Telecommunication - India

INVESTING IN INDIA

TELECOMMUNICATION

Table of Contents

1.0 Executive Summary 5

1.1 A brief review of the macro-economic status of India 5

1.2 Telecommunications market information 5

2.0 Investment and Regulation 8

2.1 Regulatory Structure 10

3.0 Market Situation 12

3.1 Market Entry 12

3.2 Market Risks 13

3.3 Market Needs 14

3.2 Strategies for Growth 15

4.0 Tariff 15

5.0 Foreign Direct Investment 17

6.0 Conclusion 19

7.0 References 21

1.0 EXECUTIVE SUMMARY_____________________________________

1.1 A BRIEF REVIEW OF THE MACRO-ECONOMIC STATUS OF INDIA

Currency : Indian Rupee

Exchange Rate : US $1 = Rs.43.60

GDP Growth : 8.1% (Q1 2005-2006)

GDP per capita : US$3,400.

Exports : US$76.23 billion (2005)

Imports : US$113.1billion (2005)

India has a mixed economy with both a large public sector and extensive regulation of the private sector. In the past, Indian central and state governments have imposed severe restrictions on the capacity of private sector enterprises to expand, the last decade has seen a significant trend in policies to liberalise the economy. The recent announcement of the budget continues the Government’s policy of economic liberalisation and incorporates significant reductions in personal and corporate income taxes.

1.2 TELECOMMUNICATIONS MARKET INFORMATION

India has a population of 1.1 billion and one of the fastest growing economies in the world. Penetration rate is till low at 6.2% and at the inflexion point of growth. Jipp’s law shows that there is a strong correlation between telecommunication (as measured by teledensity) and economic development (GDP per capita)

The transformation of telecommunications markets in India took several dimensions- in the changing structure of demand, in the convergence of services and in the evolving structure of the industry. The two key elements defining the

change in the market structure were :

(i) The restructuring of the government operator

(ii) The entry of private operators.

The restructuring was initiated in October 1999 involving the bifurcation of the Department of Telecommunication (DoT) into two departments, namely, the Department of Telecommunications and the Department of Telecommunication Services, later corporatised in October 2000 into a new entity-Bharat Sanchar Nigam Limited (BSNL). While the former functions as the licensor and policy maker, the latter was entrusted with the responsibility of the operation and maintenance of the system. Thus, there has been a shift from a static, monopolistic industry that provides a single product, telephone service to a dynamic, multiproduct, multioperator industry.

Figure 1: Subscriber Base

Till December 2002, the capital outlay by the cellular and private basic operators for the set up of service was USD 2.4 billion and USD 3.3 billion respectively. Cellular operators spent 1.5 billion dollars as licence fee dues till November 2003, while the amount paid out by the private basic service operators as entry fee was 0.86 billion. Till March of 2003 private cellular operators had made an investment of almost 5.1 billion dollars. In the period