A study on Indian Telecommunication Industry with special reference to Airtel

Raghu.G

Research Scholar

Bharathiyar University Coimbatore,

Tamil Nadu 641046

1. Introduction

India is the second largest telecom market in the world and is amongst the fastest
growing markets. The country offers robust growth opportunities driven by strong growth
fundamentals, increasing urbanization, rising income levels and favorable demographics. The
majority of new customers are likely to come from the rural areas with inadequate basic
infrastructure and limited or no connectivity, demanding lower tariffs for voice calls and
value added services like information about market and commodity prices, weather updates,
health updates coupled with vernacular support at the user interfaces. The urban consumer
demands high speed
internet connectivity, audio video streaming, navigation and location maps, music downloads,
gaming, m-commerce, IPTV and mobile TV. Innovations like shared infrastructure, new low
cost technology and energy saving devices are critical for roll-out in rural areas.

M-Commerce will emerge as the future growth engine as the industry shifts from
voice to data services. The convenience of the mobile phone as an instrument for conduct of
financial transactions and its potential in the process of financial inclusion and growth has
been well recognised. There is a large untapped potential for these services in the Indian
market. Given the huge growth potential offered by the telecom industry through the
increased coverage and newer products and services, the competition will remain intense with
both existing and new players attempting to maximise their share of the growing telecom pie.

Indian Telecommunication Industry

Indian telecom sector continued to register a robust growth in the financial year 2009-
10 and added 191.55 mn new connections between April 2009 and March 2010.
The number of telecom subscribers in India reached 621.28 mn and the overall teledensity
reached 52.74% at the end of March 2010. Subscription in urban areas grew to 420.51 mn,
recording an annual growth of over 37% and taking the urban teledensity to 119.45%. Rural
subscriptions grew by over 62% to cross the 200 mn mark and improved the rural teledensity
to 24.31% during the year.

Electronic copy available at: http://ssrn.com/abstract=2336962

 While wireline connections de-grew by 2.61% during the financial year 2009-10, the
growth of the telecom sector was driven by wireless segment. The wireless segment grew by
49% during the year reaching 584.32 mn as on March 31, 2010.

The top players in the telecommunication sector in India as of Dec 31st 2010 data are
represented in the chart below:

Source: Telecom Regulatory Authority of India (TRAI)

2. Policy and Initiatives

2.1 Regulatory Framework

The Telecom Regulatory Authority of India (TRAI) was set up in 1997 by the
government of India as a regulator for Telecom sector. TRAI is mandated to provide an
effective regulatory framework and adequate safeguards to ensure fair competition and
protection of consumer interests.

TRAI’s mission is to create and nurture such conditions that encourage the growth of
the telecommunications sector in India. The main objective of TRAI is to form a transparent
and fair policy environment that encourages fair competition.

The regulatory functions of TRAI fall within two broad categories - recommendatory
and mandatory.

The principal recommendatory functions of TRAI may be exercised either on its own
initiative or on request from the licensor on matters ranging from introduction of new service
providers, terms and conditions of licenses to be awarded to service providers, revocation of
licenses, measures to facilitate competition and promote efficiency in the operation of
telecommunications services, measures for the development of telecommunications

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Electronic copy available at: http://ssrn.com/abstract=2336962

technology, efficient management of the available spectrum and any other matter related to
the telecommunications industry.

The recommendations of TRAI in respect of all the matters referred to above are not
binding upon the Government.

The principal mandatory functions of TRAI include fixing tariffs, ensuring

compliance with the terms and conditions of licenses, fixing the terms and conditions of
interconnection arrangements between service providers, ensuring technical compatibility
and effective interconnection between different service providers, regulating revenue sharing
arrangements among service providers, ensuring effective compliance of universal service
obligations, establishing standards of quality of service to be provided by service providers
and ensuring the quality of service, periodically
surveying such service in order to protect the interest of the consumers and establishing and
ensuring the time period for providing local and long distance circles between different
service providers.

2.2 Policy Initiatives

In 1994, the Government announced the National Telecom Policy which defined
certain important objectives, including availability of telephone on demand, provision of
world class services at reasonable prices, improving India’s competitiveness in global market
and promoting exports, attractive FDI and stimulating domestic investment, ensuring India’s
emergence as major manufacturing / export base of telecom equipment and universal
availability of basic telecom services to all villages. It also announced a series of specific
targets to be achieved by 1997.

The national telecom policy covers the following objectives:

 Telephone should be made available every where which will be in need of it.
 All the villages should be entitled to universal telecom services, that is, all the
people should be able to enjoy the telecom services at low-priced range.
 The telecom services should be of global standard.
 India being one of the biggest country should encompass a major manufacturing
unit as well as exporter of the telecom products across the globe.
 The telecom department is also responsible for the security issues of the country.

2.3 Foreign Direct Investment Policy

Foreign Direct Investment (FDI) was permitted in the telecom sector beginning with
the telecom manufacturing segment in 1991 - when India embarked on economic
liberalisation. FDI is defined as investment made by non-residents in the equity capital of a
company. For the telecom sector, FDI includes investment made by Non-Resident

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Indians (NRIs), Overseas Corporate Bodies (OCBs), foreign entities, Foreign Institutional
Investors (FIIs), American Depository Receipts (ADRs)/Global Depository Receipts (GDRs)
etc.

Present FDI Policy for the Telecom sector:

 100 percent FDI is permitted in almost all the infrastructure sectors.
 FDI can enter India through two possible channels:
o The automatic route under which companies receiving Foreign Direct
Investment need to inform the Reserve Bank of India within 30 days of receipt
of funds and issuance of shares to the foreign investor
o For sectors that are not covered under the automatic route, prior approval is
needed from the Foreign Investment Promotion Board (FIPB).
 In Basic, Cellular Mobile, paging and Value Added service, and Global Mobile
Personal Communications by Satellite, FDI is permitted up to 49 per cent (under
automatic route) subject to grant of license from Department of
Telecommunications.
 The foreign direct investment in telecom has been hiked up from 49% to 74%.
This move is positive for the sector , as it require investments of Rs 700 –900
million over the next 5 years. FDI inflow by 2004 was 9950.94 cores in telecom.
Countries like Europe, Korea, and Japan telecom are likely to enter India, as India
is seen as fastest growing telecom market in world.
 DOT will have the authority to restrict the license company from operating in any
of the sensitive areas of the country.
 The Department of Telecommunications (DoT) has stated that foreign telecom
companies can bid for 3G spectrum without partnering with Indian companies.
Only after 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.

3. Company Profile: Airtel

Bharti airtel limited is India’s largest provider of telecommunication services and is

one of the most prominent telecom companies in the world with its services spanning 19
countries in South Asia and Africa. The The business at Bharti airtel has 4 distinct business
divisions: Mobile & telephone services, Broadband services, Telemedia services, Eenterprise
service and national & international long distance services to carriers.

Bharti Airtel is the largest GSM mobile service provider in India, based on the
number of subscribers (149 million) and 20.5% market share as below chart. The GSM
mobile service ac across India in 23 telecom circles.

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 The following Chart Shows the Subscriber Trends and Customer Market Share of
Mobile Operators in India.

Based on subscriber data for India as on November 30 2010 as per TRAI press release

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Based on Customer Market Share data for India as per Investor presentation on January 2011.

Bharti Airtel seek to capitalise on the growth opportunities which are available in the Indian
telecommunications market and consolidate the position to be an integrated
telecommunications services provider in key markets in India, with a focus on providing
cellular services.

Bharti Airtel’s operations are organised into the following four principal business areas:

Partner

Bharti Airtel has a strategic alliance with Singtel. The investment made by Singtel is
one of the largest investments made in the world outside Singapore, in the company. Bharti
Airtel also has a strategic alliance with Vodafone. The investment made by Vodafone in
Bharti Airtel is one of the largest single foreign investment made in the Indian telecom sector.

The company mobile network equipment partners include Nokia, Ericsson and
Huawei. The company also has an information technology alliance with IBM for its group
wide information technology requirements and with Nortel for call center technology
requirements. The call center operations for the mobile services have been outsourced to IBM
Daksh, Hinduja TMT, Teleperformance, Mphasis and Firstsource & Aegis.

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 Airtel’s Partners

Mobile Services Nokia Siemens, Ericsson, Huawei

Network
Equipment Telemedia & Long Nokia Siemens, Juniper, Cisco, Alcatel
Distance Services Lucent, ECI, Tellabs
Information Technology IBM
IBM Daksh, Hinduja TMT, Teleperformance,
Call Centre Operations
Mphasis, Firstsource & Aegis
Equity Partner {Strategic} Singtel

Mobile Services provided by Bharti Airtel Ltd.

Airtel’s mobile footprint extends across the country in 21 telecom circles.

 Prepaid/Postpaid Services:
o Airtel offers a wide array of ‘prepaid’ and ‘postpaid’ mobile offers, with a
range of tariff plans that target different segments.
o In Delhi, Karnataka, Andhra Pradesh, Chennai and Himachal Pradesh circles,
Post-paid and Pre-paid services are branded as AirTel and Magic, respectively.
o In Delhi circle, Airtel have also recently launched Youtopia, a brand targeted
at the youth segment for AirTel post-paid services.
o In Kolkata circle, Airtel offer post-paid services under the AirTel brand and
intend to rebrand our pre-paid services with the Magic brand shortly.

 Value Added Services

o Airtel offer a wide range of value added services. to create differentiating
factors against competitors, increase customer loyalty and increase usage and
satisfaction.
o Various value added services are offered in Delhi cellular network, such
as:
 Information Services: news, current events, stock market quotes, sports
scores and astrology readings
 Short Message Service, or SMS
 Voice Mail
 Fax Mail.
 Mobile Banking.
 Calling Services.
 WAP enabled Internet access.

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4. Five Force Analysis

Porter's five forces is a framework for the industry analysis and business strategy
development. Porter explains that there are five forces that determine industry attractiveness
and long-run industry profitability. These five "competitive forces" are

4.1 Competitive Rivalry within Industry (The degree of rivalry between

existing competitors)
4.2 Supplier Power (The bargaining power of suppliers)
4.3 Buyer Power (The bargaining power of buyers)
4.4 The threat of substitutes
4.5 Potential for New Entrants (The threat of entry of new competitors)

The study as 5 Forces model for Mobile Sector in the India as following:

4.1 Competitive Rivalry within Industry

The Competitive Rivalry in India is high and will continue to increase as new
players enter the industry. The Competition is price and quality based. The entry of every
new customer brings with it a new set of price cut and hence intensifies competition.

The two large competitors of Airtel and their strategies are discussed below :

1. Bharat Sanchar Nigam Ltd. BSNL, a state-owned service provider in India, is

the seventh-largest telecommunication company in the world. It offers a wide range of
services in India, such as wireline, CDMA mobile, GSM mobile, internet, broadband, carrier,

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MPLS-VPN, VSAT, VoIP, IN, etc. BSNL is the largest operator in basic services in India
with its cellular services helping it to establish its presence as the largest operator in rural
areas.

Rural Penetration: BSNL is playing a leadership role in developing the telecom

infrastructure in rural areas. It has been successful in increasing its cellular subscriber base by
pioneering its services in the rural terrain. Its services cover the whole of India, except Delhi
and Mumbai, which are covered by MTNL, the other state-owned player.

Low Cost Strategy: BSNL is a low-cost service provider of many services. This
strategy has helped BSNL in penetrating the market.

2. Reliance Communications
Reliance Communications, previously known as Reliance Infocom, brought about
a digital revolution in the Indian telecom industry by providing India’s vast population with
affordable means of information and communication. Reliance Infocom, with the aim of
making mobile calls cheaper than postcards, built a 60,000-kilometre-long fibre optic
backbone, crisscrossing the entire country. Reliance currently offers its services in 340 towns
with its eight circle footprints; it also initiated mobile data services through its R-world
mobile portal. This portal leverages the data capability of the CDMA 1X network.

Integrated Service: From the beginning, Reliance believed in providing integrated

communication services to its customers. The company claims that it sells a greater number
of handsets compared to those sold by the market leader, Nokia.

Large Distribution Network: Reliance has created the largest chain of digital
entertainment and communication stores – Reliance Web World. The company is also
expanding its reach aggressively through retail outlets, sales agents and electronic recharge
outlets.

Other Competitors being Idea, MTNL, Vodafone, Telenor, Spice, Orange

4.2 Supplier Power

The supplies in Mobile sectors primarily comprise of Switch Suppliers, Tower

Service providers and the Handset providers.

Network Infrastructure: There are limited Network Equipment providers like

ZTE Nokia Siemens, Ericsson, Cisco, Huawei. Due to the increase in demand and limited
suppliers the power of these suppliers are high and may impact the growth plan of the
operators if supplies are not smooth.

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 Tower Providers: Though the new sharing technology has helped in utilizing the
Towers but still the coverage remains a problem due to few Tower provider The
bargaining power of Tower providers if High.

Handset Suppliers: Nokia, Samsung, LG, Sony, iPhone and numerous other
players. The bargaining power of Handset Suppliers is less as they are also competing
amongst themselves.

Overall we can make out that the key supplies powers are high for Mobile Industry

4.3 Buyer Power

 Low switching cost: Switching cost is low. Government is also introducing

Number portability which will lead to further switching between the operators if the prices
and services are not met.
 The Voice and message based services are moving toward a commodity as
the competition now depends mostly on the prices as the services are similar across the
operators.
 The customers are demanding more value for money which has lead
introduction of pay per second plans.
 Buyers are wanting more and more value added service at cheaper prices
Hence the companies have to now focus on Customer Delight and not
Customer Satisfaction.

4.4 Threat of Substitutes

There are some substitutes of telecommunication industry:

 The VOIP is getting popular for Eg. Skype, Messenger etc.
 Online Chat
 E-mail
 Video Conferencing is also getting popular.
 CDMA is another threat to GSM players.

The threat of substitutes is high as the alternate modes are much cheaper with similar
quality and service.

4.5 Potential for New Entrants

The potential for new entrant is also high.

• The government is also issuing new licenses in the current circles.

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 • Many mobile players are also entering the enterprise business by launching
NLD/ILD operations.
• The sharing business has reduced the capital requirement and thus bringing down
the capital requirement for new player.

5. SWOT Analysis

SWOT analysis is a tool for auditing an organization and its environment. It is

the first stage of planning and helps marketers to focus on key issues. SWOT stands for
strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal
factors. Opportunities and threats are external factors.

Following is the SWOT Analysis for AIRTEL

STRENGTH WEAKNESS
 Very focused on telecom  Price Competition from BSNL and
 Leadership position in the world and MTNL
in India  Untapped Rural market
 Strong in brand image and brand
equity
 Strong Strategic Partnerships
OPPORTUNITIES THREATS
 Large Untapped Potential in Rural  Increased Competition from other
Areas cellular.
 New Technologies and Paradigms
 Value Added Services
 Growing Overseas Footprints

Strengths

 Very Focused on Telecom: Bharti Airtel is largely focused on the telecom and
cellular services, around 93% of the total revenue comes from telecom (Total telecom
revenue Rs 3,326). with a focus on providing
 Leadership Position in the world and in India:
o 3rd Largest wireless operator in the world and largest wireless operator in India
o Largest private integrated telecom company in India
o 5th Largest integrated telecom operator in the world
o Largest telecom company listed on India Stock Exchanges
 Strong in brand image and brand equity
 Strong Strategic Partnerships: Airtel has strategic alliance with Singtel, which has
helped in providing quality services to the customer due to technology transfer. Alrtel

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 also has strong alliances with equipment and technology partners who also drive
development and innovative solutions.

Weakness
 Outsourcing of Core System
o Airtel’s start-up business had to outsource to industry experts in the field.
Airtel outsourced their IT processes to IBM, entire network operations to
Ericsson and Siemens along with Alcatel Lucent recently and the transmission
towers to another company.
 Lack of emerging market investment opportunity
o The fact that the Airtel has not pulled off a deal with South Africa’s MTN
Could signal the lack of any real emerging market investment opprtunity for
the business onece the Indian market has become mature.
Opportunities:

 Large Untapped Potential in Rural Areas: Indian telecom market holds large
untapped potential in rural areas. With majority of the population yet to get access to
telecommunication and teledensity at ~ 53% with rural teledensity at ~ 24%; there is
significant growth potential for the sector. Urban areas present potential for wireline
and internet services. Rural area provides a massive opportunity for Airtel to expand
its customer base.
 New Technologies and Paradigms: After the exponential growth in recent years,
Indian telecom sector is poised to transit towards better technology and
service delivery. The telecom operators will evolve their infrastructure through their
access transmission infrastructure from the base stations to the core switching
network. 3 G and BWA auctions is due which provides a big opportunity to the
company. Convergence will be vital phenomenon to support all network and IT
services, using IP as the strategic technology.
• Value Added Services: These services bring both Value to customers and
operators. Airtel has special services and the opportunity can still be exploited further
for better profitability.
 Growing Overseas Footprints: Sri Lanka and Bangladesh offer exciting potential for
the Company and it is using its experience of Indian telecom market to build a low
cost business model for these markets as well.

Threat
 Increased Competition from other cellular: Financial year 2009-10 witnessed entry
of several new operators and roll-out of their services in various circles. The market
also saw entry of many international and long distance operators. The resultant
increase in competition can lead to further lowering of tariff and put pressure on
marketing expenses. Bharti Airtel, with significantly large and diverse customer base;
integrated suite of products and services; pan India operations; and a very strong

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 Airtel brand is best positioned to emerge stronger from the market environment and
will retain its leadership position in the market.

6 Conclusion:

There is huge potential in Indian rural markets with new technology and the consumer
behavior towards new products along with the growing income level Indian
consumers are ready to accept new products and services in future.

7. References

1. http://www.airtel.in/

2. http://www.dot.gov.in

3. http://www.budde.com.au

4. http://www.trai.gov.in

5. http://www.coai.com/

6. http://www.thaindian.com/

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