Introduction
The telecommunication services have been recognised as an important tool for socio-economic development of a nation. It is one of the prime support services needed for rapid growth and modernisation of various sectors of the economy.
India with a user base of 120 million is the world's third largest internet market and is poised to have up to 370 million users in 2015.
Key Statistics
India is expected to have 130.6 million mobile internet users by March 2014, according to a joint study by the Internet and Mobile Association of India (IAMAI) and Indian Market Research Bureau (IMRB). The number of users accessing internet through mobile devices was 87.1 million in December 2012.
With the number of internet connections and the usage of computing devices on the rise, India's internet industry can contribute up to US$ 100 billion to India's gross domestic product (GDP) and generate about 22 million jobs by 2015, as per a report titled 'Online and Upcoming: The internet's Impact on India', released by McKinsey and Co. Internet services and devices industry has potential to increase its contribution up to 3.3 per cent to the country's GDP by 2015.
In addition, India can achieve broad-based internet impact by aiming for digital inclusion of nearly 40 per cent of its population to reach a user base of 500 million by 2015, rather than the likely target of 330-370 million, the report highlighted.
The telecommunications industry attracted foreign direct investments (FDI) worth US$ 12,623 million between April 2000 to December 2012, an increase of 7 per cent to the total FDI inflows in terms of US$, according to the latest data published by Department of Industrial Policy and Promotion (DIPP).
Market Dynamics
The Indian mobile phone market is highly competitive with more than 150 device manufacturers trying to woo the consumers with their offerings. Most of these producers focus their efforts on the low-cost feature phone market, which constitutes over 91 per cent of overall mobile phone sales, offering a huge scope for growth. Manufacturers like ZTE, Micromax, Karbonn Mobile, Huawei stood at sixth, seventh and twelfth positions respectively, in the Indian smartphone market in the first half of 2012. They are constantly enhancing their smartphone portfolio to compete with big global manufacturers like Samsung and Nokia, which held the first and second position respectively.
"India will add more Internet users than any country in the world over the next three years, as average penetration rises from 10 per cent to 28 per cent," as per McKinsey and Co report. Besides, with increased Internet penetration, 22 million jobs would be created by 2015.
Sony India expects to treble its revenue from smartphone business in 2013-2014. The firm's revenue from smartphone segment is targeted at Rs 3,500 crore (US$ 646.35 million) in 2013-14 as against nearly Rs 1,200 crore (US$ 221.60 million) in 2012-13, as per Mr Sachin Thapar, Business Head, Xperia, Sony India.
Key Developments & Investments
- Videocon Mobile Services plan to partner with Nokia Siemens Networks to roll out fourth generation (4G) technology based broadband services in India
- Telenor has inked a five year outsouring deal with Alcatel-Lucent for managing three GSM technology networks in western and southern India
- Reliance Communications (RCom) has awarded a US$ 1 billion outsourcing contract to Swedish telecom equipment-maker Ericsson, for a period of eight years, to manage its networks across the northern and western regions of India. Ericsson will also take over field maintenance, network operations and operational planning for RCom's 2G, CDMA and 3G mobile networks
- Bharti Airtel plans to buy Alcatel-Lucent's entire stake in a joint venture (JV) company-Alcatel Lucent Managed Network Service India Ltd-which manages the fixed-line and broadband network for Bharti Airtel
- Nokia India has entered into a strategic partnership with Idea Cellular to make services of Nokia Store and Nokia Music available to Idea Cellular consumers in India
- Reliance Industries Ltd (RIL) plans to invest US$ 10 billion in its long term evolution (LTE) network and is partnering with Russia-based Spirit DSP for software that will enable it to carry voice and video services over LTE network
Government Initiatives
- The Government intends to make India a teleport hub, enabling it to become an up-linking/down-linking centre, just like Hong Kong and Singapore. The Ministry of Information and Broadcasting (I&B), in consultation with the industry, will explore modalities, challenges and finalise the road map for the same. The initiative is expected to facilitate foreign investments, better technology and sustainable employment opportunities in the country. The Government has recently given its nod to 74 per cent of foreign direct investment (FDI) in DTH, IPTV, and mobile TV
- The telecom tower provider industry has been recently granted the 'infrastructure' status, a move that will make tower providers eligible for viability gap funding, higher limit on external commercial borrowings (ECBs), lower import duties and exemptions on excise duty on telecom infrastructure equipment
- Tower providers will also get advantage of lower lending rates at 3-4 per cent on loan terms of 10-15 years as against the market borrowing rates of 12-13 per cent. Along with other multiple benefits, the companies will also be given a tax holiday under section 80-IA of the Income Tax Act. Industry body Tower and Infrastructure Provider's Association (TAIPA) will coordinate with the implementation committee to bring in commonality of interest to ensure rapid progression of the new development
- The Government will also soon give a green signal to a three-way partnership between Russia's NIS Glonass (a wholly-owned subsidiary of the Russian public-private partnership company, Navigation-Information Systems), Bharat Sanchar Nigam Ltd (BSNL) and MTNL for delivering satellite-based navigation services in India. A draft memorandum of understanding (MoU) between the entities involved is being considered
- The Department of Telecommunications (DoT) has issued new guidelines according to which foreign entities can participate in the upcoming 2G auctions directly and obtain a licence. The initiative is expected to make the upcoming auctions more attractive to certain foreign players such as Telenor, which wanted to bid directly without an Indian partner in the auctions. The notice inviting applications (NIA) for the same have stated that the debut companies will have to pay Rs 1 crore (US$ 184, 600) for unified licence in a service area where they wish to operate. There will be a lock-in period of three years
Road Ahead
At present, India's information and communication technology (ICT) exports are the most significant component of the internet's impact on country's GDP but private consumption and investment from private and public sector have greater potential to grow in the future, as per a McKinsey and Co report.
"Around 30 million of 69 million urban Generation Z consumers own mobile phones, and 3 million of these use mobile broadband on their phones," said Mr Ajay Gupta, Ericsson India's Vice President and Head for Strategy and marketing, Ericsson.
Driven by various policy initiatives, the Indian telecom sector has witnessed a complete transformation in the last decade. It has achieved a phenomenal growth during the last few years and is poised to take a big leap in the future.
Exchange Rate Used: INR 1 = US$ 0.01847 as on March 12, 2013
References: Media Reports, Press Releases, Department of Telecommunication Report, Department of Industrial Policy and Promotion (DIPP)
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