India’s broadband woes

India's telecom sector is often showcased as a success story in reforms, owing to the mobile revolution. Mobile phones in India have nearly reached the 470 million mark while the total number of phones crossed the half billion mark in September. However, in stark contrast, government policy on broadband and Internet penetration is now an admitted failure.
India barely reached 6.81 million subscribers in August 2009 up from 2.28 million subscribers in March 2007. Where Internet is concerned, DoT's presentation shows 14.39 million subscribers up from 9.2 million subscribers in March 2007 (see chart).

This points to a policy overhaul for increasing Internet and broadband access. Typically, broadband and Internet access go hand in hand with wireline penetration, but unlike most of the world, including developed and developing countries, India's wireline sector has remained stagnant at 38 million lines for many years. This is in sharp contrast to the fast-growing wireless or mobile phone sector. Unfortunately, however, broadband access on wireless at current data speeds in 2G has serious limitations.

Experts point out that cost of acquiring a PC in India is still high. Other challenges include prohibition of VoIP by ISP's which is awaiting Govt approval despite specific recommendations by Trai for nearly two years, and governments' inability to share its existing wireline infrastructure with private players for delivering broadband access.

Indian Telecom Market

Indian telecom market is currently the most attractive telecom market with a lot of interest being shown by foreign players.

The country was divided into 23 circles when the mobile phones were introduced in the country. Now DOT recognises Chennai as part of TN. Separate licenses were given out for each of the circles in 1994. The circles were classified as Metros, A, B or C depending upon the revenue potential for the circle with Metros & A circles expected to have the highest potential. The following table lists the current wireless penetration by Metro/

India is the now the second largest market in terms of mobile subscriber base after China but still it is at 32% teledensity and adding 10-12 million new subscribers every month.
Indian market is not only the most attractive but also the most competitive with over 7 operators in each circle and another five new operators likely to start operations in the near future. Nowhere in the world does any country have so many carriers. The dominant players are Airtel, Reliance, Vodafone, BSNL (state owned), Idea and Tata. Reliance and Tata offer CDMA technology while all the other players are in the GSM space. GSM has a 75% share of sbscribers and now even Reliance and Tata have either launched or in the process of launching nation-wide GSM services. Apart from the current players, there are several new players like Aircel, Unitech-Telenor, Shyam-Siestema, Etisalat that have got the license and spectrum to launch mobile services in several telecom circles. Shyam-Siestema is the only player to launch CDMA services while all the new operators are in the lucrative GSM space. The adjoining figure gives the market shares of the operators in India. It is a fragmented market with the biggest operator (Airtel) garnering only 24% share.

India is a predominantly prepaid market (93% of all subscribers are on prepaid) with low ARPU and high minutes of usage(MoU).The GSM ARPU is Rs 220 (~ USD 4.6) per month with a usage of 496 minutes per month in the quarter ending Dec, 2008. Similarly, CDMA ARPU stood at Rs 111 with a usage of 370 minutes per month. There is a wide disparity in the rural and urban teledensity with rural teledensity at 12% vs. urban teledensity of around 75%.

Regulatory has played a big role in development of Indian telecom market by brining in the competition at the right time and by removing bottlenecks. However, there are a few pending issues that still need to be resolved like the 3G spectrum auction and allocation, Mobile Number Portability and 2G spectrum allocation policy.

Given the low tele density in the country, the subscriber base is expected to grow at a brisk pace. Government expects the mobile base to cross 600 million by 2010 and most of the new additions are expected to come from rural areas where the mobile penetration is still low.
(All the data is sourced from COAI, AUSPI and TRAI which are the leading industry associations and regulatory bodies and ofcourse other secondary research)