For the Indian telecom services industry, FY 2002–03 was a year of drastic market dynamics as well as profound regulatory changes that would further significantly impact the industry this fiscal. FY 2002–03 was mobile all the way. It was a defining year, with more mobiles (almost tripple) being added than fixed phones.

In FY 2002-03 the telecom industry has added around 7.75 mn mobiles (GSM as well as CDMA) whereas it has added only 2.72 mn fixed line connections and mobile additions exceed fixed line additions by 2.85 times.

The time had finally come for the cellular services industry to brandish its real prowess and power. Cellular subscribers more than doubled and despite record cuts in tariffs, the cellular business ringed in a revenue of Rs 8,303 crore, growing by more than 50 percent over the previous fiscal. This industry also put on full display its influence and liaisoning skills, taking on with elan the incumbents and the new entrants both in the market as well as power corridors and courts. A case in point being the interconnect crisis, wherein the cellular industry firmly stamped its feet down on any compromises over its demand for a revenue share. The new IUC regime was hastened by this act.

The basic services segment, which has historically constituted the bulk of Indian telecom revenues, improved slightly during the year (see related pie-charts). The incumbent basic service providers BSNL and MTNL, which together control more than 95 percent of this market, witnessed a dramatic increase in subscriber churn. And had it not been for the good additions in subscriptions of their cellular and WLL services, operators’ problems could have been even more grave.

However, the basic services segment was not all that gloomy. As traditional DEL additions suffered, an interesting subplot was being thoroughly played out in the limited mobile arena. The launch of Tata Indicom and Reliance Infocomm were the consuming acts of the year. These not only brought some solace to the basic services segment, but also stirred both incumbents and the cellular industry to react with equivalent force in terms of tariff revisions and market alignment to counter the challenge. Though the limited mobile industry may not have added too many subscribers last year, recent events have shown that the cellular industry could have finally got some worthy competition. It looks like the GSM CDMA showdown has just begun!

Indian Communications Services Industry at a Glance

All the segments have shown an increase in market share accept long distance whose market share has dropped from 30% to 22.7% Total = Rs 50,358 cr Total = Rs 47,908 cr

Number-wise, the telecom services industry during last fiscal also crossed the important Rs 50,000 crore milestone in revenues, clocking a 5.11 percent growth over the previous fiscal. But the subdued growth rate is an anomaly in real term. The industry would have shown a healthy growth, if it was not for drastic tariff revisions brought over by both market realities as well as TRAI orders. BSNL and MTNL made two major STD tariff cuts separately during the year. As a result the total NLD services revenue of the year was greatly depressed, and this sector posted the most signficant negative growth of almost 21 percent.

The ILD segment was yet another victim of market forces. The coming of competition in the form of Bharti Telesonic and Data Access, lowered the ILD tariff floor, impacting the revenue generation by this industry. This resulted in the segment recording a negative growth, almost to the tune of 21 percent.

Apart from the fast growing cellular services industry, which now forms more than 16 percent of the total telecom services sector, other segments like basic services, Internet services, VSAT services and radio trunking displayed decent to good growth. However, even here, it was new sub-segments that contributed to the growth—WLL and data connectivity in the case of basic services; corporate connectivity and broadband in the case of Internet services; and online lottery in VSAT.

Reflecting the brilliant run of the cellular industry, out of the top 10 performers during the last fiscal, five are cellular-only service providers while of the rest five, three have very significant cellular services operations. The incumbents still have a monopoly over the overall market. But, of late, this dominance is quickly getting eroded. One of the incumbents of the past now forms a significant unit of the largest private telecom group in India, the Tatas. MTNL fell in both sales revenues as well as PAT during last year. BSNL too was on a sticky wicket as far as its traditional segments were concerned.

The cellular companies may have grown tremendously, but the show-stopper of 2003-04, undoubtedly, was Data Access. This new ILD operator showed the power of new technology (VoIP) by grabbing a superb 10.7 percent share of the Rs 5,445 crore ILD market in less than a year. The company grew 1,217 percent in revenue terms by this transition from an ISP to an ILD operator, primarily.

Forecast
Plain retail businesses like basic telephony and cellular phone service are under growing pressure, mainly due to a southward ARPU trend. And this trend is expected to continue despite the tariff revisions and the new interconnect regime.

Though the new IUC regime could lift the local call tariffs, the reduction in long-distance tariffs comes in the way of the basic service providers getting better revenue realisation. While integrated players with NLD operations are already feeling the impact, local phone operators like MTNL and Tata Teleservices are likely to see interconnect revenues from long-distance calls greatly reduced in the days to come.

The cellular operators are also on the same boat. Though they are getting additional revenues from long-distance mobile-to-mobile calls, the limited mobility services have clearly disturbed the cool and calm waters. Tariff cuts, one after another, have spoiled the party. New revenue streams like SMS and data can be handy, but they are not being adequately explored.

Internet dial-up services are the most threatened retail service. This market has seen a rapid shrinking in terms of number of players as well as subscriber revenues. Though the subscriber numbers have gone up during the last fiscal, the integrated service providers are providing major discounts. Major pure-play ISPs like Satyam Infoway and Dishnet continue to persevere, but the road ahead is not too clear.

Another significant trend that would become stronger during this year is the emergence of corporate telecom services. Though retail contributes more than 95 percent of the telecom services market, it is the remaining 4–5 percent of the market which is getting more important for the health of Indian telecom. This small pie comprises the corporate services segment which consists of services like corporate IPLCs, IP VPN and high-speed leased circuits. As expansion of retail businesses continue to get the numbers, it is this segment that is likely to lift bottomlines of companies. Already, service providers like the Tatas and Bharti have realised this and have constituted the framework to exploit this small but fast growing market.

On the social obligations side, all private operators have defaulted on their VPT commitments. So, the burden on BSNL is likely to grow even more, if India is to achieve the stated DoT rural teledensity target of 3 by 2007 (it is about 1.5 currently). Given the state of things, the current performance of BSNL in cellular services will not be enough for the incumbent to withstand the challenge from such upcoming telecom giants like Tata, Bharti and Reliance in the near future.

Nareshchandra Laisharam