ndia’s hope of achieving the NTP ’99 target has been rekindled with the coming of mobile in both fixed service provider (FSP) as well as cellular mobile service provider (CMSP) spaces.

With India achieving a tele-density of 5.35 on 31 March 2003, the target of achieving a tele-density of seven by 2005 and 15 by the year 2010 now looks more easily achievable than what it looked a year ago. In the last fiscal, the country has added around 10.25 million lines, an achievement for everybody in the industry to cheer about.

The Services Industry
For the first time, the communications services industry crossed the Rs 50,000 crore mark. According to Voice&Data, the size of the Indian communications services industry in FY 2002–03 is estimated to be around Rs 50,358 crore i.e. $10.7 billion, as against Rs 47,908 crore in FY 2001–02. In the last fiscal, the services industry has added around Rs 2,450 crore in revenue terms and 5.11 in percentage terms. Reduction in long distance tariff (of both DLD and ILD) impacted the services industry badly. With the industry witnessing a price war, it were the service providers that paid the price. In domestic long distance, the price war between BSNL and Bharti Telesonic resulted in a negative growth of around 21 percent whereas in international long distance the three-player war between Data Access, Bharti Telesonic, and VSNL shrunked the overall size of the ILD market by around 20 percent. The rate cuts affected not only the top line but also impacted the bottom line severely and companies like Data Access, that had invested in new technologies, came out as winners.

In such a scenario, the cellular services came to the rescue, and helped the services industry achieve a positive growth. The cellular services industry grew by a whopping 50 percent and registered a revenue of around Rs 8,303 crore. With data and SMS picking up, the industry is in full throttle and is moving at a fast pace to achieve a landmark figure of Rs 10,000 crore in FY 2003–04.

To help DLD operators, 22 companies had registered for IP- I and four companies for IP–II till FY 2002-03. On the cellular front, there were around 78 licenses owned by 25 companies in 23 service areas with a maximum of four licenses in a service area. It seems that in some circles like Northeast, J&K, and A&N, the private operators are not interested in starting cellular services as they feel they will not be able to recover their money. So, the onus of providing services in these circles will lie on BSNL. But with the finance ministry not planing to fund license fees of Rs 2,300 crore from FY 2003-04, the incumbent will have to face additional financial burden. This may lead to BSNL being selective in its approach, thereby defeating the objectives of NTP ’99.

BSNL made up for around 55 percent of the overall service industry revenues. However, to make itself profitable, the operator should increase its revenues and grow by 15 to 20 percent. This would be a big challenge considering the current market conditions and the aggressiveness of private players. BSNL must not only explore newer areas for growth but also adopt a best practices approach.

The Equipment Industry
Though slowing down from 21.6 percent in FY 2001–02, the communications equipment industry clocked an impressive 10 percent growth, outpacing the services industry growth. In FY 2002–03, the Indian communications equipment industry clocked a turnover of Rs 28,237 crore, registering a growth of around 10 percent. Here also, wireless dominated in both carrier as well as enterprise space.

In the carrier space, large network deployments were done by BSNL, Reliance Infocomm, Tata Teleservices, Bharti Tele-Ventures, Hutchison and Idea Cellular. In the enterprise space, large banks, insurance companies, state governments, MNCs and hotels stepped up wireless implementations for networking within premises as well as external connectivity.

Carrier equipment revenues, which formed more than 50 percent of the total communications industry revenues, grew by only 1.4 percent. Even enterprise equipment had a modest growth of around 10 percent. The star performers were GSM phones, CDMA phones, and telecom software.

Reflecting the sterling performance of anything wireless, four of the Top 10 equipment vendors during the last fiscal were companies having extensive range of wireless infrastructure equipment. Lucent Technologies, the numero uno equipment vendor, focused on both GSM as well as CDMA. Ericsson had the largest client base as far as cellular infrastructure in India is concerned. Motorola, like Lucent, also plays in the GSM as well as CDMA space, apart from selling mobile handsets. SPCNL also focuses heavily on GSM infrastructure.

In the enterprise network equipment market, the voice/call center equipment market and network storage saved the day, with growths of around 49 and 16 percent, respectively. The enterprise network market was fueled by the banking and finance sector and a sprinting BPO segment which helped in showing an overall growth of around 8.2 percent in the network equipment market.

The Groups
With multiple operators in majority of circles, the industry is feeling the pinch and is talking about intra-circle mergers, which, however, is not likely in the near future. Large groups like Bharti, Tata, and Reliance have expanded their services as well as coverage and are offering integrated services. And with BSNL and MTNL as one group, one can see a minimum of four groups focusing on a limited base of customers. This apart, one can also see the Hutch Group active in a big way, followed by BPL Group, Modi Group, HFCL Group, Shyam Group and Escorts Group which have been present in some segments in a limited way. The smaller companies are trying hard to fight it out with the big brothers and are under severe pressure from all quarters. It is expected that the industry will witness one more phase of consolidation.

In terms of groups, the five groups contributed around Rs 50,000 crore of which the incumbent operators contributed over 65 percent of the total. Bigger players like Tata and Reliance are moving with supersonic speed to check the influence of smaller players like Bharti and Hutch who have been there for a long time. Tata Group is presently the No. 1 player among the private groups in spite of a significant drop in VSNL’s revenue. The company is focusing on NLD, its weak link, whereas Reliance Group is fast catching up with others. The company has launched its WLL (M) services in 200 cities and has given many sleepless nights to cellular service providers because of its tariff structure. It has also been acquiring customers at a fast pace by lowering the entry cost of subscribing to cellular services. Once WLL (M) reaches a critical level, the company is planning to launch its wireline services in a big way. Service providers have to be very cautious and also respond fast if they plan to take the Reliance Group head on.

Some groups have been talking about increasing FDI investment in telecom whereas others are opposed to it. Unless and until there is a consensus, one cannot see something very significant in this regard as the topic of 74 percent FDI in telecom has been a very hotly discussed one for the last two years. If one looks at FDI figures, one concludes that there has been a drop in FDI from Rs 3,971 crore in 2001 to 1,096 in 2002.

So, from a year of infrastructure last year, one moved to a year of wireless in 2002–03. Let’s see what the next fiscal holds for the industry .

Pravin Prashant and Nareshchandra Laishram