A guide to India's fixed and mobile carriers and the 'circles' in which they operate

April 19, 2009

34 Min Read
A Guide to India's Telecom Market

In March 2008, Light Reading published A Guide to India's Telecom Operators. It proved to be one of the most popular articles on the site that year.

Now, little more than 12 months later, the Indian market has moved on considerably. Last year's report noted that, at the end of 2007, the country's mobile operators had a total of 233.6 million connections mong them. A year later, as 2008 ended, India's mobile service providers boasted nearly 347 million connections, a year-on-year increase of nearly 50 percent. (See IndiaWatch: Mobile Nears 347M Subs.)

And there's plenty of wireless growth still to come: In the first two months of 2009 alone, the mobile operators activated more than 28 million additional connections. (See India Adds 13M Subs in February and India Adds 15M Mobile Subs in January.)

According to the Telecom Regulatory Authority of India (TRAI) , the total number of telecommunications services connections reached nearly 414 million at the end February 2009, of which more than 90 percent were wireless.

In stark contrast to the mind-boggling growth experienced in the mobile sector, fixed voice connections have suffered a gentle decline in recent years: At the end of February 2009, India, a country of nearly 1.2 billion inhabitants, had just 37.73 million fixed-line connections.

India's fixed-line sector is not dead, though: There's potential growth in that market, too, as well as in the wireless world, though the big numbers and the immediate impact will continue to come in the mobile sector.

There are two obvious ways for the service providers to expand. The first is, quite simply, to connect more people. Teledensity is rising steadily but had only reached 35.65 percent at the end of February 2009, leaving significant potential for additional market expansion.

The majority of growth will now come from outside the metro circles and in the smaller cities, towns, and rural villages as teledensity in the major urban centers has reached 82 percent. It's worth noting that 70 percent of the Indian population lives in rural areas, and, equally importantly, 64 percent of the nation's expenditure and 56 percent of its income comes from these villages – yet India's rural teledensity currently stands at less than 13 percent.

It's the potential for rural area growth that drew five new players into the market in 2008, and it's that same potential that prompted a number of international players, including Telenor Group (Nasdaq: TELN) and Etisalat , to take major stakes in each of the five (see the Wireless Service Providers section for further details). This trend towards international ownership is now well embedded and is likely to become more prominent when India's 3G spectrum auctions finally take place, which should be later this year.

The second growth driver is new services, such as broadband, IPTV, 3G mobile, and broadband wireless access (BWA), particularly using WiMax technology.

Broadband connectivity is still very low, but state-owned operators Bharat Sanchar Nigam Ltd. (BSNL) and Mahanagar Telephone Nigam Ltd. (MTNL) , along with private carriers such as Bharti Airtel Ltd. (Mumbai: BHARTIARTL), are slowly increasing their DSL customer bases in urban centers (See the Fixed-Line Service Providers section for more details). Cable companies, such as Hathway Cable & Datacom Pvt. Ltd. and Sify Technologies Ltd. (Nasdaq: SIFY), are also developing broadband businesses, while Reliance Communications Ltd. has concentrated on building out WiMax capabilities to complement its high-speed Ethernet access rollout.

IPTV has struggled to gain traction as a popular service since its initial hype, but is now building, albeit slowly, with a number of service providers still planning to launch their services. With the incredible amount of content created by the Bollywood movie industry, and other local content developers, the potential flexibility offered by IPTV services could work well in the Indian environment, according to Jai Maroo, an industry executive interviewed by Light Reading TV (see below).



It's not all growth and success in the Indian telecom market, though. Plans to promote rural connectivity have fallen short after getting bogged down in bureaucracy, while the Department of Telecommunications 's inability to agree on terms for the 3G and BWA spectrum auctions with other government departments has delayed deployment of mobile broadband solutions, leaving operators frustrated. They are also limited by a lack of spectrum, which, despite the size of the market, is in short supply: Indian operators have received far less than the world average of around 25 MHz apiece.

With so many developments going on, and with so many other markets around the world relatively stagnant in terms of subscriber growth, there's never been a more important time to understand the Indian telecom sector, its service provider players, and its structure. And that's what this report provides.

As well as a visual guide to the country's service areas, known as "circles," this report provides a roll call of the fixed-line and mobile operators, an explanation of the licensing environment, an overview of the many companies involved in the provision of mobile tower sites as India embraces passive infrastructure sharing on a massive scale, and an overview of the country's approach to increasing rural teledensity.

Feedback and comments concerning the report, as well as any updates or additions, are most welcome, and can be added to the message boards at the foot of this page (preferable) or sent to [email protected].

Contents:



— Catherine Haslam, Asia Editor, Light Reading

Next Page: Circles

The Telecom Regulatory Authority of India (TRAI) has divided the market into 22 service areas known as “circles.” The circles are divided roughly in line with the country’s 29 provinces and are divided into four categories, as shown below. Service providers require a separate license for each circle.

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Metro circles (major cities*):

  • Mumbai

  • New Delhi

  • Kolkata

A circles (regions that include other large cities):

  • Andhra Pradesh

  • Gujarat

  • Karnataka

  • Maharashtra

  • Tamil Nadu*

B circles (regions with smaller urban areas and towns):

  • Haryana

  • Kerala

  • Madhya Pradesh

  • Punjab

  • Rajasthan

  • Uttar Pradesh (East)

  • Uttar Pradesh (West)

  • West Bengal

C circles (rural areas):

  • Assam

  • Bihar

  • Himachal Pradesh

  • Jammu & Kashmir

  • Northeast

  • Orissa

* Chennai, in the southeast, was previously a separate Metro circle, but as of March 31, 2008, it was integrated into the Tamil Nadu A circle as a single entity. The service providers and TRAI, however, continue to report monthly connection numbers for Chennai separately.

Next Page: Licenses

Background
There are three types of telco operation in India: international long distance; national long distance; and domestic. For the purposes of this report, we will concentrate on the domestic services.

Within India, telecom licenses are issued per operator, per circle, and have evolved with the market. There are three types of domestic license: Basic (fixed); Cellular Mobile Telephony Service (CMTS); and Universal Access Service (UAS), which was introduced in 2003 as a single license for CDMA, GSM, and fixed services and designed to bring to an end the confusion and contention around the different license conditions.

Basic (fixed) service licenses were initially issued for terms of 20 years, with 10-year extensions available on application. The long distance market was opened up on January 1, 2000, when any licensed provider was allowed to interconnect to the state-run operations of BSNL for national long distance and Videsh Sanchar Nigam Ltd. (VSNL) (NYSE: VSL) for international communications.

From 1997, Basic licenses had allowed service providers to offer fixed wireless and "limited mobility" (essentially fixed wireless) services using CDMA spectrum, but this led to a virtually continuous stream of litigation from cellular operators towards the limited mobility providers, which paid lower license fees.

CMTS licenses had first been issued to private companies in 1994 for the (then) four metro circles. First and second operator licenses were subsequently issued in 18 more circles.

In 1999, the New Telecoms Policy introduced technology neutrality and lifted the restriction that limited each circle to just two operators. The government ensured at least one more competitor with the introduction of a state-owned operator – either BSNL or MTNL – to each circle.

In 2001, guidelines and licenses were issued for fourth operators. However, it was the introduction in 2003 of Universal Access Service licenses that defined the market India has today.

Existing license holders (Basic and CMTS) were allowed to migrate to the new license, and new entrants were encouraged. Of the Basic license holders, only Bharti and the state-owned BSNL and MTNL also held CMTS licenses, and it was at this point that Reliance Infocomm (now Reliance Communications), Tata Teleservices Ltd. , Shyam Telecom Ltd. , and Himachal Futuristic Communications Ltd. (HFCL) entered the cellular market in earnest.

It also meant that licenses and spectrum allocation would be based on eligibility and justification, and considered on a case-by-case basis. That meant service providers could apply for licenses and spectrum at any time. However, by 2007, the DoT was overwhelmed by applicants, and it refused to accept further applications after September 2007.

In January 2008, five new entrants -– Loop Mobile , Datacom Solutions, Swan Telecom, S-Tel, UniTech -- were awarded UAS licenses and existing players, Tata Teleservices, Shyam Telelink, Spice Telecom , and Idea Cellular Ltd. , added to their existing circles, bringing the total number of licenses issued to 281, distributed as follows:

  • Basic license holders: 2

  • Cellular Mobile Telephony Service (CMTS) license holders: 39

  • Universal Access Service (UAS) license holders: 240

UAS licenses
While the UAS license has simplified the licensing environment, it has also created new problems. Firstly, it created a two-stage system where potential service providers have to apply for, receive, and pay for operational licenses, and then form an orderly queue for very limited spectrum.

There is a one-off license fee associated with each circle, ranging from 11 million rupees (SU$276,000) for rural Himachal Pradesh, to INR2.04 billion ($51.18 million) for Mumbai, the country’s largest city. This adds up to a total of INR16.6 billion ($416.5 million) for nationwide coverage.

In addition, service providers also pay a portion of their adjusted gross revenues (AGR) in annual license fees. Again, these vary – from 10 percent for metro and category A circles, to 8 percent for B circles, and 6 percent for C circles.

Wireless spectrum is allocated initially in a block of 4.4 MHz for GSM-based operators and 2.5 MHz for CDMA operators. Additional spectrum is granted on the basis of subscriber growth and efficiency benchmarks.

Spectrum usage fees are also levied and charged according to the amount an operator has been allocated: 4.4 MHz of spectrum carries a charge of 3 percent of AGR; operators pay 4 percent for 6.2 MHz; 5 percent for 8 MHz; 6 percent for 10 MHz; 7 percent for 12.5 MHz; and 8 percent for 15 MHz.

While services providers are assured of spectrum when it is available, they are not given a timescale, leaving them without the means to provide mobile services for an indeterminate period. This caused particular issues following the most recent round of license awards. The licenses were issued in January 2008, but the first to receive spectrum was Sistema Shyam TeleServices Ltd. eight months later. (See Indian Gov't Grants Mobile Licenses.)

Even now (April 2009) not all operators have received their entire spectrum allocations, as shown in the table below.

Table 1: Status of new license holders (as of April 2009)

Operator

Circles licensed

Circles with spectrum allocated 2008/9

Sistema Shyam

All

All

Loop Telecom (including BPL in Mumbai now rebranded Loop)

All

12

Datacom Solutions

All

12

Unitech

All

16

S Tel

HP, Bihar, Orissa, Assam, NE, J&K

HP, Bihar, Orissa, Assam, NE, J&K

Swan Telecom

Delhi; Mumbai: Maharashtra; Gujarat; AP; Karnataka; Tamil Nadu; Kerala; Punjab; Haryana; UP East; UP West; Rajisthan

10

IDEA Cellular

Jammu & Kashmir; North East; Orissa ; WB; Andaman & Nocobar; Chatisgarh; Jarkhand; Uttaranchal

Jammu & Kashmir; North East; Orissa ; WB; Andaman & Nocobar; Chatisgarh; Jarkhand; Uttaranchal

Tata Teleservices

20

10

Reliance Communications

14

14





Under the original terms of the UAS license, service providers were required to meet rollout obligations within the first year. The license further stipulated that if service providers weren't able to offer mobile services due to lack of spectrum, they would need to meet their rollout requirements using fixed-line services. The rollout requirement was amended in February 2009, effectively scrapping the need for license-holders to meet their obligations with unplanned fixed-line service offerings.

That change was backed by India's Telecoms Disputes Settlement and Appellate Tribunal, which has also ruled on the right of operators to run both GSM and CDMA networks. It found that dual technology operations were within the scope of the UAS license, upholding the right of CDMA operators to offer GSM services and receive introductory GSM spectrum.

3G, WiMax, and BWA
All UAS license holders are entitled to deliver 3G services, but, of course, they need the spectrum to do so. That spectrum will be allocated by the DoT, which plans to run a spectrum auction.

In addition to UAS license holders, companies fulfilling the eligibility criteria of a UAS license holder and possessing previous experience of running 3G services can bid for spectrum. This rule allows, for the first time, foreign companies to bid for Indian spectrum.

The auction, however, has been delayed several times, due to the lack of available spectrum in the 2.1 GHz band, and the inability of the government to agree on reserve prices for the auction, among other factors.

After two years of haggling over spectrum pricing, the auctions had been set for January 2009. The initial date was January 16 but was delayed first to January 30 and then indefinitely, as the government created a new committee to settle the pricing issue. Experts now expect the auction to take place in the second half of 2009. (See Indian Operator Expects Lengthy 3G Delay .)

State-owned BSNL and MTNL, however, were allocated their 3G spectrum during the second half of 2008, and both have launched services in their respective metro circles, leaving the private operators waiting to play catchup.

Once the auction is complete, up to five 3G licenses will be issued to operators across 60 MHz of spectrum in each coverage area, and a further five operators may be added in the future. The spectrum allocation for each is as follows:

Table 2: Spectrum allocation for future 3G/BWA licenses

Auction

Frequency

Band size

Length of spectrum allocation

3G

2.1GHz

2 x 5MHz

20 years

BWA

2.3GHz/2.5GHz

1 x 20 MHz

15 years





Up to five spectrum blocks have been created in each circle, with BSNL and MTNL having already each been allocated a block in their circles. This leaves four blocks up for auction in each circle, except Hamachal Paredesh (3), UP West (3), Gujarat (2), Delhi (2), and West Bengal (1).

3G auctions will not be held at all for the Rajasthan and North East circles as there is no spectrum yet available in the required bands.

India has set a reserve price of INR20.20 billion ($427 million) for spectrum covering all of India, but bids are expected at much higher levels as the potential for telecom services in the world's fastest-growing market remains huge.

Operators that will use 3G spectrum to offer CDMA services will be required to match the bid of the highest paying GSM operator, and their fee will then be reduced pro rata to the reduced spectrum they will use.

Rollout obligations apply: 90 percent of metro areas should be covered within five years from the date of spectrum allocation. Operators will pay an annual spectrum charge of 1 percent of adjusted gross revenues after the first year, in addition to existing 2G spectrum charges.

Fixed wireless access auctions for 2.3 MHz and 2.5 MHz spectrum, which is likely to be used for WiMax services, will start after the conclusion of the 3G auctions and follow a similar process.

Next Page: Fixed-Line Service Providers

Fixed-line voice connections have been declining at a slow but sustained rate each month as the volume of mobile connections grows. At the end of February 2009 India had 37.73 million fixed-line connections, down from 39.18 million a year earlier.

State-owned operators BSNL and MTNL have 77.8 percent and 9.3 percent market share, respectively, while the five private operators together have a 12.8 percent share. The market remains relatively static and is dominated by a few big players, as shown below:

Table 3: India's fixed-line service providers

Operator

Subscribers in millions

Service coverage by circles

BSNL

29.23

All circles except Mumbai and New Delhi

MTNL

3.51

Mumbai and New Delhi

Bharti Airtel

2.68

All metro, A, and B circles except West Bengal

Reliance Communications

1.1

All circles except Assam and North East

Tata Teleservices

0.91

All circles except Assam, Jammu & Kashmir, and Northeast

Sistema Shyam Teleservices Ltd

0.14

Rajasthan

HFCL Infotel

0.16

Punjab





Broadband
In India's fixed-line sector, broadband represents a much greater opportunity than voice, although the high-speed Internet access market is still in the very early stages of development. The number of broadband connections, defined by the TRAI as those with download speeds above 256 kbit/s, is, though, climbing each month, and reached 5.85 million by the end of February 2009, a 40 percent year-on-year increase.

By the end of 2008, 84 of India's 164 ISPs were providing broadband services. Of these, only 15 had subscriber bases of more than 10,000, and the top 10 broadband players accounted for 95 percent of the total market. Of those 164 ISPs, 36 offer a VoIP service, the provision of which was only allowed in 2007.

In terms of technology, DSL dominates, with 85 percent of the market at the end of 2008. Cable modems, Ethernet LAN, fiber, and wireless, all account for small, single-digit market shares.

BSNL and MTNL are required to deliver Internet connectivity, and they dominate the broadband market, with BSNL responsible for offering services in 20 of the 22 circles. It has built a national MPLS network, with 10 physical nodes and virtual nodes in all 20 of its regional headquarters, to help it target the enterprise broadband market, and it is now in the process of building out a national fiber backbone to further support its broadband growth.

Of the private telecom operators, Airtel and Tata lead the way, while cable service providers such as Hathway and Sify also make the top 10, as shown in the table below.

Table 4: India's Top 10 broadband players

Company

Subscribers (year end 2008)

Circles with subscribers

BSNL

3,007,415

all except Delhi & Mumbai

Bharti Airtel

754,342

Andhra Pradesh; Delhi; Gujarat; Haryana; Karnataka; Kerala; Kolkata; Madhya Pradarash; Mahatra; Mumbai; Punjab; Rajasthan; Tamil Nadu; Uttar Pradesh East; Uttar Pradesh West

MTNL

662,273

Delhi & Mumbai

Hathway Cable & Datacom

254,067

Andhra Pradesh; Chennai; Delhi; Gujarat; Haryana; Karnataka; Maharashatra; Punjab; Tamil Nadu; Uttar Pradesh

Tata Communications

223,049

Reported as regions as opposed to cirlces - Central; East, South 1-4, West 1&2

You Telecom India

147,464

Andhra Pradesh; Gujarat; Haryana; Karnataka; Maharashatra; Tamil Nadu;

Reliance Communications

101,310

Reported as single all India figure

Sify

93,807

NA

HFCL Infotel

54,736

Punjab

Asianet Satellite Communications

53,188

Kerala





Bharti Airtel is the leading private broadband service provider in the country, offering its services across 95 cities in the country. Airtel delivers its broadband via ADSL backed up with an Ethernet-based backbone.

In April 2009, Airtel launched 16 Mbit/s broadband Carrier Ethernet services in Delhi NCR, Chennai, and Bangalore, claiming the service would cover 70 percent of homes in these cities. Further rollouts are planned for Hyderabad, Pune, Mumbai, and Kolkata. It has also introduced IPTV and DTH (direct to home) satellite TV services as it looks to deliver triple-play packages of voice, broadband, and TV. (See Bharti Airtel Speeds Up DSL and Bharti, Infosys Team on TV.)

Bharti Airtel is one of six private DTH licensees, all but one of which have launched their services. The others are: telco subsidiaries Tata Sky and Reliance Big TV; Dish TV India; SUN Direct TV; and Bharat Business Channel, which is expected to launch in late April 2009. Between them, the five DTH players to have launched their services shared 11.1 million subscribers at the end of 2008. (See Reliance Deploys Thomson and NDS Wins in India.)

It's worth noting that Bharat Business Channel is owned by Videocon, which also owns UAS licensee Datacom Systems.

Reliance Communications has focused its broadband activity on enterprise customers with its combination of Ethernet access and broadband wireless access (BWA) technologies. It is aggressively rolling out WiMax and has launched services in 10 cities – Mumbai, Delhi, Bangalore, Kolkota, Chennai, Hyderabad, Pune, Ahmedabad, Boroda, and Surat.

Many service providers are relying on mobile 3G technologies, such as CDMA 1x EV-DO or HSPA (high speed packet access), to provide real impetus to the broadband revolution. At the end of 2008, there were 101.10 million wireless subscribers with terminals capable of supporting data services, including Internet access, reflecting that potential for rapid takeup of such services.

Next Page: Wireless Service Providers

The total number of wireless connections in India stood at 376.12 million at the end of February 2009, with the country's mobile operators adding up to 15 million new connections a month since breaking through the 10 million-per-month ceiling for the first time in October 2008. (See India Adds 13M Subs in February.)

That growth rate puts India some ways ahead of China, the only other mobile market with monthly additions in the same ballpark: China added about 8.5 million new mobile connections in January 2009.

However, there are three important caveats to consider when analyzing these headline numbers, especially when direct comparisons are made.

Firstly, China has cleaned up its figures to remove non-active connections, something India hasn't done. Secondly, fixed wireless access (FWA) connections are included in India's wireless numbers, alongside cellular connections. And thirdly, multiple-SIM subscribers are commonplace. Therefore the total number of connections does not directly equate to the number of end users with mobile connections.

Nevertheless, with 113.29 million new connections in 2008, India's wireless growth is unprecedented, and is set to grow further still as the operators mine the huge untapped potential of the country's rural areas.

India’s current wireless operators fit into four main categories:

  • State-owned operators: BSNL, which covers 20 circles, and MTNL, which offers mobile services in the remaining two (Mumbai and New Delhi), offer GSM services.

  • The original private service providers with a national presence: Bharti Airtel and Vodafone India .

  • Those who took fourth-round licences or the opportunity provided by UAS licenses to create a national presence: Reliance Communications, Tata Teleservices, and, more recently, IDEA Cellular, Sistema Shyam, and Aircel Ltd.

  • Greenfield operators issued new licenses in January 2008: Datacom Solutions, Loop Telecom, S Tel, Swan Telecom, and Unitech.

Bharti Airtel is by far the biggest mobile operator in India, with more than 91 million subscribers at the end of February 2009. The table below ranks the country's wireless operators by the size of their customer bases.

Table 5: India's wireless service providers

Operator

Network technology

Subscribers (in millions) as of end Feb '09

Operational services by circle based on reported connections

Licensed areas of operation by circle

License type

Bharti Airtel

GSM

91.11

All except - Andaman & Nocobar; Chatisgarh; J&K; Jarkhand; North East 1; Uttaranchal

All circles

Basic and UAS

Reliance Communications

CDMA & GSM

69.64

All except - Andaman & Nocobar; Chatisgarh; J&K; Jarkhand; North East 1; Uttaranchal

All circles (Assam and North East Reliance Telecom GSM only)

UAS

Vodafone Essar

GSM

65.92

All except - Andaman & Nocobar; Chatisgarh; J&K; Jarkhand; North East 2; Uttaranchal

All circles

UAS

BSNL

GSM

49.24

All except Mumbai and New Delhi

All circles except Mumbai and New Delhi

CMTS

IDEA Cellular

GSM

37.47

All except - Andaman & Nocobar; Chatisgarh; J&K; Jarkhand; Karnataka; North East 1&2; Orissa; Punjab; Uttaranchal; WB

All except - Andaman & Nocobar; Chatisgarh; Jarkhand; Uttaranchal;

CMS and UAS

Tata Teleservices

CDMA

33.87

All except - Andaman & Nocobar; Chatisgarh; J&K; Jarkhand; North East 1; Uttaranchal

All circles

UAS

Aircel

GSM

17.48

Assam; Bihar; Chennai; HP; J&K; Kolkata; North East 1; Orissa; WB; TN

All circles

UAS

MTNL

GSM

4.38

Mumbai & New Delhi

Mumbai and New Delhi

CMTS

Spice Telecom (now part of Idea Cellular)

GSM

4.05

Karnataka & Punjab

Karnataka; Punjab; Delhi; Maharashtra; AP; Haryana

UAS

Loop Telecom (including BPL in Mumbai now rebranded Loop)

GSM

2

Mumbai

All circles

UAS and CMTS

HFCL Infotel

CDMA

0.4

Punjab

Punjab

UAS

Sistema Shyam

CDMA

0.5

Rajasthan; Launched in Tamil Nadu including Chennai

All circles

UAS

Datacom Solutions

GSM

-

-

All circles

UAS

Unitech

GSM

-

-

All circles

S Tel

GSM

-

-

HP, Bihar, Orissa, Assam, NE, J&K

UAS

Swan Telecom

GSM

-

-

Delhi; Mumbai: Maharashtra; Gujarat; AP; Karnataka; Tamil Nadu; Kerala; Punjab; Haryana; UP East; UP West; Rajisthan

UAS





The big issue for the operators at the lower end of the above table is how to build significant subscriber customer bases in order to generate meaningful revenues and enjoy economies of scale.

One way is through consolidation: For example, in 2008 Spice Telecom merged with IDEA Cellular. (See India's IDEA Buys Spice for $750M.)

Another way is to secure the experience and financial support of an overseas investor.

Foreign investment
Vodafone Group plc (NYSE: VOD) acquired a controlling stake in Hutchison Essar amid fierce competition in February 2007, while in 2008 Etisalat acquired 45 percent of Swan Telecom, and Sistema JSFC (London: SSA) took an 74 percent share in Shyam. NTT DoCoMo Inc. (NYSE: DCM) finalized its 26 percent share in Tata Teleservices in March 2009, and is preparing to acquire roughly 12 percent of the common shares of listed subsidiary Tata Teleservices (Maharashtra). (See NTT Takes $2.7B Stake in Tata, Vodafone Wins Battle to Buy Essar, and Vodafone Completes Buy.)

Bahrain Telecommunications Co. (Batelco) kept the acquisition action going into 2009, buying 49 percent of S Tel, while Telenor confirmed in March 2009 it is taking a majority stake in Unitech. (See IndiaWatch: Towering Investments, Etisalat Buys Into India, IndiaWatch: Batelco Buys Into GSM Startup, and Sistema Adds to Shyam Stake.)

Rumors continue that other major international players, such as the Zain Group , are also looking at opportunities in the other UASL holders, while the 3G license auction will provide even greater potential for overseas investment as foreign companies will be allowed to bid for 3G and WiMax licenses.

The TRAI attempted to put a level of control on foreign entry by recommending a three-year lock-in period for all foreign equity holders in India's telcos in March 2009. The aim of this is to prevent India's service providers from being treated as a commodity for a quick profit by foreign investors. (See IndiaWatch: Game-Changin' Days.)

At the same time as some of the biggest names in global telecom are descending on India, so the major players in India are themselves looking for international investments.

The much talked about, but ultimately fruitless, attempt by Bharti Airtel to take a controlling stake in MTN Group Ltd. , Africa's largest operator, seemed to be a sign of things to come. (See Bharti Exits MTN Talks.)

The global economic downturn may well see similar plans put on hold, although local rumors suggest that the recent leadership changes at Bharti, including Sanjay Kapoor's elevation to deputy and the recruitment of Joachim Horn, former CTO of T-Mobile International AG , are signs that a major acquisition is on its way. (See Bharti Airtel Shuffles Execs.)

Reliance has a forceful presence as an international carrier following a series of acquisitions, creating Global Cloud Xchange to house its significant submarine network (FLAG Telecom Ltd. ), international Ethernet and VPN services capabilities, and its international WiMax assets. (See Reliance Globalcom Wins Ethernet Deals, Reliance Snaps Up Vanco, Reliance Plots Global WiMax Rollout, Reliance Integrates Global Services, Reliance Bags Yipes for $300M, and FLAG Announces NGN.)

MVNOs
For those that were unable to enter through license acquisition, the MVNO (mobile virtual network operation) option is now a real possibility.

In March, 2009, India's Department of Telecommunications accepted the TRAI's recommendation and opened the market to MVNOs as a way of stimulating more competition in the market. This prompted much speculation, including the suggestion that Nokia Corp. (NYSE: NOK) would enter the Indian market as an MVNO as it has in Japan, but this was denied by the handset giant.

In 2008, Virgin Mobile Telecoms Ltd. , which operates as an MVNO in the Australia, Canada, France, South Africa, the U.K. and the U.S., entered the Indian market through a brand franchisee agreement with Tata Teleservices, as MVNOs were not allowed at the time. The move proved controversial. (See Rivals Challenge Virgin-Tata Deal.)

Next Page: Infrastructure Sharing

The existence of passive infrastructure sharing is in no way unique to the Indian market as examples exist all over the world. However, the number of companies involved, the scale, and the scope of competition is unusual, driven by the sheer size of the market in terms of capacity demands and geography.

The leading "towers" company in India is Indus Towers, a joint venture amongst Bharti Airtel, Vodafone Essar, and IDEA Cellular, which, in late 2007, announced they were to pool their individual tower ventures to form the world's largest tower company. (See Indian Operators in Sharing Mood and Indian Carriers Form Co..)

Indus is an independent entity and provides services to its three founder members as well as other service providers and has the scale to drive down mobile tower site costs and prices.

The other tower companies fall into three categories: operators; national independents; and small independents. Increasingly, the economics of the towers business is making it tougher for the small companies to compete and survive. As a result, a number of acquisitions have taken place, leaving the market as follows:

Table 6: India's mobile tower site players

Company

Approximate number of towers (March 2009)

Expansion plans

Operational areas

Indus

80,000

Andhra Pradesh, Tamil Nadu, Chennai, Kerala, Karnataka, Mumbai, Maharashtra & Goa, West Bengal, Kolkata, Punjab, Haryana, Delhi, Uttar Pradesh(E), Uttar Pradesh (W), Rajasthan, Gujarat

Reliance Infratel

31,000

55,000 by mid 2009

All

Bharti Infratel

20,000

Network rollout in the 7 circles to continue

Assam, Bihar, Himachal Pradesh, Jammu & Kashmir, Madhya Pradesh, North East and Orissa

Quippo Telecom Infrastructure (Including WITIL)

18,000

50,000 by 2012

All

GTL

9,000

25,000 by 2011-12

All

Essar Telecom

6,000

20,000 by end 2010

Mumbai, Maharashtra, Madhya Pradesh, Rajasthan, Tamil Nadu, Kerala, Karnataka, Andhra Pradesh, UP(East), UP(West), Bihar, Orissa, Gujarat and Haryana. Rest of India by end of 2009.

QTIL

5,000

300-500 per month

All

American Tower Corp (formerly Xcel Telecom)

4,000

25,000 by March 2012

All

Tower Vision

3,000

5,000 by the end 2009

All

Aster Infrastructure (APIL)

1,000

no details available

Andhra Pradesh, Karnataka, Punjab, Uttar Pradesh (East) and Madhya Pradesh, West Bengal and Orissa. Rest of India in the near future

India Telecom Infra Limited (ITIL)

1,000

no details available

18 circles

KEC International (formerly RPGT)

400

no details available

Rural areas as designated by USO tender

Independent Mobile Infrastructure (IMIL)

400

no details available

10 circles





Xcel has been acquired by U.S.-based company American Tower Corp. (NYSE: AMT), which has set out plans to compete as a leading national independent. (See IndiaWatch: Towering Investments.)

Quippo Telecom Infrastructure Ltd. , which acquired Spice's tower arm and into which Tata Teleservices' infrastructure business, WITIL, was merged, is a national independent, and has secured contracts with all the new UAS license holders.

Key for all tower companies will be their ability to attract multiple tenants. The average tenancy is currently just over one, but with revenues per tenant falling to around INR25,000 ($501) per month, the business case only stacks up with more than two tenants.

Next Page: Rural Coverage

Providing voice service coverage for the country's rural communities is high on the government agenda, and will remain so irrespective of any change in power in the upcoming 2009 national elections.

About 70 percent of India's near 1.2 billion inhabitants live in rural communities, but the connectivity boom that saw teledensity in urban centers reach 81.4 percent at the end of 2008 has yet to have a significant impact in rural areas – rural teledensity was a mere 12.6 percent at the end of last year.

The relatively static position of telecom in rural India is demonstrated by the 2008 year-end statistics. Rural wireline connections totalled 10.68 million at the end of December, down by 2.46 percent from 10.95 million at the end of September 2008. The rural wireless subscriber base hit 93.15 million at the end of the year, up 2.38 percent from 90.98 million at the end of September.

The Department of Telecom and BSNL have signed an agreement to provide 861,000 connections to individual users and government institutions through rural and remote exchanges by 2014, but that will have a limited impact.

So to promote rural rollout by the private operators, the Indian government imposed Universal Service Obligations (USO) on the country's operators to build a fund that can finance the rollout of services in areas where there isn't an obvious or pressing business case to do so.

However, utilization of the money raised has been poor and less than a third of the INR2.04 billion ($40.9 million) fund collected by September 2008 has been used.

The first phase of mobile infrastructure deployment under the USO fund scheme commissioned six different service providers to deploy 7,871 towers. However, by the end of October 2008, only 1,934 towers had been installed, about a quarter of the projected total. The second phase, complete with a tender for an additional 11,049 sites, has yet to be started.

The TRAI has been critical of the USO fund's management and structure, and, in March 2009, the regulator published its recommendations for promoting rural connectivity. In this it highlighted the need for the fund to be managed by an independent body and for the red tape associated with tower tenders for rural areas to be removed. Furthermore, the TRAI called for improved financial incentives for initial coverage.

The phased rollouts associated with the USO scheme require an additional 40,875 mobile towers to be erected. Add this to the number of towers required for the five new 2G networks, additional coverage and capacity for existing operators, and the introduction of 3G networks, and there is a huge demand for new cell sites right across the country.

— Catherine Haslam, Asia Editor, Light Reading

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