystem Will do ?
If the new ecosystem is established to meet the target of 250 million subscribers, then the
•Increase in tele-density will increase the rate of growth of GDP
–A 1% increase in tele-density results in 3% increase in rate of GDP growth rate
•Current 5 million jobs generated by this sector can increase to 12 million
•Proper facilitation to various sub-sectors in the ecosystem can increase revenues generated by
the telecom industry for the government
–Mobile services industry’s annual contribution of INR 32,000 crores can increase beyond
INR 50,000 crores
–The annual revenues for the government by mobile industry can increase from INR 15,000
crores to INR 65,000 crores
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1
2
Making the Case
3 Challenges in Indian Telecom Equipment Manufacturers Space
4
5
Challenges in Indian Telecom Handset Manufacturers Space
Challenges in Indian Telecom Service Providers Space
Recommendations
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Levies & Duties•The Indian Telecom sector has one the highest levies and duties imposed on it
–The total regulatory charges are between 17 ~ 26% exclusive of goods and service tax
•This high incidence of levies and duties means a low return on capital , thus adversely impacting
availability of funds for network expansion
–The return on capital expenditure for mobile services is very low in India at 7.8%
•Clubbing low tariffs, falling ARPU’s and high levies and duties means lower funds with players to
reinvest in a constantly funds demanding nature of business
Regulatory charges % age of revenue
Service tax, GST 10% + GST
License Fee 5 – 10%
Spectrum Charge 2 ~ 6%*
USO Included in license fees
Total Regulatory charges 17%~26% + GST
* Backbone spectrum charges extra GST – Goods & Service Tax Source: TRAI
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Spectrum
•To enable a faster expansion of wireless telephony, adequate spectrum is a pre-requisite
•The growing telecom industry has witnessed a surge in spectrum usage from 12-15 mE per user
in early 2000 to close to 30 mE per user in 2005. The net result is the congestion in networks.
Since spectrum is not available, operators tend to reuse the same spectrum across multiple sites
thereby causing interference and call drops.
•The increase in FDI limit will see the true benefits once the spectrum issues is resolved. The
international Telco provider community is keenly watching the developments towards spectrum
resolution and wants it to be sorted out before it can invest in this growing market.
–An increased FDI activity can help Indian Telecom industry to meet the 250 million target
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Connecting Rural India
•More than 70% of Indian population lives in the rural India but contribution from rural India to
Indian Telecom industry stands at a mere 20%.
•Rural tele-density stands at a mere 1.5%
•Mobile and wireless services have not penetrated rural areas the way they should.
•USO concept is a good way to achieve faster growth and penetration in really remote areas. It is
an effective way to meet government’s obligation to provide service in rural areas.
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Infrastructure Sharing & Clearing Issues
•Being a developing country, duplication of infrastructure is a colossal waste. Infrastructure
sharing, as an option, should be considered more seriously
•The players face enormous delays in obtaining Right of Way from different agencies like NHAI,
pollution board, municipal corporations etc thus hampering faster network roll outs
–Changing local rules and regulations across different states handicaps roll outs instead of expediting
at this time
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1
2
Making the Case
3 Challenges in Indian Telecom Equipment Manufacturers Space
4
5
Challenges in Indian Telecom Handset Manufacturers Space
Challenges in Indian Telecom Service Providers Space
Recommendations
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Challenges Faced by Indian Equipment Manufacturers Industry
•The current demand – supply mismatch
–The industry needs to add capacity in tunes of 150 million lines to achieve the target of 250 million
subscribers by 2007•major portion of these requirements would be catered to by importing the required telecom equipment
•
•Inverted duty structure currently hampering the industry
–The customs duty on the finished product is lower than the inputs used to manufacture it
–The telecom infrastructure equipment, majority of which is imported annually into the country at 5
percent customs duty. Whereas, duties are levied (10 - 30 percent) on inputs that go into the
manufacturing of this equipment, except ICs at zero percent, making domestic production costlier
than the imported equipment
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1
2
Making the Case
3 Challenges in Indian Telecom Equipment Manufacturers Space
4
5
Challenges in Indian Telecom Handset Manufacturers Space
Challenges in Indian Telecom Service Providers Space
Recommendations
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Challenges Faced by Indian Handset Industry
•The mobile handset manufacturers have till recently bypassed India completely despite the pace
at which the handset sales have been growing for the past two - three years
–
The handset market in 2005 was over 30 million units, till recently all handsets were imported intoIndia
–No base of suppliers to source components
•
•Huge Gray Market – Almost 60 percent
–The hike in VAT on cell phones from 4 to 12.5 percent in the current budget will promote the gray
market for handsets
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1
2
Making the Case
3 Challenges in Indian Telecom Equipment Manufacturers Space
4 Challenges in Indian Telecom Handset Manufacturers Space
Challenges in Indian Telecom Service Providers Space
Recommendations5
R d ti
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Recommendations
•For infrastructure sectors, (e.g. power, roads etc.) 100% exemption is available for the full term of
10 years in succession and these 10 years can be opted from the block of 20 years. A similar
100% exemption for successive 10 years out of the 20 years should be allowed for Telecom
sector, which is currently at 5 years. This will result in higher disposable capital to reinvest in
business
•There should be no service tax on the IUC amount receivable from other operators. IUC is levied
for allowing the call from the cellular service provider to be carried over to the other service
provider.
•The cellular industry is presently paying a service tax of 10.2% on its gross revenues in addition
to state governments demanding sales tax on elements like airtime, rentals etc. The industry
thus faces double taxation with both sales tax as well as service tax being levied on it
•
R d ti
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Recommendations
•The government should seriously identify all the unused spectrums and allocate them to the
cellular industry. Also steps should be taken to enforce a more constructive and disciplined role
of spectrum utilization among service providers and other wireless users in the spirit of mutual
understanding and co-operation.
•The USO fund has yet to be utilized for practical implementation and state success stories. The
fund needs to be utilized by players more effectively and government should ensure that the
operators use this fund to enter into the rural India
•Infrastructure sharing should be mandated by the government, both for private operators as well
as incumbent
•A single window clearance system should be put in place to expedite all clearance related issues
and thus endure faster network roll-outs across India
•
R d ti
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Recommendations
•The government should encourage the vendors to manufacture handsets in the country rather
than just reducing the import duty
–
This would enhance the telecom ecosystem further as related ancillary units would flourish
–Government should work on policies to make India regional manufacturing hub for mobile handsets
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Thank You
www.frost.com
ashende@frost.com
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