Girish Trivedi Operational Management Report 5 January 2004 Network Services and Service Providers in India Summary Unified licensing will lead to further integration of operations among larger players. As the voice market becomes more competitive, the basic operators will bundle services to improve the bottom line. Table of Contents Market Overview Carrier Profiles Private Basic-Services Operators Carrier Profiles Incumbent Operators Service Comparisons Future Trends and Developments Strengths/Limitations of Incumbent Carriers Insight List Of Tables Table 1: India Basic Services Environment (as of October 2003) Table 2: BSNL and MTNL Telephone Connection Status (as of December 2002) Table 3: Status of Basic-Services License Bidding Table 4: Bharat Sanchar Nigam Limited (BSNL) Profile Table 5: Mahanagar Telephone Nigam Limited (MTNL) Profile Table 6: VSNL Profile (part of Tata Group) Table 7: Tata Teleservices Table 8: Reliance Infocomm Table 9: Voice Table 10: Frame Relay Table 11: Internet Access Services Table 12: LAN Interconnection Table 13: Virtual Private Network (VPN) Table 14: Other Services Offered List Of Figures Figure 1: India Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.
Market Overview Today, the Indian telecom market is the second largest in Asia (among the emerging economies). India s 10th Five-Year Plan 2002-2007 projects 1,750 billion rupees (Rs) worth of investments in more than 50 million fixed lines, 30 million cellular lines and 20 million Internet connections. The growth has, however, jumped and India is expected to attain the teledensity target numbers 15 months ahead of schedule. Present Market Scenario The market grew at 12.8 percent in 2002 and is expected to grow at 21.8 percent in 2003. A number of obstacles have prevailed and more are to follow. India s fixed telecom services market is expected to grow from 372.2 billion rupees (US$7.65 billion) in 2002 to 525.5 billion rupees (US$10.92 billion) in 2007, a compound annual growth rate (CAGR) of 7.1 percent. The incumbent operators continue to dominate fixed-line services. The number of phone lines in service was nearly 47.8 million (estimated) in November 2003, bringing the teledensity to 4.4 percent. The private operators have been actively deploying their network, although they continue to focus largely on the enterprise segment. The subscriber base for the private operators has touched 7.56 million subscribers (including wireless local loop [WLL]). According to Gartner s estimates, the overall wireline base of the private basic operators has reached the 1 million mark while the WLL (fixed) base has reached 781,940 as of November 2003. The balance, 5,769,859, is contributed by the WLL limited services. Reliance Infocomm, with 5.45 million subscribers, has become the leading basic service provider in India followed by Tata Tele with more than 1 million and Bharti with more than 500,000 subscribers. Telephony revenue growth was approximately 12.6 percent, netting 333 billion rupees in 2002. The contribution of telephony was 90 percent of the total revenues and will continue to drop and is expected to contribute 86 percent by 2007. Data revenue grew 25.6 percent to 30.6 billion rupees in 2002 and will gain traction as an important contributor to telecom services. International telephony is forecast to decline through the projected period until 2007. The decline is primarily because of a steep drop in international call rates. The international long distance is still dominated by Videsh Sanchar Nigam Limited (VSNL). It is facing pressures due to the reduction in call and settlement rates. With the bid to acquire Flag Telecom, Reliance has the potential to become a serious international long-distance (ILD) player in this sector. National long-distance (NLD) telephony, which accounts for 34.5 percent of total voice revenue, is also on the decline because of increased competition between the major carriers. Pricing pressure is expected to be a major fallout as Bharti, Reliance and Tata become aggressive on the long-distance front. An independent regulatory body (Telecom Regulatory Authority of India [TRAI]) and dispute settlement body (Telecom Disputes Settlement & Appellate Tribunal [TDSAT]) is fully functional. The Reform Process The reform process, though slower than expected, is continuing. Opening up of the international longdistance services to competition ending the long monopoly of VSNL (and subsequent privatization of the company) was a step forward. Next came introduction of WLL as limited mobility service by basic operators. It allowed basic service operators to extend mobility in the short-distance charging area 5 January 2004 2
(SDCA). This led to a boom in the number of subscribers opting for WLL services as the prices and entry barriers to limited mobility services were comparatively lower than those of the Global System for Mobile Communications (GSM) cellular services. This led to nearly a 50 percent drop in call charges from Rs9 to Rs4.8 initiated by cellular operators. The limited mobility, coupled with the use of call forwarding and multiple registration to provide full mobility (by WLL operators), led to a clash between the cellular service provider and the basic providers (mainly WLL operators). This, in turn, led to various litigation and counter-litigation, which were harming the interest of the entire industry. To avoid further bottlenecks, the TRAI introduced the Unified License (UL) on 31 October 2003. This was done after it was approved by the Group of Ministers and, subsequently, by the Union Cabinet. Unified Licensing On 11 November 2003, the TRAI announced the following categories for telecommunications services licenses: UL for Telecommunication Services, permitting the licensee to provide all telecommunications/telegraph services covering various geographical areas using any technology (detailed guidelines have not been released). License for Unified Access Services, permitting the licensee to provide basic and cellular services using any technology in a defined service area (detailed guidelines were not immediately available). The TRAI has embarked on an original and ambitious plan to unify telecommunications service licenses within the country. While this regulation could be groundbreaking and even trend setting, it will not level the playing field if left unsupported. Certain services are excluded from the regime, and serious questions of license obligations and consolidation must be addressed. As the regulations stand, wireline carriers are likely to benefit, while the growth of the mobile market could be imperiled. Expect a considerable wave of consolidation within the next two years. Way to Go The Unfinished Agenda With the UL being implemented in a phased manner starting with the access licenses, wide-ranging, structural reforms are needed, to improve the teledensity (currently at 4.4 per 100 population as of October 2003). The country is far behind a lot of other developing economies in telecom infrastructure deployment. Some of the critical issues that need to be addressed include the following: UL for all services One license for all services needs to be implemented. The TRAI needs to act fast in order to create an environment of growth for the entire industry rather than risk more litigation. Telecom financing Due to long-term gestation periods and increasing competitions (hurting the bottom line), the government must look at alternate ways to provide financing (increasing foreign direct investment, better rates to borrow, institutional financing). Long conflict resolution periods Lengthy gestation period in the settlement of disputes and resolving business issues has very often stalled the momentum of telecom market liberalization. Regulatory strength 5 January 2004 3
India s performance is now critically dependent on the strength of the regulator TRAI in implementing practical and enduring interconnectivity and revenue-sharing agreements and settling disputes. There is a need to give more freedom to TRAI, reduce political intervention and evolve the role from microcontrolling to regulating. Even though the TDSAT and TRAI are fully operational, the disputes still end in courts, leaving the judiciary to do all the work. To create a healthy environment, the regulator needs autonomy and independence. High-revenue-sharing fees More than 15 percent of operator revenue goes into paying license fees/spectrum charges/other government charges (8 to 12 percent revenue share and 3 percent spectrum fee). If these were reduced, carriers would be capable of aggressively pursuing customers and building networks, thus enhancing usage. Cap on foreign investment Current cap at 49 percent on foreign investment is hindering a flow of low-cost funds into the Indian telecom services market. Raising this limit would make it more attractive for foreign investors to enter India and allow carriers to access more funds and roll out networks at a faster pace. Table 1: India Basic Services Environment (as of October 2003) Service Area Classification Telecom Circle Basic Services Provider Metro New Delhi Mahanagar Telephone Nigam Limited (MTNL), Bharti Telenet, Tata Teleservices, Reliance Infocomm Mumbai (Bombay is part of Maharashatra Circle under Basic Services) MTNL, Tata Teleservices (formerly Hughes Tele.com in Mumbai), Reliance Infocomm A Circle Maharashtra Bharat Sanchar Nigam Limited (BSNL), Tata Teleservices (formerly Hughes Tele.com in Maharashatra), Reliance Infocomm Gujarat BSNL, Reliance Infocomm, Tata Teleservices Andhra Pradesh BSNL, Tata Teleservices, Reliance Infocomm Karnataka BSNL, Bharti Telenet, Tata Teleservices, Reliance Infocomm Tamil Nadu BSNL, Reliance Infocomm, Bharti Telenet, Tata Teleservices B Circle Kerala BSNL, Reliance Infocomm 5 January 2004 4
Table 1: India Basic Services Environment (as of October 2003) Service Area Classification Telecom Circle Basic Services Provider Punjab BSNL, Himachal Futuristic Communications Ltd. (HFCL), Reliance Infocomm Haryana BSNL, Bharti Telenet, Reliance Infocomm Uttar Pradesh (East) BSNL, Reliance Infocomm Uttar Pradesh (West) BSNL, Reliance Infocomm (including Uttaranchal) Rajasthan BSNL, Shyam Telelink (formerly Telelink Network India), Reliance Infocomm Madhya Pradesh (including Chhattisgarh) BSNL, Bharti Telenet, Reliance Infocomm West Bengal BSNL, Reliance Infocomm C Circle Himachal Pradesh BSNL, Reliance Infocomm Bihar (including Jharkhand) BSNL, Reliance Infocomm Orissa BSNL, Reliance Infocomm Assam BSNL North East BSNL Jammu and Kashmir BSNL Andaman and Nicobar BSNL *Denotes licensees that haven t commenced operations. Table 2: BSNL and MTNL Telephone Connection Status (as of December 2002) Telecom Circle Direct Exchange Lines Andaman and Nicobar 35,272 Andhra Pradesh 4,176,430 Assam 512,452 Bihar (including Jharkhand) 1,482,035 Gujarat 3,745,956 Haryana 1,255,325 Himachal Pradesh 501,944 Jammu and Kashmir 249,282 Karnataka 3,392,021 Kerala 3,409,032 Madhya Pradesh (including Chhattisgarh) 2,038,728 Maharashtra 4,815,655 North East 322,276 Orissa 785,726 Punjab 2,848,410 Rajasthan 1,909,270 Tamil Nadu 2,846,539 5 January 2004 5
Table 2: BSNL and MTNL Telephone Connection Status (as of December 2002) Telecom Circle Direct Exchange Lines Uttar Pradesh (East) 1,659,189 Uttar Pradesh (West) (including Uttaranchal) 1,522,913 West Bengal 1,061,227 Calcutta 1,320,821 Chennai 1,059,750 New Delhi 2,119,252 Mumbai 2,404,746 Source: BSNL, Gartner estimates. Table 3: Status of Basic-Services License Bidding Company Number of Letters of Intent (LOIs) Received Telecom Circles Total Entry Fee Required Total Bank Guarantee Required Reliance 18 Madhya Pradesh, Orissa, Bihar, Rajasthan, Himachal Pradesh, New Delhi, Tamil Nadu, Karnataka, Maharashtra, Punjab, Andhra Pradesh, Haryana, Kerala, Uttar Pradesh East, Uttar Pradesh West, West Bengal, Andaman & Nicobar and North East Tata 15 Orissa, West Bengal, Uttar Pradesh East, Uttar Pradesh West, New Delhi, Tamil Nadu, Gujarat, Karnataka, Maharashtra, Punjab, Haryana, Kerala, Rajasthan and Bihar Bharti 8 New Delhi, Tamil Nadu, Karnataka, Maharashtra, Punjab, Andhra Pradesh, Haryana and Kerala Rs4.5 billion Rs4.5 billion Rs3.3 billion Rs18 billion Rs22.5 billion Rs13.4 billion 5 January 2004 6
Table 3: Status of Basic-Services License Bidding Company Number of Letters of Intent (LOIs) Received Telecom Circles Total Entry Fee Required Total Bank Guarantee Required HFCL 7 New Delhi, Tamil Nadu, Karnataka, Maharashtra, Haryana, Kerala and Uttar Pradesh West Indian Telecommunications Historical Perspective Rs2.9 billion Rs11.8 billion The Indian telecommunications sector had always been dominated by state-controlled entities. Starting in 2000, the government changed the structure and BSNL was born. Before that the Department of Telecommunications (DOT) was responsible for everything from regulation to services and fulfilling social obligation. For administrative purposes, the country was divided into 24 telecom circles (corresponding roughly to the states in India) and four metro districts (Mumbai, New Delhi, Chennai and Calcutta). The circles are further classified under A, B and C with A being the most attractive and C being the least attractive. Figure 1: India 5 January 2004 7
The telecommunications network infrastructure was characterized by limited access, poor voice quality, call congestion and dropped calls. Stifling bureaucracy, political disputes and the lack of coherent policies were some of the contributing factors to the lack of advancement in the telecom sector. In an effort to remedy the situation, the National Telecom Policy (NTP) 1994 was devised. New Telecom Policy 94 In line with NTP 1994, an auction for basic service licenses was held in June 1995. The aim was to supplement DOT s efforts in providing telecom services. Private companies with foreign partners (up to a maximum 49 percent stake) were allowed to participate. In the end, only 10 circles had successful bids. In 1996 the TRAI was set up to separate regulatory functions from policy formulation, licensing and telecom operations. 5 January 2004 8
New Telecom Policy 99 In an attempt to remove the defects of the old policy and provide a new direction to the telecom sector, the government came out with NTP 99. The highlights of NTP 99 were as follows: Private basic and cellular operators allowed migrating from a revenue-sharing regime to a one-time entry fee plus a revenue-sharing system. License period extended from 10 to 20 years. DOT s monopoly over national long-distance (NLD) services ended. Interconnection between fixed, cellular and other telecom service operators allowed freely. Key Policy Changes New licenses for basic telecom services: In January 2001, guidelines for the entry of new fixed-service providers were announced. Out of the applications by 18 companies, six companies were issued LOIs for basic telecom services. By March 2002, three companies including Reliance (17 circles), Tata Teleservices (5 circles) and Bharti (4 circles) had signed license agreements by paying the total entry fee of Rs8.39 billion. Limited mobility services: Limited mobility services first introduced by BSNL helped in faster deployment of networks and helped increase teledensity in the remote geographical regions. The allotted spectrum varied from 4.4+4.4MHz to 10+10MHz depending upon the number of subscribers in each service area. Existing Basic operators are allocated 5+5MHz in 824MHz to 844MHz paired with 869MHz to 889MHz bands. The same is followed for allocation of frequency in the 1880MHz to 1900MHz band. Currently all the basic operators are offering limited mobility services using WLL. This service is seen as an alternative to cellular services. Deployment suddenly took a big leap forward in 2002 after the TRAI allowed basic operators to offer limited-mobility services. The rentals were reduced and brought in line with the fixed-line services (monthly rentals of US$5 and a deposit of US$60). With the introduction of UL, the basic operators will move to a full mobility regime. Calling party pays (CPP): According to the CPP arrangement, the calling party would pay for the calls that terminate on mobile phones. BSNL was affected the worst as it had the largest number of fixed-line subscribers. National long-distance services: In March 2002, the Government had issued licenses to Bharti Telesonic Ltd., Reliance Communications Ltd. and VSNL to commence NLD services. In December 2001, Bharti commenced its NLD services and reduced the price by almost 50 percent. BSNL and MTNL reduced their NLD rates by 55 percent. International long-distance (ILD) services: Since 1 April 2002, the ILD telecom sector has been opened for competition. By early April 2002, out of around eight applications for the license to offer ILD services, two companies (Bharti and Reliance have signed a license agreement), and three companies hold LOI. Data Access (JV between PCCW limited and SPA Enterprise), with network capacity of 1.5-Gbps speed, is among the key players in this segment. To date, besides VSNL, Bharti, Data Access and Reliance are operational. 5 January 2004 9
Interconnection charges: In January 2003, TRAI introduced regulation on interconnect usage charges, thereby laying the foundation of a level playing field. The interconnect user charges (IUC) regime introduces a new revenue stream for mobile service providers in the form of termination charges. For the first time, fixed-line and limited-mobility WLL service providers will start giving termination charges to cellular operators for the use of their mobile networks for terminating calls on their networks. IUC was implemented from 1 May 2003. Internet telephony services: As per the guidelines, issued by DOT in March 2002, on Internet telephony services, only ISPs are allowed to offer Internet telephony services, over the public Internet, in their service area. The TRAI has recommended that the basic telecom operators, cellular operators and NLD telecom service providers be allowed to provide Internet protocol-based telephony services, subject to meeting the existing norms of end-to-end voice quality. By mid-april 2002, the Government received over 20 applications, out of which around five companies received permission to offer Internet telephony services. Carrier Profiles Private Basic-Services Operators With the recent regulatory changes, most basic service providers tend to gain, especially Reliance and Tata Teleservices. Most of the private operators have ambitious network expansion and service offering plans, but it will take time for them to grow their subscriber base and acquire meaningful economies of scale. As of November 2003, the private operators combined subscriber base amounted to 7.6 million and still lags behind that of BSNL and MTNL s total subscribers. Bharti Telenet Bharti Telenet is the first basic services operator in India. The company merged along with two subsidiaries (Bharti Telesonic, Bharti Broadband Networks Ltd.) into Bharti Infotel (100 percent subsidiary of Bharti Televentures). It provides services under the brand name of Touchtel. It has operations in the state of Madhya Pradesh and Chattisgarh (earlier a part of Madhya Pradesh) covering around 28 cities including Bhopal, Indore, Gwalior, Rajpur and Jabalpur since June 1998. The company has secured licenses and paid Rs1.45 billion entry fee and bank guarantee of Rs5.8 billion. Bharti launched its DSL service less than a year ago across the five states. Delhi, Faridabad and Gurgaon house about half of its subscriber base and around 2,000 users are added monthly in these areas. The number is projected to hit 3,000 additions a month. The company is estimated to have 500,000 subscribers. The parent company has plans to return the basic services licenses back to the Department of Telecommunications (DOT) as part of the plans to move to the unified licensing. The company already holds the cellular licenses and is planning to merge the operations under one service umbrella. The company s network is a mix of ring topology, copper, optic fiber cable. Its network spans 36 cities with over 12,000 kilometers (km) of optic fiber and copper network. Bharti Enterprises has a strategic partnership with SingTel after British Telecom exited from Bharti in mid- 2001. They have jointly commissioned an 8.4-Tbps submarine cable from Chennai to Singapore. Bharti Enterprises has also roped in financial partners such as E.M. Warburg Pincus, International Finance Corporation and New York Life. Bharti also offers international long-distance services and has put tremendous competitive pressure on VSNL. The company will also be capable of offering cheaper ILD services as the recently announced the 5 January 2004 10
access deficit charge (ADC) of Rs4.50 will not be applicable as its subscribers will not have to route through BSNL. Reliance Infocomm Reliance Infocomm is the telecom arm of one of India s largest conglomerates, Reliance Group, with interests in textiles, chemicals, fibers, oil and gas, infrastructure and power. The company commenced operations as Reliance Telecom in the state of Gujarat in May 2000. Reliance s wait and watch policy (due to unclear regulatory conditions) in the sector seems to be paying off as the company has been capable of reaping the benefit of falling prices of telecom equipment worldwide and reducing the total cost of networks deployed. The networks are spread across 60,000 km, covering more than 600 cities and towns in 18 of the 21 circles, 229 long-distance charging areas (out of total 323 LDCA) and broadband connectivity to over 190 cities. Reliance s fiber optic infrastructure combines with the next-generation code division multiple access (CDMA) single carrier (1x) technology platform. Reliance is also offering national and international long-distance services (the recent bid for Flag telecom is a step in that direction). The company has plans to offer high-speed Ethernet services and offer colocations, Web hosting and data centers services. Except for northeast states, Orissa and Jammu and Kashmir, the company covers the entire country. The company has the largest coverage after BSNL for basic services in India. Today Reliance is the largest private basic operator with more than 5 million subscribers (as of October 2003). The company has built its network on a ring topology and 17 such rings are currently operational across India. The acquisition of Flag will give it access to European and U.S. markets. Moving forward, Reliance could be an aggressive player in the international long-distance market by using the price platform to gain competitive advantage. It has started offering long-distance calling cards at attractive prices (Rs5 to Rs7 per unit call) to Reliance customers. Tata Teleservices/VSNL Tata is one of the most powerful Indian conglomerates. With the focus around new economy business, telecom is one of the major thrust areas of the group. The company has already acquired two companies (Hughes tele.com and VSNL) emphasizing their focus in telecom. Tata recently applied for seven more licenses under the new unified licensing, which will help cover 17 circles similar to that of Reliance Infocomm. With the acquisition of VSNL, the company is currently the largest ILD services provider in the country. Tata Teleservices currently provides services in Andhra Pradesh, Delhi, Karnataka, Maharashatra, Goa and Tamil Nadu and has a subscriber base of around 1,315,905. It plans to invest Rs80 billion over three years for basic services. It has already paid a Rs1.7 billion entry fee and has provided bank guarantee of Rs7 billion and has commenced operations in Tamil Nadu, Karnataka, Gujarat and New Delhi. Tata Teleservices offers services under the brand name of Tata Indicom. The services offered by VSNL (mainly ILD and NLD services) are also bundled under the same brand name. VSNL has exclusive right to offer ILD services to BSNL and MTNL until 2004. Other basic operators include Shyam Telecom (operates services in Rajasthan under the brand name of Rainbow and a subsidiary of Shyam Telecom), along with HFCL Infotel (subsidiary of HCL), providing services under the Connect Brand in Punjab Circle. 5 January 2004 11
Carrier Profiles Incumbent Operators Table 4: Bharat Sanchar Nigam Limited (BSNL) Profile Ownership 100 percent owned by the government of India. Revenue* Rs242.99 billion (financial year ending March 2002). Net Income/Loss* Rs63.12 billion (financial year ending March 2002). Number of 358,005 (as of September 2002). Employees Network Infrastructure Fixed National BSNL s local exchange network, based on the International Telecommunication Union s (ITU s) E1 standard, is the most extensive in India (32,000 local electronic exchanges with 99.9 percent of the switching network in digital mode) with 37 million direct exchange line (DEL) capacity across 5,000 towns. Its I-Net public data network has 110 nodes nationwide with 64-Kbps access (some nodes support 128 Kbps) and access via X.25 or frame relay. BSNL has extensive satellite (about 370 multichannel per carrier [MCPC] very small aperture terminals [VSATs]), coaxial for transmission systems (more than 6,024-route-km), microwave (more than 120,253- route-km) and optical fiber (more than 410,891-route-km) networks across the entire country and UHF (45,103 route-km). It provides Internet through the brand name Sanchar Net using the National Internet Backbone (NIB), the nationwide Internet access network. It is deploying CDMA-based, last mile access solution. Wireless GSM Launched nationwide cellular services in October 2002 under the brand name CellOne. WLL Offering WLL access solutions under the brand name Tarang. Plans to cover 58 cities by December 2003. Satellite/Radio INSAT (II and 3B) series satellites. It also has C-band intermediate data rate (IDR) digital facilities and access to INMARSAT. Space Segment in Ku band (INSAT 3A satellite). Ease of Switching Carrier Prefix Dialing Carrier preselection is not available. However, with TRAI proposing Carrier Access Code/Preselection Charges (CAC), carrier preselection might come into practice. Number Portability No. Interconnection at Interconnection agreements with private basic services operators, Mahanagar Local Office Telephone Nigam Limited (MTNL) and VSNL. Pricing Strategy Monthly telephone rental (dependent on exchange system capacity and area classification urban or rural) applies. Tariff structure is divided into local, national long distance and international (via VSNL). There are a fixed number of free local calls per month, beyond which local calls are charged up to Rs1.20 per three-minute block. The pulse rate varies depending on the network called (WLL, cellular, basic, intranetwork or internetwork). National long-distance call charges are distance- and time-of-call-dependent. Billing Customized billing and duplicate bills on request. Bundling Available, voice and data services. *Declared in January 2003. 5 January 2004 12
Table 5: Mahanagar Telephone Nigam Limited (MTNL) Profile Ownership 56.25 percent owned by the government of India. Revenue Rs58.06 billion (financial year ending March 2003). Net Income/Loss Rs8.77 billion (financial year ending March 2003). Number of 61,000 (as of November 2003). Employees Network Infrastructure Fixed National Local exchange network in Mumbai and New Delhi with a total of 431 exchanges and equipped capacity of 5.65 million lines. MTNL s network is based on ITU s E1 standard. MTNL s networks are almost 100 percent digitized. International No. Wireless GSM Dolphin Cellular services commenced in New Delhi and Mumbai in February 2001. Likely to get cellular license in Mauritius. WLL WLL access solutions are deployed in New Delhi and Mumbai under the brand Garuda. Satellite/Radio No. Ease of Switching Carrier Prefix Dialing Code/Preselection Number Portability Interconnection at Local Office Pricing Strategy Billing Bundling Carrier preselection is not available. However, with TRAI proposing CAC, carrier preselection might come into practice in the near future. No. Interconnection agreements with BSNL, VSNL and private basic services operators. Monthly telephone rental (dependent on exchange system capacity and area classification urban or rural) applies. Tariff structure is divided into local, national long distance and international (via VSNL). There are a fixed number of free local calls per month, beyond which local calls are charged up to Rs1.20 per three-minute block. National long-distance call charges are distance- and time-of-call-dependent. Itemized billing and toll-free phone inquiry. Online payment, credit card and customer service center options are available for bill settlement. Telephone billing enquiry service. Voice and data services. Table6:VSNLProfile(partofTataGroup) Ownership Tata group (M/s Panatone Finvest Limited as investing vehicle of Tata Group owns 45 percent equity), Indian government (26 percent), the overseas holding (inclusive of Foreign Institutional Investors [FIIs], American Depository Receipts [ADRs], Foreign Banks) is approximately 13 percent as of 30 September 2003: The rest is owned by Indian institutions and the public. Revenue Rs48.12 billion (financial year ending March 2003). Net Income/Loss Rs7.8 billion (financial year ending March 2003). Number of 1,775 (as of May 2003). Employees 5 January 2004 13
Table6:VSNLProfile(partofTataGroup) Network Infrastructure Fixed National VSNL s network is based on ITU s E1 standard. It offers telephone, telex and telegraph services and operates 12 international switching and transmission (March 31, 2002) facilities at eight ( gateways ) locations Mumbai, Kolkata, Delhi, Chennai, Ernakulam, Gandhinagar, Jalandhar and Kanpur which route international traffic to and from the domestic telecommunications network using a combination of satellite and undersea cable links. The total equipped capacity of gateway exchanges for telephony is 36,720 international terminations. International International circuits via submarine cables (Fiber Link Around the Globe [FLAG], Southeast Asia-Middle East-Western Europe 2 [SEA-ME-WE 2], SEA-ME-WE 3, South Africa Far East [SAFE], Gulf Cable and IOCOM) and satellites (Intelsat and INMARSAT). Mobile No. Satellite/Radio 12 International gateways and 30 earth stations. Access to Intelsat and INMARSAT satellites. Ease of Switching Carrier Prefix Dialing Code/Preselection Number Portability Interconnection at Local Office Pricing Strategy Billing Bundling Carrier preselection is not available. However, with TRAI proposing CAC, carrier preselection might come into practice in the near future. Not applicable for an international direct-dial service operator. Interconnection agreements with basic services and national long-distance operators. International long-distance tariff depends on time of call and destination. Itemized billing. Voice and data services. Table 7: Tata Teleservices Ownership Revenue Net Income/Loss Number of Employees Network Infrastructure Fixed National International Wireless WLL Owned by Tata Group. Two promoters of Tata Teleservices are Tata Power with a 35.08 percent stake and Tata Sons with 24.06 percent. Rs36.9 million (March 2003 industry estimates). Not available (Only Maharastra Goa circle is operational under the listed entity). 600. 1,300-km fiber cable backbone in Andhra Pradesh, 500-km backbone in National Capital Region (NCR) of Delhi, more than 2,000-km-long backbone in Karnataka (partly deployed and remaining planned), offers services in 10 cities and 1,000 villages across Marharashatra, more than 2,000-km backbone in Tamil Nadu (planned). Through VSNL (A Tata Group Company). First company to offer WLL (CDMA)-based fixed and limited mobility services in India. 5 January 2004 14
Table 7: Tata Teleservices Satellite/Radio No. Ease of Switching Carrier Prefix Dialing Code/Preselection Number Portability Interconnection at Local Office Pricing Strategy Billing Bundling Carrier preselection is not available. However, with TRAI proposing CAC, carrier preselection might come into practice in the near future. Not applicable for an international direct-dial service operator. Interconnection agreements with basic services and national long-distance operators. International long-distance tariff depends on time of call and destination. Itemized billing. Voice and data services. Table 8: Reliance Infocomm Ownership Revenue Net Income/Loss Number of Employees Network Infrastructure Owned by Reliance Industries and The Ambani Family. Not listed. Not listed. Not available. Fixed National Nationwide fiber optic network covering 60,000 km across more than 600 cities and towns. International Recently bid to acquire FLAG Telecom to provide International links (undersea fiber optic cable comprising 50,000-km cable that spans four continents and connects the key regions of Asia, Europe, Middle East and the USA). Wireless 2,588 Base Transceiver Stations (BTSs) across the country, for wireless network. GSM Provides cellular services in seven circles comprising 15 states. WLL CDMA single carrier radio transmission technology (1xRTT) network is deployed in 577 SDCAs comprising over 600 cities and towns across India, covering more than 65 percent of the urban population. Satellite/Radio Does not apply. Ease of Switching Carrier Prefix Dialing Code/Preselection Number Portability Interconnection at Local Office Pricing Strategy Billing Bundling Carrier preselection is not available. However, with TRAI proposing CAC, carrier preselection might come into practice. No. Interconnection agreements with BSNL, MTNL and private basic service operators. Monthly telephone rental applies. Tariff structure is divided into local, national long distance and international. The company offers a three-year package deal to the customers with handsets at very low costs per month. Customized billing and duplicate bills on request. Online billing info available. Available, voice and data services. 5 January 2004 15
Service Comparisons The Tables Voice, Frame Relay, Internet Access Services, LAN Interconnection and Virtual Private Network (VPN) provide comparisons of some of the major services offered by the network operators in India. Table 9: Voice Long-Distance/International Voice BSNL MTNL Bharti VSNL (Tata Teleservices) Reliance Infocomm Service Name Call Now. India One. VSNL International Reliance India Phone. Direct Dial. Status Commercial. Commercial. Commercial. Commercial. Commercial. Coverage Nationwide. International calls connected through VSNL s network. Nationwide connected through BSNL s network. International calls connected through VSNL s network. Nationwide. International. 236 countries worldwide. Nationwide. International. It has Satellite and ILD gateways. International Calling/Charge Card Service Name India Telephone Card. Virtual Calling Card, Account Card Calling (1604). India One. No. Speak2Gulf and Speak2US and Canada. Coverage Nationwide and more than 200 countries worldwide by connecting to VSNL s network. Nationwide and more than 200 countries worldwide by connecting to VSNL s network. Undersea cable linkage with Singapore. Nationwide and international. Acquisition of FLAG communications will provide undersea cable across Asia, Europe and Americas. Table 10: Frame Relay BSNL MTNL VSNL Service Name Global Managed Data Network Services (with Cable & Wireless), Global One (with France Telecom) and British Telecom. Status Commercial. Not offered. Commercial. 5 January 2004 16
Table 10: Frame Relay BSNL MTNL VSNL Coverage Standards Conformity Features Major cities (Groups A and B) nationwide. Standard access protocol. Connected to packet switched public data network (PSPDN) (I- Net). Worldwide. Standard access protocol. End-to-end services. Table 11: Internet Access Services BSNL MTNL VSNL/Tata Teleservices Reliance Infocomm Service Name Sanchar Net. VSNet/Tata R Connect. Indicom Postpaid. Status Commercial. Commercial. Commercial. Commercial. Coverage 65 cities throughout Mumbai and New Tata s six circles, Nationwide. India. Delhi. and international viaroamingwith ipass. Access Dial-up modem, Dial-up modem, Dial-up modem, CDMA 1x network. Integrated Services Digital Network (ISDN) and leased lines. ISDN and leased lines. ADSL Broadband, Access through CDMA 1x. ISDN, leased lines, frame relay, satellite and cellular. Table 12: LAN Interconnection BSNL MTNL VSNL/Tata Teleservices Available (Yes, Yes. Yes. Yes. No, Planned) Service Name Gateway Packet Switched Data Service (GPSS), Global LAN to LAN (with France Telecom). 5 January 2004 17
Table 12: LAN Interconnection BSNL MTNL VSNL/Tata Teleservices Coverage Nationwide and international via connection to VSNL s network. Nationwide (interconnection with BSNL) and international via connection to VSNL s network. Major cities nationwide (via connection to I-Net) and over 80 countries worldwide. Features Via leased lines (64 Kbps, n x 64 Kbps, 2 Mbps), VSAT connections (high-speed, satellite-based VSAT network [HVNET]) or packet switched public data network (I- Net). Via leased lines managed leased data network or MLDN (64 Kbps, n x 64 Kbps, 2 Mbps) and I-Net. Packet-switching exchanges at Mumbai, New Delhi, Calcutta, Bangalore, Chennai, Trivandrum, Pune and Bhubaneswar. Access via BSNL s I-Net or HVNET is possible. Table 13: Virtual Private Network (VPN) BSNL MTNL VSNL/Tata Teleservices Reliance Infocomm Available (Yes, No, Yes. Yes. Yes. Planned. Planned) Service Name VSNet/Tata Indicom. Status Commercial. Commercial. Commercial. Coverage Major cities Major cities Major cities nationwide. nationwide. nationwide. Access Methods Leased lines or switched circuits. Leased lines or switched circuits. Leased lines or switched circuits. 5 January 2004 18
Table 13: Virtual Private Network (VPN) BSNL MTNL VSNL/Tata Teleservices Reliance Infocomm Service Information IP VPN services using Multi Protocol Label Switching. Private automatic branch exchange (PABX) features like private numbering plan, call transfer, televoting, call hold and closed user group can be provided. PABX features plus private numbering plan are available. Intranet VPN service riding on the local loops of BSNL, MTNL and the private carriers is available. IP VPN services also available. 5 January 2004 19
Table 14: Other Services Offered BSNL MTNL VSNL/Tata Teleservices Reliance Infocomm ISDN, X.25, X.28, facsimile, leased lines, telex, telegraph, videoconferen cing, intelligent network services (for example, free phone service, premium-rate service, televoting and universal number), VSAT services via HVNET (64-Kbps) or remote-area business message network (RABMN 1.2 Kbps and 9.6 Kbps), transponder leasing, PABX, coin-operated payphones, village public telephones (VPTs). Asymmetric digital subscriber line (ADSL), ISDN, X.25, X.28, facsimile, leased lines, card phone facility, toll-free calling (1-800 service), free phone service (1600), premium-rate service, televoting (for opinion polls and market surveys), audioconferen cing, coinoperated payphones and paging service. Digital loop carriers (DLCs) will be availableinthe metroareain the near future. International telex with store-andforward transmission option, international telegraph, X.25, international private leased circuit, international TV transmission, Intelsat business service (digital voice, data, text, facsimile and videoconferencing), analog leased lines, electronic data interchange (EDI) via Gateway Electronic Data Interchange Service (GEDIS), gateway e-mail and store-andforward fax (GEMS-400). Data Centers, Broadband wireline, Fixed Wireless Terminal voice application (for ATM connectivity, customer relationship management [CRM] and travel reservation applications). Future Trends and Developments The telecom sector is still dominated by BSNL, MTNL and VSNL (long distance), and the situation is changing rapidly. The introduction of unified licensing has led to emergence of integrated players offering both fixed and mobile services. The trend of customers moving to wireless services (WLL and GSM) will continue as competition intensifies and prices of cellular services become even more affordable. This will lead to slowdown in the fixed-line growth and have an impact on uptake of broadband services. Also, the removal of the rural telephony obligation in the new regime goes against the goal of increasing rural teledensity. 5 January 2004 20
Advanced technologies and broadband access are unlikely to experience any accelerated takeup in the near term. The target market comprising businesses and upper middle-class consumers is limited in size while pricing is a major consideration for the masses. The liberalization of the ILD sector to competition has already started showing results with operators offering price discounts, and with the entry of BSNL early in 2004 the prices are likely to come down further. With voice moving toward wireless, the fixed-line providers have to focus on other services to protect their profitability. Some of the services that can be considered are bundled Internet access, SMS, gaming, Direct to Home (DTH) services and other services like cable TV through their infrastructure. The future of the industry lies in the wireless and mainline segment and technological innovations based on Internet Protocol (IP)-based services. Revenues from voice services will be under pressure as prices come down. Carriers will need to support a wide range of value-added services to protect their bottom line. The current UL environment is expected to lead to consolidation among players. Those with longterm goals and deep pockets are likely to survive. Strengths/Limitations of Incumbent Carriers BSNL Strengths BSNL has the most extensive telecommunications network in the country. As a wholly owned government organization, it can depend on government support. For example, the TRAI has recently introduced the access deficit charge (ADC) to fund the social obligations of BSNL by levying a charge on every call that terminates on its network. It has a net worth about US$13.85 billion, and its profit margins are very high (over 30 percent). As a result, it can finance its network upgrades and expansion without much trouble. It has more than 3,250 customer service centers all over the country, which is unmatched by any other operator. Limitations BSNL is bureaucratic, and its capability to innovate and respond rapidly to the changing telecommunications environment is unproven. The quality of service offered is not of similar quality as its competitors. It has an organized labor union that is likely to oppose any operational efficiency initiatives that will inevitably result in a reduction of its bloated workforce. Its NLD business will eventually be under threat from the government s decision to liberalize the sector. The basic service sector was opened to unlimited competition in early 2001. The movement of customers from fixed lines to CDMA and GSM mobile has hit the company hardest. More than 2 million subscribers surrendered their fixed-line telephones in 2003. MTNL Strengths MTNL operates in two of the most lucrative telecom circles in India (Mumbai and New Delhi). 5 January 2004 21
Its network has grown consistently over the years in accordance with its rollout plans. As a result, the waiting list for telephone connections has been reduced over the years. Limitations MTNL s premium subscriber base is being lured away by Tata Teleservices (formerly Hughes Telecom) and will come under further attack after the Unified Licensing scheme, whereby companies like Reliance will be capable of offering services like fixed line both in Delhi and Mumbai. Bharti is the third basic service provider in Delhi including MTNL and Reliance. Its growth is largely limited to Mumbai and New Delhi. The government also does not want MTNL to compete directly with BSNL, thus limiting MTNL s growth opportunities further. Inherits the bureaucratic way of functioning from BSNL. VSNL/Tata Teleservices Strengths VSNL currently dominates all international call connections from and to India. Its acquisition by Tata s will likely help it integrate into a more professional organization geared to handle the competitive environment. The company has been expanding its network over the last year and will soon have coverage across 17 key states across India. The company has backing of one of the most powerful groups in India. The tariff offered by Tata Teleservices is most competitive among the private operators. Limitations VSNL has lost its monopoly in the ILD network and is continuously losing its share to other operators. It does not have a domestic telecommunications network and direct customer access in place to compensate for the inevitable erosion of its monopoly ILD business. However, this is likely to change with its proposed investment in Tata Teleservices for last mile access and building an NLD network. Cultural shift (VSNL) to adapt to a private management and competitive market environment. Conflict with other group companies (Idea Cellular where the company has 33 percent share) as it focuses around CDMA network deployment (Idea offers GSM network). Reliance Infocomm Strengths Backed by one of the largest conglomerates in India. Aggressive network rollout and coverage is next only to BSNL. Flag s acquisition will make it a global player with its own international network across five continents. Has easy access to capital from the parent company. Limitations 5 January 2004 22
The company is banking heavily on the use of data applications, which is still evolving and dominated by voice. Possibility of data services uptake is higher among enterprise users, but strategy to target this segment is not very clear. New to the consumer business. Insight Unified licensing has been positive in the sense it has attempted to resolve the conflict between GSM cellular and CDMA limited mobility players by creating a single license, technology-agnostic environment. While it gives a boost to wireless services, long term it could have an adverse effect in the growth of the wireline services and broadband penetration. Although choices are limited, and private operators have yet to be capable of providing wide network coverage for their services, the change toward competitive, multiple offerings is taking place. However, improving network access, coverage, reliability and increasing bandwidth will take some years to realize. All players will face acute pressure on pricing. Way forward would be for them to create some unique propositions of their own. All operators are beginning to offer high-bandwidth digital subscriber lines (DSLs) and VPNs for high-speed connectivity and Internet access at very competitive prices. Data services will be important not only to differentiate service portfolios, but also to help generate additional revenues. 5 January 2004 23