The year 2012, which presented several challenges for the Indian telecom sector, began with the Supreme Court cancelling 122 2G licences that were awarded in 2008. The freed-up spectrum was auctioned in November 2012. The auction received a tepid operator response from operators. With the base price set at Rs 140 billion, seven times higher than what carriers had paid in 2008, only five operators – Telenor, Idea Cellular, Videocon, Vodafone India and Bharti Airtel – participated in the process.

Meanwhile, the National Telecom Policy (NTP), 2012, which was announced in the aftermath of the 2G spectrum scam, was cleared by the cabinet in June 2012. The NTP, 2012 includes policy directives to achieve 100 per cent teledensity by 2030; ensure “broadband for all”; and implement a “one nation, one licence” regime.

In terms of performance, the telecom industry has been struggling with a huge debt burden and low margins for operators. Also, there has been a significant drop in monthly subscriber additions. Since June 2012, the sector has lost 44.05 million users. Though this is primarily a result of operators weeding out inactive subscribers, the gradual slide in subscriber additions (from 20 million per month in 2010 to a net user loss in 2012) is indicative of the slowing wireless growth rate, especially in urban areas.

As per the Telecom Regulatory Authority of India (TRAI), the total telecom subscriber base stood at 921.47 million in November 2012 as against 926.53 million in December 2011.

Despite stiff competition, the wireless segment has continued to be the key growth driver for the telecom sector. The total mobile subscribers stood at 890.6 million at the end of November 2012. To drive up their margins, operators increased call tariffs (by as much as 30 per cent) for the first time in April 2012.

So far, mobile subscriber growth has been largely on 2G networks. The adoption of 3G services, which were introduced about 20 months ago, is yet to take off. Next-generation 4G services were launched by Bharti Airtel in April 2012 in two circles. The uptake and success of these services are yet to be determined.

Through 2012, activity in the wireline segment remained subdued. As of November 2012, the user base stood at 30.87 million as against 32.69 million in December 2011. To arrest the slide in the wireline user base, operators reduced tariffs and offered a range of value-added services (VAS), apart from clubbing the service with broadband and IPTV services.

On the other hand, the broadband segment witnessed growth. Broadband connections have increased to over 15 million. However, given the country’s large population, the penetration of broadband is still low. This is despite the government’s commitment to making broadband affordable and available to all. To provide a fillip to broadband services, the Department of Telecommunications (DoT) undertook several initiatives in 2012. A major step was the launch of the National Optical Fibre Network (NOFN) project.

The industry’s performance is expected to improve in 2013. The government expects that policy support provided by the implementation of the NTP, 2012 will accelerate inclusive socio-economic development and bring about consolidation in the sector.

tele.net takes a look at the performance of the various industry segments in 2012…

Wireless services

The mobile subscriber base grew from 893.84 million in December 2011 to 890.60 million at end-November 2012, registering a monthly increase of less than 1 per cent. TRAI reported a 2.21 per cent drop in the wireless subscriber base from 934.09 million in June 2012 to 913.49 million in July 2012, which was a first for the sector. Even in June 2012, the user base had grown by only 0.5 per cent, adding 4.73 million subscribers. The declining trend in the user base has continued since then.

In 2011, the mobile segment faced a key challenge of subscribers buying multiple SIMs for a short period of time. As per industry estimates, the operators used this trend to increase subscriber numbers by as much as 40 per cent in some cases to access more spectrum. While this added to the overall user base, it reduced the per subscriber value for operators.

Eventually, operators had to discontinue several connections due to two factors – the stringent verification norms enforced by the government to address national security issues and pressure on operators to report actual subscriber numbers.

This led to a decline in the share of active subscribers during 2011. As of December 2011, the share of active subscribers in the total mobile user base stood at 72.35 per cent. With service providers continuing with their exercise of disconnecting inactive users, the active wireless subscribers peaked in the month of November 2012. There were 707.28 million share of active visitor location register (VLR) subscribers for this month, accounting for 79.42 per cent of the wireless subscriber base.

Circle-wise, Maharashtra reported the highest proportion of VLR subscribers at 84.71 per cent in November 2012, followed by Madhya Pradesh and Jammu & Kashmir at 83.93 per cent and 83.76 per cent respectively. Mumbai reported the lowest proportion (70.27 per cent) of VLR subscribers in November 2012. Among the operators, Idea Cellular was leading with 98.06 per cent of its users falling in the VLR category, followed by Vodafone India with 93.39 per cent.

The share of urban wireless subscribers in the total base decreased from 65.59 per cent in December 2011 to 62.19 per cent in November 2012, while that of rural wireless subscribers increased from 34.41 per cent to 37.81 per cent. The overall wireless teledensity reached 73.02 per cent in November 2012.

Private operators had an 88.19 per cent share in the wireless market (based on subscriber base) in November 2012. PSUs including Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) held only 11.81 per cent market share.

So far, the growth in mobile subscriptions has been largely on 2G networks. Launched with high expectations about 20 months ago, 3G services have witnessed a subdued response. A report by Wireless Intelligence confirms this trend. India’s 3G connections crossed 33 million in March 2012, less than 4 per cent of the total telecom subscriber base of around 920 million at that time. According to some analysts, the actual 3G user base, after accounting for additional users due to provisioning, is lower.

3G uptake has not been very high primarily due to the service being limited to certain pockets and India being a highly price-sensitive market. While operators aimed at providing ubiquitous 3G services through inter/intra-circle roaming agreements, the government has disallowed this, thereby restricting the expansion of these services. In addition, 3G services were targeted for rural markets, wherein initiatives related to m-banking and m-health were required for development. However, due to the low rural penetration of operators, the reach of 3G services has been limited to urban markets.

4G is the next level in wireless data connectivity and is expected to change the telecom scenario in the country. While it was believed that 4G networks would be used only to provide data services, several operators including Infotel Broadband and Bharti Airtel are testing this infratsructure for providing voice services as well.

Though the telecom industry is shifting from voice to data, driven by the growing popularity of smartphones, tablet PCs, e-readers and other portable devices, voice will remain the biggest area of growth, at least in the medium term. As a result, developing the voice ecosystem along with 4G-based data services has become important for the Indian market.

Wireline services

The wireline segment continued to be subdued throughout 2012. It has been performing poorly for the past several years, despite efforts by BSNL and MTNL to increase service uptake.

Currently, the Indian telecom sector has eight fixed line operators. State-run operators BSNL and MTNL have the lion’s share in this market. While MTNL operates in Delhi and Mumbai circles, and has an 11.19 per cent market share  (November 2012), BSNL has a pan-Indian presence, with a 68.47 per cent market share. With the opening up of the sector to private participation in 2001, players like Bharti Airtel, Tata Teleservices Limited (TTSL), Reliance Communications (RCOM), Himachal Futuristic Communications Limited and Sistema Shyam TeleServices Limited (SSTL) have forayed into the wireline segment. However, these companies hold a small share in this market.

Until 2006, the fixed line segment was registering rapid growth in subscriptions. In 1981, the fixed line user base stood at 2.3 million, which increased to 32.44 million in 2000 and to 50.18 million in 2006.

Subsequently, owing to the significant uptake of mobile services in the country and the availability of affordable handsets, fixed line services became less attractive. Since 2006, the segment has been registering negative growth. The highest decline of 9.43 million wireline subscribers was recorded in 2006-07.

As of November 2012, the subscriber base stood at 30.87 million, as compared to 32.69 million in December 2011. Also, the share of rural users in the total wireline subscriber base decreased from 23.7 per cent in December 2011 to 22.66 per cent during November 2012. Meanwhile, the share of urban subscribers increased marginally, from 76.3 per cent in December 2011 to 77.34 per cent in November 2012.

Given the fall in net wireline additions, the teledensity declined to 2.53 per cent in November 2012, with rural and urban teledensities at 0.82 per cent and 6.44 per cent respectively.

DoT and service providers have been taking several initiatives to stem the slide in fixed line user numbers. Wireline operators, for instance, have been reducing tariffs and offering a range of VAS. Operators like BSNL, MTNL, RCOM and Bharti Airtel have also clubbed their broadband and IPTV services with fixed line connections to increase of use of landline services by corporates.

Recently, to support BSNL’s efforts in providing wireline services in non-remunerative rural areas, the Telecom Commission has approved a Rs 15 billion subsidy for works undertaken by the operator since 2002.

Going forward, BSNL is expected to contribute significantly to the growth of wireline services, especially because it has surrendered its broadband wireless access (BWA) spectrum and instead opted to promote wireline-based broadband services.

To revive its wireline business, BSNL has introduced telephones with video calling facility in partnership with SIS Infosystems. These devices will be used primarily to establish public video call offices, replacing the existing public call offices. BSNL will charge Rs 3 for a 45 second video call made from the video call office. The operator plans to establish over 10,000 such facilities across the country.

BSNL is also looking to install satellite-based village public telephones (VPTs) in Visakhapatnam district (Andhra Pradesh). To provide the telephone facility in 51 villages, the company proposes to install VPT terminals using digital satellite phone terminal technology. The project is being financed by the Universal Service Obligation (USO) Fund, which will cover both the capital cost and the cost of subsidised telephone tariffs. The service is priced at Re 1 per unit. While only voice-based services have been enabled on the facility so far, BSNL plans to introduce data and video services going forward.

Net, net, though weighed down by issues related to right-of-way (RoW) and the absence of local loop unbundling, the wireline segment is expected to grow in the future. The ongoing NOFN project, which is aimed at increasing broadband coverage, is likely to drive wireline growth in the country. With the high potential offered by the integrated offering of internet/broadband and allied services, the segment can bounce back in the future.

Internet and broadband services

The uptake of internet and broadband services gained momentum in 2012. The broadband user base increased from 12.35 million in June 2011 to 14.68 million in September 2012, while the number of internet subscriptions grew from 20.33 million to 24.01 million during this period. Internet service providers’ (ISP) revenues stood at Rs 29.94 billion in September 2012. Moreover, the share of broadband users in the internet subscriber base increased by 14.42 per cent year on year.

A notable trend in this segment was the increase in users accessing internet and data services through mobile handsets. The share of these users in the internet subscriber base stood at 49.3 per cent in September 2012.

According to TRAI, the top 10 ISPs accounted for 94.72 per cent of the total internet subscriber base as of September 2012. Based on subscriber numbers, the top five ISPs were BSNL (12.77 million users), RCOM (5.19 million), MTNL (1.94 million), Bharti Airtel (1.39 million) and Hathway Cable & Datacom Limited (0.37 million). Other players include Tikona Digital Networks Limited, YouBroadband, Beam Telecom Limited, Tata Communications and Asianet Satellite Communications Limited.

Technology-wise, DSL was the most widely used technology for operators to provide broadband services and 84.37 per cent of broadband subscribers used this technology to access the internet. DSL was followed by Ethernet local area networks (6.3 per cent) and cable modem (5.31 per cent).

A significant development during 2012 was Bharti Airtel’s 4G service launch in Kolkata in April. These services use long term evolution-time division duplex (LTE-TDD) networks, making India one of the first countries to commercially deploy this technology. The operator launched 4G services in Bengaluru in May 2012.

Interestingly, industry analysts believe that 4G uptake in India will be substantially higher than that of 3G. This is because 4G will add value to operators’ businesses and high-bandwidth applications. Further, the cost of roll-out and scalability for a 4G network is significantly lower than that for a 3G network. Therefore, an operator’s total cost of ownership of a 4G network will be lower while the quality of service and customer experience will improve.

Moreover, the government is taking steps to promote broadband growth. The National Broadband Plan (NBP) envisages the provision of 160 million broadband connections (22 million DSL, 78 million cable and 60 million wireless broadband) by 2014. Involving investments of Rs 600 billion, the project will be financed by the USO Fund and through loans provided or guaranteed by the central government. The project will be implemented in two phases.

The most important initiative under the NBP is the NOFN project, which was approved by the government in October 2011. It aims to connect 250,000 gram panchayats and is expected to be completed by October 2013. The schedule may be extended as the USO Fund expects only 50 per cent of works to be completed by December 2013.

Investments of Rs 200 billion have been approved for the NOFN, which is aimed at providing broadband connectivity of 100 Mbps to each gram panchayat. Moreover, applications such as e-health, e-education, e-governance, e-commerce and videoconferencing will be supported by this network.

The project is being implemented by Bharat Broadband Network Limited, a special purpose vehicle formed by BSNL, Power Grid Corporation of India Limited and RailTel. The NOFN, which is a business-to-business set-up, is expected to provide non-discriminatory access to all service providers, including operators, ISPs and cable TV operators. The network is expected to provide a supportive ecosystem to these players to launch retail services and increase their reach in rural markets.

So far, three pilot projects under the NOFN have been launched in Ajmer (connecting 30 gram panchayats), Visakhapatnam (17 gram panchayats) and north Tripura (11 gram panchayats). These projects have been undertaken by BSNL, Powergrid and RailTel respectively. A gigabit-passive optical network is being used as the primary connectivity technology in these pilot projects. The successful implementation of these projects will validate the assumptions based on which the NOFN has been designed. The USO Fund administration is currently in talks with various state governments for acquiring RoW for the NOFN project.

In addition, the recently approved NTP, 2012 involves several provisions for broadband network development.

Going forward, industry analysts say that mobile broadband will be the key growth vehicle for the internet market. This is because mobile broadband offers several advantages over fixed broadband, including a low capex requirement, a reduction in operators’ time-to-market, availability of affordable devices and seamless connectivity on the go. The introduction of next-generation mobile broadband technologies such as LTE is also expected to provide a fillip to the internet and broadband segment.

The availability of innovative applications and services in local languages would be crucial for broadband uptake. Key applications include IPTV, mobile TV, cloud computing, M2M messaging, entertainment and gaming, social networking, and VoIP- and location-based services.

Long distance services

Over the past few years, the long distance service segment has witnessed significant growth. Since the segment was opened up to private participation in 2000 (national long distance [NLD]) and 2002 (international long distance [ILD]), several players have forayed into this space.

According to TRAI, 22 players operate in this space currently. These include Dishnet Wireless Limited (Aircel), AT&T Global Network Services India Limited, Bharti Airtel, BSNL, BT Global Communications India, Cable & Wireless Network India Limited, Equant Network Services India Limited, Tikona Infinet Limited, Idea Cellular (Spice), MTNL, RCOM, Sify Technologies, SingTel Global (India) Limited, TTSL, Tata Communications, Tulip Telecom, Unitech Wireless (Tamil Nadu) Limited, Verizon Communications India Limited and Hughes Communications India Limited (HCIL).

As of September 2012, Bharti Airtel had the highest gross revenue in the NLD segment at Rs 23.03 billion, followed by BSNL at Rs 15.35 billion, Vodafone Essar South at Rs 12.58 billion and RCOM at Rs 8.8 billion. The lowest gross revenues for the same period were registered by AT&T Global Network Services India Limited at Rs 9 million, MTNL at Rs 12 million, Spice at Rs 14.7 million and HCIL at Rs 27.2 million.

In the ILD segment, the biggest gainers in terms of gross revenue for September 2012 were Bharti Airtel at Rs 8.32 billion, Tata Communications at Rs 3.72 billion, BSNL at Rs 3.55 billion and Vodafone Essar South at Rs 3.1 billion.

Players with the lowest gross revenues in September 2012 include HCIL at Rs 5.60 million, SingTel Global India Limited at Rs 105.4 million, Equant Network Services India Limited at Rs 340 million and Cable & Wireless Network India Limited at Rs 469.7 million.

In May 2012, Tata Communications and Seaborn Networks announced that the former would be an anchor tenant on Seaborn’s planned submarine cable between Miami, USA, and Sao Paulo, Brazil. The undersea cable system, Seabras 1, will enable Tata Communications to provide fully integrated network services from Brazil to its networks in the US, Europe, Africa, Asia and India. As per Seaborn Networks, the Seabras 1 system is expected to be completed by the fourth quarter of 2014. The 32 Tbps system will have a branch landing at Fortaleza, Brazil.

Meanwhile, to expand the reach of its managed enterprise and data centre services, Sify Technologies recently announced the operational readiness of its undersea cable landing station in Mumbai. With a capacity of up to 10 Tbps on certain cable sections, the system is expected to accommodate the rapid growth in voice and media traffic originating from and terminating in the Middle East and the African and European markets.

Also, Reliance Globalcom, the undersea cable arm of RCOM, tied up with the Iraqi Telecommunications and Post Company to launch the Al-Faw cable landing station in Iraq. The Al-Faw cable landing station connects Iraq to countries in the Middle East, Asia, Europe and North America.

A significant development on the policy front was the “one nation, one licence” regime under the NTP, 2012. The aim of the policy is to abolish roaming charges and allow mobile subscribers to use the same number across the country.

Currently, the issue is being considered by DoT and free roaming may be allowed from March 2013. However, operators have opposed the move as it would impact their financials. Subscribers are charged up to Re 1 per minute for roaming and roaming revenues currently account for 8-10 per cent of operators’ total revenues.

Operators also argue that the implementation of free roaming ought to be viewed in a holistic manner. Given that each state has spectrum priced differently, abolishing roaming will impact operators. An example put forward by industry bodies is that the tariff for a user in Bihar cannot be the same as that in Mumbai, as spectrum in the latter is priced higher than that in Bihar. Besides, operators have expressed their reservations on issues such as traffic routing, interconnection, a revised number plan, tariff rebalancing and licensing terms and conditions.

In the current sector scenario, many creases need to be ironed out. However, free roaming will be a big step for the telecom sector, as it has been in countries like the US, Canada, France, Germany and the UK.