Description
It including its PESTAL analysis, SWOT analysis and application of porter five forces. It also suggests market entry strategy for new telecom company into indian telecom market.
“Move not unless you see an advantage; use not your troops unless there is something to be gained; fight not unless the position is critical. If it is to your [Pick the date] advantage, make a forward move; if not, stay where you are…” – Sun Tzu
SM-II
AVG CORPORATE PLAN TO ENTER TELECOM INDUSTRY
| abc
Contents TELECOM INDUSTRY ANALYSIS ............................................................................................................................... 4 Growth of Mobile Technology ..................................................................................................................................... 4 Regulatory bodies ............................................................................................................................................................. 5 Telecom Commission ................................................................................................................................................. 5 Department of Telecommunications: .................................................................................................................. 5 Telecom Regulatory Authority of India (TRAI) ............................................................................................... 6 Telecom Dispute Settlement and Appellate Tribunal (TDSAT) ............................................................. 6 Policy Initiatives ................................................................................................................................................................. 7 Current Indian Telecom Market ................................................................................................................................. 7 Players in Telecom Market......................................................................................................................................... 10 Bharti Airtel .................................................................................................................................................................... 10 Reliance Communications ..................................................................................................................................... 10 Bharat Sanchar Nigam Limited (BSNL) .......................................................................................................... 10 Tata Indicom ................................................................................................................................................................. 10 New Players .................................................................................................................................................................. 10 PESTEL Analysis ............................................................................................................................................................ 10 1. 2. 3. 4. Political factor...................................................................................................................................................... 11 Economical factor: ............................................................................................................................................ 11 Social factors: ..................................................................................................................................................... 11 Technological factors: ..................................................................................................................................... 12
SWOT Analysis ................................................................................................................................................................ 12 Strengths......................................................................................................................................................................... 12 Weaknesses.................................................................................................................................................................. 12 Opportunities................................................................................................................................................................. 12 Threats ............................................................................................................................................................................. 13 Porter’s 5 forces model ................................................................................................................................................ 13 Power of Buyers (High): .......................................................................................................................................... 13 Power of Suppliers (Low): ...................................................................................................................................... 13 Availability of Substitutes (High): ........................................................................................................................ 13 Threat of New Entrants (Moderate): ................................................................................................................. 14 Competitive Rivalry (High): .................................................................................................................................... 14 RECOMMENDATIONS FOR THE BOARD OF AVG ................................................................................... 15 1|Page
Positioning of AVG ......................................................................................................................................................... 15 Modes of entry .................................................................................................................................................................. 15 Business Strategy ........................................................................................................................................................... 16 Corporate Plan ........................................................................................................................................................................ 17 Entry Strategy .................................................................................................................................................................... 17 Strategic Intent ............................................................................................................................................................. 17 Focus ................................................................................................................................................................................. 17 Customer Acquisition ................................................................................................................................................. 17 Strategy Development .................................................................................................................................................... 17 Technology Acquisition/Transfer/Creation ..................................................................................................... 18 Strategic Tie Ups........................................................................................................................................................... 18 Strategy Implementation .............................................................................................................................................. 19 Managing technology and Resources .................................................................................................................. 19 Vision ..................................................................................................................................................................................... 19 Organizational Structure ............................................................................................................................................... 19 Marketing Strategies ....................................................................................................................................................... 21 Service innovation in Mobile Value Added Services (MVAS) .................................................................... 21 Phase of ebullience ...................................................................................................................................................... 21 Disenchantment Phase .............................................................................................................................................. 22 Radical Innovation Phase ......................................................................................................................................... 22 Incremental innovation ............................................................................................................................................. 23 Value innovation phase ............................................................................................................................................. 24 Positioning of MVAS on the Service Innovation Curve ................................................................................. 26 REFERENCES ...................................................................................................................................................................... 36
2|Page
3|Page
TELECOM INDUSTRY ANALYSIS
India's mobile telecom sector is one of the fastest growing sectors. Unlike in the 1990s when the mobile phone was an elitist product, mobile operators now tap a mass market with mass marketing techniques. "Unified licensing" rules allow basic and mobile operators into each other's territory, and have ushered in perhaps the final phase of industry consolidation.
It seems that only companies with deep pockets can effectively compete as primary operators mobile markets. Economies of scale, scope, and end-to-end presence in long-distance as well as local telecom, are desirable.
There are, besides, new challenges. Operators are having to find new growth drivers for the wire line business. There are problems of getting broadband to take off, of technology choice, of when to introduce new technologies, and of developing a viable business model in an era of convergence.
India has always been an attractive destination for international companies across the world. With its rapidly growing economy, India is making developments in all the sectors including the telecom. The telecom sector is gaining momentum with the advent of private players like Airtel, Reliance, Tata etc. in the field. Previously, telecom sector was monopolized by governmentcontrolled BSNL (Bhartiya Sanchar Nigam Limited).
Growth of Mobile Technology India has become one of the fastest growing mobile markets in the world. The mobiles ervices were commercially launched in August 1995 in India. In the initial 5-6 years the average monthly subscribers additions were around 0.05 to 0.1 million only and the total mobile subscribers base in December 2002 stood at 10.5 millions. However, after the number of proactive initiatives taken by regulator and licensor, the monthly mobile subscriber additions increased to around 2 million per month in the year 2003-04 and 2004-05.
Although mobile telephones followed the New Telecom Policy 1994, growth was tardy in the early years because of the high price of hand sets as well as the high tariff structure of mobile telephones. The New Telecom Policy in 1999, the industry heralded several pro consumer 4|Page
initiatives. Mobile subscriber additions started picking up. The number of mobile phones added throughout the country in 2003 was 16 million, followed by 22 millions in 2004, 32 million in 2005 and 65 million in 2006. The only countries with more mobile phones than India with 156.31 million mobile phones are China -408 million and USA with 170 million.
Regulatory bodies The regulatory bodies in the Indian telecom market are Telecom Commission, Department of Telecommunication, Telecom Regulatory Authority of India (TRAI) and Telecom Dispute Settlement and Appellate Tribunal (TDSAT). They are described below one by one. Telecom Commission was set up by the Government of India and has the administrative and financial powers of the government to deal with various aspects of telecommunications. The strategies followed by the Telecom Commission have not only transformed the very structure of this market but also have motivated all partners to contribute in accelerating the growth of the market. Telecom Commission: The functions of the Telecom Commission include: • Policy formulation, • Licensing, • Wireless spectrum management, • Administrative monitoring of public sector units (PSUs), • Research and development, • Standardization and validation of equipment Department of Telecommunications: has the following function: • Policy formulation, licensing and coordination of matters related to telegraphs, telephones, wireless, data, facsimile and telematic services and other like forms of communications • Granting licenses to operators for providing fixed and value added services in various cities in accordance with the policy of government • Implementing treaties and agreements with other countries • International relations in matters connected with telecommunications including matters relating to all international bodies dealing with tele-communications such as International Telecommunication Union, International Telecommunication Satellite Organization, International Mobile Satellite Organization and Asia Pacific Telecommunication
5|Page
• Promotion of standardization, and research and development in telecommunications • Promotion of private investment in telecommunications • Financial assistance for research and study in telecommunications technology to adequately train manpower • Administration of laws with respect to The Indian Telegraph Act 1885, The Indian Wireless Telegraphy Act, 1933 and The Telecom Regulatory Authority of India Act, 1997 Telecom Regulatory Authority of India (TRAI) is empowered to provide recommendations on various aspects related to the functioning of telecom service providers and to enforce the following regulatory functions: • Monitor the quality of services provided by the service providers • Protect consumer’s interest • Recommend the provision of Universal Service Obligation (USO) • Fix tariffs for various telecom services • Advise the government on - need and timing for introduction of new service providers - terms and conditions of the license
Telecom Dispute Settlement and Appellate Tribunal (TDSAT) is empowered with the following authorities: • Adjudicate on disputes - between licensor and licensee - between two or more service providers - between service provider and group of consumers • Acts as the appellate authority in respect of any directions, decisions or orders of TRAI; any appeal beyond TDSAT is only to the Supreme court
To summarize, India has set up separate bodies to deal with clearly demarcated areas of responsibility. The telecom commission has administrative and financial powers from the Government of India. The Department of Telecommunication is responsible for international activities and for the grant of licenses to telecom operators in accordance with the policy of the government. The Telecom Regulatory Authority of India is responsible for fixing tariffs for various telecom services and for protecting the interests of consumers as well as that of the suppliers. The Telecom Dispute Settlement and Appellate Tribunal is responsible for 6|Page
adjudication of disputes between the players in the market. By the operation of these bodies, both there is a sound framework and a relatively rigorous implementation of policies, which have been responsible for and continue to drive the liberalization and growth of a competitive, flourishing and growing market in India.
Policy Initiatives The government has taken many proactive initiatives to facilitate the rapid growth of the Indian telecom industry.
?
In the area of telecom equipment manufacturing and provision of IT-enabled services, 100 per cent FDI is permitted
?
No cap on the number of access providers in any service area. In 2008, 122 new Unified Access Service (UAS) licences were granted to 17 companies in 22 services areas of the country
?
Revised subscriber based criteria for allocation of Global System of Mobile Communication (GSM) and Code Division Multiple Access (CDMA) spectra were issued in January 2008
?
To provide infrastructure support for mobile services a scheme has been launched to provide support for setting up and managing 7,436 infrastructure sites spread over 500 districts in 27 states. As on December 31, 2009, about 6,956 towers had been set up under the scheme
Current Indian Telecom Market BSNL is the largest telecom company in India. BSNL and MTNL leads in the landline services while Bharati Airtel is the most important player in the cellular services. Telecom companies are facing stiff competition entering of the new players. This has led to sharp decline in the call rates and price of mobile handsets has also become cheaper. One can buy a branded handset at Rs. 1000.
Companies such as Reliance, Airtel, Tata and Idea are offering several schemes to attract consumers. Some of the schemes are call rates being Re.1 per second, making calls on the 7|Page
same network has become free or very nominal rate is charged. The monthly rentals have also decreased. Their ads are also very innovative and creative. Who can forget the Vodafone’s Zoozoo ads or Idea’s social message ads endorsed by Abhishek Bachchan? Mobile companies are also providing best offers on musical ring tones downloading wallpapers etc.
However, Indian market has still not reached to its saturation point. The telecom sector has to still make inroads in the rural areas. Companies should divert their attention to the rural areas to cater to the rural market. Government should also provide the companies secure environment so that they invest in India. This will ultimately benefit the consumers. ? India is the fourth largest telecom market in Asia after China, Japan and South Korea. ? The Indian telecom network is the eighth largest in the world and the second largest among emerging economies. ? The Indian telecom market size of over US $ 8 billion is expected to increase three fold by 2012. The expansion of the telecom industry in India has been fuelled by a massive growth in mobile phone users, which has reached a level of 10 million users in December 2002, an increase of nearly 100 per cent in 2002. ? This exponential growth of mobile telephony can be attributed to the introduction of digital cellular technology and decrease in tariffs due to competitive pressures. For the first time in India, the growth of cellular subscriber base has exceeded the fixed line subscriber base. However, cellular penetration is still 1 per cent as compared to world average of around 16 per cent.
The Indian telecommunications industry is one of the fastest growing in the world and India is projected to become the second largest telecom market globally. According to the Telecom Regulatory Authority of India (TRAI), the number of telecom subscribers in the country increased to 562.21 million in December 2009, an increase of 3.5 per cent from 543.20 million in November 2009. With this the overall teledensity (telephones per 100 people) has touched 47.89.
8|Page
According to Business Monitor International, India is currently adding 8-10 million mobile subscribers every month. It is estimated that by mid 2012, around half the country's population will own a mobile phone. This would translate into 612 million mobile subscribers, accounting for a tele density of around 51 per cent by 2012. Moreover, according to a study conducted by Nokia, the communications sector is expected to emerge as the single largest component of the country's GDP with 15.4 per cent by 2014. With the availability of the 3G spectrum, about 275 million Indian subscribers will use 3Genabled services, and the number of 3G-enabled handsets will reach close to 395 million by 2013-end, estimates the latest report by Evalueserve. According to a Frost & Sullivan industry analyst, by 2012, fixed line revenues are expected to touch US$ 12.2 billion while mobile revenues will reach US$ 39.8 billion in India. State-run telecom operator BSNL has rolled out 3G services in 318 cities with 856,000 subscribers. BSNL has plans to cross 760 cities by September 2010. And even as debate on 3G continues, TRAI has started consultation on the next level of telecom services. Fourth generation or 4G offers download at faster speeds. Telecommunication industry is mainly classified into two sub headings – voice and data. Voice service can be provided through either wire-less or wire-line. Wire-less segment is booming nowadays after investment of foreign companies. The major players in this field are Bharti, Vodafone, Reliance, BSNL etc The booming domestic telecom market has been attracting huge amounts of investment which is likely to accelerate with the entry of new players and launch of new services. According to the Department of Industrial Policy and Promotion (DIPP), the telecommunications sector which includes radio paging, mobile services and basic telephone services attracted foreign direct investment (FDI) worth US$ 2,554 million during 2009-10. The cumulative flow of FDI in the sector during April 2000 and March 2010 is US$ 8,930.61 million. Further, the Indian telecom sector is expected to witness investment of around US$ 40 billion during the current fiscal, as per the Telecom Equipment and Services Export Promotion Council. With the development of 3G, expansion of the current networks and widening of Broadband Wireless Access (BSA) network, the investment in the sector is likely to increase from the US$ 20 billion witnessed last year. 9|Page
Players in Telecom Market Bharti Airtel Airtel is providing cellular services in Delhi, Mumbai, Kolkata, Chennai, Andhra Pradesh, Gujarat, Haryana, Himachal Pradesh, Jammu and Kashmir, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Goa, Orissa, Punjab, Rajasthan, Tamil Nadu, UP and West Bengal. Airtel is the No.1 cellular service provider in India using GSM technology. Airtel has 23%market share in India with a total subscriber base of 38 million. Reliance Communications Reliance has both CDMA and GSM networks and total subscriber base of 29 million or 17%market share. It has GSM network in Assam, Bihar, Himachal Pradesh, Kolkata, North East,Madhya Pradesh, Orissa and West Bengal. Reliance has CDMA networks in other states and cities. Bharat Sanchar Nigam Limited (BSNL) BSNL is a state owned telecom company which has GSM presence in almost every cities and towns. BSNL has 27 million subscribers with a market share of 16% Tata Indicom Tata Indicom is a main CDMA provider in India with 16 million subscribers all over India. Tata Indicom has presence in almost every states and cities in India New Players ? ? ? Uninor Videocon MTS
PESTEL Analysis
A PEST analysis of the macro environment indicates that economic (a phone call being a cheaper way to stay in touch than outstation travel for example) and social factors (working outside the home town) have forced the pace of utilization of technology (Public Call Offices, mobile phones, networked companies). 10 | P a g e
Increasing customer awareness has raised expectations and vocal demands are being articulated for consumer rights; such political factors have in turn impacted the competitive environment by way of entry of private players, independent regulation, and a policy framework tilted towards a ?level playing field? for new entrants. 1. Political factor o High entry fees in 3G market
In India legal obligations are there regarding 3G auction and bidding which limits it to the existing players and not available to the new entrants this political factor forbids the entry of new companies in to 3G services. o Reduction in tariff plan
Earlier the tariff rates were higher due to high taxes, but now it has become lowest in the world by tax reforms. o Extension of license period
Government has replaced the license fees with revenue sharing scheme and extended the license period from 10 year to 20 years. A company can merge with another operator only after 3 years of receiving license. This rule can be eased to help new comapnies merge with established players.
2. Economical factor: India is one of the most vibrant and fastest growing telecom market in the world enjoys the steady growth rate of 10 million mobile users every month .India has a moderate but still a healthy growth rate which will provide a good base for new as well as existing companies to grow with growing economy. 3. Social factors: o Perception of new entrant in the market
A new brand in the Indian market it will be facing problems regarding the perception of a new entrant, this image will adversely affect the buying capacity of customers, they will think about the network, and the kind of service they will get after sale.
11 | P a g e
o
Social status
Anything customers buy that reflects their social status, people will be conscious about their social status this will affect a new company‘s growth adversely.
4. Technological factors: The business in a country is greatly influenced by the technological development. The technology adopted by the industries determines the type and quality of goods and services to be produced and the type and quality of plant and equipment to be used. A company should be aiming to come up with something new that is not been available to its competitors. SWOT Analysis Strengths ? ? ? Strong mobile growth(around 10%) , with latest technology being offered at faster pace An attractive business environment witnessed by number of foreign players entering Indian market A vast untapped rural population which needs telecom services at their fingertips Weaknesses ? ? ? Wireless business segment is growing faster than wire line and more demand is coming for pre-paid services. The falling SIM card, lower tariff plan led to lower APRU Delayed implementation of key policies because of dispute among TRAI, telecom ministry Opportunities ? ? ? All of the providers are keen to provide more content which provides great opportunity for content providers Regulator has recommended that foreign player can participate without any local partner The government will cut the license fee by 33% for those operators which has over 95% residential coverage
12 | P a g e
Threats ? ? ? ? 3 G spectrum charges are more and which will have negative impact on demand for licenses Due to price war , APRU is falling and further deterioration will lead to significant decline in top line growth Capacity constraint may hamper the expected growth in Mobile segment MNP will become reality in 2010, it will add further pressure to operator to retain the existing customer
Porter’s 5 forces model Power of Buyers (High): Lack of differentiation amongst the service providers has led to sort of commoditization of the product. A company provides the same service as others provide, this lack of differentiation gives customer an edge to bargain with service providers, they can switch to any other provider any time they want. Fierce competition among the competitors also offers a great deal to bargain. As the switching cost is also very low, all these situations are creating problems in the growth of many companies Power of Suppliers (Low): At first glance, it might look like telecom equipment suppliers have considerable bargaining power over telecom operators. Indeed, without high-tech broadband switching equipment, fiberoptic cables, and mobile handsets and billing software, telecom operators would not be able to do the job of transmitting voice and data from place to place. But there are actually a number of large equipment makers around. There are enough vendors, arguably, to dilute bargaining power. A company will have a variety of suppliers to choose from, because most of the suppliers would be eying to get the contract to be the supplier of the company.
Availability of Substitutes (High): Products and services from non-traditional telecom industries pose serious substitution threats. Cable TV and satellite operators now compete for buyers. The cable guys, with their own direct lines into homes, offer broadband internet services, and satellite links can substitute for highspeed business networking needs. The threat of the substitutes for any company is very high in 13 | P a g e
Indian market as the already existent players have a huge market share and better brand perception among the consumers, making it tough for a comapny to win the trust of its customer and increase its market share. . Threat of New Entrants (Moderate): It comes as no surprise that in the capital-intensive telecom industry the biggest barrier to entry is access to finance. To cover high fixed costs, serious contenders typically require a lot of cash. In addition, it is important to remember that solid operating skills and management experience is fairly scarce, making entry even more difficult. But still Threat of new entrants is always there for any company.
Competitive Rivalry (High): Competition is "cut throat". The wave of industry deregulation together with the receptive capital markets paved the way for a rush of new entrants. New technology is prompting a raft of substitute services. Nearly everybody already pays for phone services, so all competitors now must lure customers with lower prices and more exciting services. This tends to drive industry profitability down. In addition to low profits, the telecom industry suffers from high exit barriers, mainly due to its specialized equipment. A new company will face a cut throat competition from its well established competitors
14 | P a g e
RECOMMENDATIONS FOR THE BOARD OF AVG “What is of the greatest importance in war is extraordinary speed: One cannot afford to neglect opportunity...” – Sun Tzu
Positioning of AVG To enter the Indian Telecom market, instead of concentrating on the basic services like calling, AVG should focus on value added services, based on 4G technology. Some of the services that AVG can offer are: •Content rich applications •Youth: Gaming Zones, videos and music based applications •Business: Office based applications •Students: Education based applications, like study material
Modes of entry
•JVs and Alliances: There have been new entrants in the Indian Telecom market, like Videocon, Uninor, Loop, etc. These players are yet to get any foothold in the market, as they are still unable to have a differentiated position. Combined with the differentiated strategy of AVG, these companies will be able to better penetrate the market. •Licensing: The country has been divided into 23 territorial service areas called circles for the purposes of telecom operations and to operate in each of this circle, the operator has to obtain a licence. The licence for operations involves allocation of spectrum for the companies to operate. There has been a recent allotment of the spectrum for 3G operations. Since, the spectrum bandwidth is narrow, the possibility of a re-issue is grim. The probability of purchasing licenses 15 | P a g e
from new entrants like Etisalat or Escotel is low, as they are big telecom companies and might not be willing to part with their prestigious licenses. •Acquiring an existing operator: Purchasing an existing operator has a high risk. It requires a huge investment, in buying that company. Possibility of buying leaders such as Airtel, Vodaphone and Reliance is grim. Companies such as Uninor or Sistema can be bought, but as they are not doing well, it would require a major repositioning strategy, which involves high risk.
Business Strategy Using strategic clock, AVG can take the following competitive strategy options: •Differentiation without price premium: AVG can offer basic 4G services like faster email access, net surfing, GPRS, etc. •Differentiation with price premium (focused differentiation): Specialized products, e.g. applications for business users, content rich applications for the youth, etc. Should be offered at a premium rate by AVG.
Fig: Strategy Clock 16 | P a g e
Corporate Plan
Entry Strategy
This section defines the entry strategy of ACG into Telecom Sector. The sector is has a long term growth especially in a country like India which is the 2nd highest growing market in the telecom sector worldwide after China. The strategic moves for AVG to enter Telecom would require AVG to tackle government regulations, competition, new movers, customers. With 14 different telecom service providers, AVG should have a unique strategy to enter an over – crowded fragmented market. Strategic Intent The Intended Strategy for AVG to enter telecom is to look for long term gains. The Strategic Intent for the organization would be to among the industry leaders and achieve a cost effective leader passing the gains to the consumers in terms of lower price. Focus AVG should follow a strategy to have a regional focus like Idea rather than have a national focus at one go like Videocon. AVG should focus on the ever expanding rural market with a rural teledensity of less than 20% currently. Thus there is huge opportunity in rural teledensity in India. Customer Acquisition AVG should focus to Tap into already disgruntled customers with the MNP in the urban market and acquire new customers in the rural market with the coming of affordable rural specific phones.
Strategy Development
17 | P a g e
Entry Strategy for Telecom Sector with Advantages and Disadvantages Technology Acquisition/Transfer/Creation There are two ways for AVG to tackle technology by acquiring or getting it transferred. Technology transfer is the strategy followed by the all new players. Eg Tata Docomo, Uninor etc. Also in order to be cost effective, AVG would need to follow the famous factory model of Bharti Airtel. Strategic Tie Ups AVG needs to make strategic alliances with handset makers especially the low cost ones to tap into the rural market. 18 | P a g e
Also in order to acquire a market and mind share, AVG would need to change the rules of the game as Tata Docomo did with its pay per second scheme.
Strategy Implementation
Managing technology and Resources ? With ever changing Technology(2G,3G,4G-anytime soon) in the Industry, there is a need to be efficient in learning and managing new technology ? Strategic Plans and moves to tap customers towards new technology adoption to overcome the chasm. Eg: BSNL 3G, Idea MNP, Docomo 3G ? Spectrum ? Infrastruture.
Vision
By 2015 we will be the most loved brand, enriching the lives of millions. " Enriching lives means putting the customer at the heart of everything we do. We will meet their needs based on our deep understanding of their ambitions, wherever they are. By having this focus we will enrich our own lives and those of our other key stakeholders. Only then will we be thought of as exciting, innovation, on their side and a truly world class company."
Organizational Structure
As an outcome of a restructuring exercise conducted within the company; a new integrated organizational structure has emerged; with realigned roles, responsibilities and reporting relationships of Bharti’s key team players. With effect from March 01, 2006, this unified management structure of 'One Airtel' aims at enabling continued improvement in the delivery of the Group’s strategic vision.
19 | P a g e
The organizational structure proposed should be a hybrid of the Functional and Multidivisional Structure.
Functional Structure • Finance • HR • Legal & Regulatory • IT • Internal Assurance • Supply Chain
Multidivisional Structure • Enterprise Services • DTH Services • Mobile services • Telemedia Services
This has allowed the company to benefit from the advantages of both the structures like • High Control • Clear definition of responsibilities • Flexibility • Ownership of strategy • Specialization of competences The present structure seems to be give Bharti Airtel a strong foundation to meet the challenges the telecom industry may have to face in future.
20 | P a g e
Marketing Strategies
Service innovation in Mobile Value Added Services (MVAS)
Imagine a situation: An Indian trader, dealing with red chillies, uses a mobile application that gives a minute-by-minute comparison of the domestic prices of chillies with those of Chicago trade board. He then decides whether to export the chillies or sell them in the domestic markets. Service innovation is the key facilitator towards driving higher ARPU levels. These innovation phases are captured in the Service Innovation Curve (SIC).
Phase of ebullience
It is characterized by the public perception of value arising out of pure speculations and promises of MVAS. Services will be launched after significant promotion in press and industry bodies. Launching of new products and brands will be the key priority for the marketers as they will aim to maximize the impact of the mass media hype. The innovation methods by service providers will focus on the excitement generated among the customers.
21 | P a g e
Skimming will be followed as a pricing strategy whereby the marketers will set higher price points for the services. It will help the firm to recover sunk costs before competition crowds the market. Even if 5-15% of the user base adopts MVAS at this stage, the capital expenditure will be recovered to a reasonable extent due to high premium in pricing.
Marketing Focus
• Increase brand awareness • Customer community participation • Need creation
Pricing of VAS
• Flat rates including premium • Contractual subscription
Revenue Sharing (as • Content creators: 15% a % of total revenue • Content aggregators: 15% • Telecom service providers: 70% from MVAS)
Disenchantment Phase
This phase will be dominated by customer realization of the inadequacies associated with the MVAS offerings. MVAS providers will recognize the chasm in the ‘service innovation’ front. They realise that this chasm is due to their extended focus in the marketing of the MVAS offerings. The visibility and the hype for MVAS will decrease as the services will be construed as a bunch of inflated or exaggerated promises. There will be a growing discontent among customers as the high price points will not justify the utility of the delivered services. The key dictates in this phase will be similar to those of the ebullience phase, the difference being the lacking intensity in the marketing focus and a slight increase in the revenue share of content creators and content aggregators.
Radical Innovation Phase
This phase will mark the radical strategies by MVAS providers to regain their lost market shares and customer confidence. The radical strategies will be aimed towards disrupting the dynamics of the market and they will be complemented by parallel efforts to work on the feedback of the
22 | P a g e
end customer. The biggest facilitator will be the mobile advertising platform. It will effectuate response-based media advertising whereby customers will be targeted on a personalised and nonintrusive basis. The marketers will reach out to the customer and proactively engage him/her in the design and deployment stages of innovation.
Marketing Focus
• Increase customer retention • Acquire new customers • Voice of customer programs
Pricing of VAS
• Advertisement funded calls • Home zone pricing • Unlimited voice calls / data usage • Choice between cheaper tariffs and subsidies • Lifetime subscriptions
Revenue Sharing (as a % of total revenue from MVAS)
• Content creators: 20% • Content aggregators: 30% • Telecom service providers: 50%
Incremental innovation
Based on a self-competency assessment, VAS players will realize that their service basket is seemingly incompetent to suffice the entire needs of the customer. This stage will embark identification of collaborative growth opportunities by telecom service providers and greater efforts to reconcile the VAS poviders’ competency with the collaborator’s resources pace. As a result, there will be several content creators and content aggregators displaying varying degrees of collective innovation. The telecom service providers will infuse greater flexibility in their scalable technical architectures and greater efficiency in their customer orientation.
23 | P a g e
Marketing Focus
• Improve marketing ROI • Increase customer lifetime value • Integrate communications • Ethnographical studies on customer personas • Customer advisory boards
Pricing of VAS
• Charging by traffic volumes • Charging by call durations using low pulse • Differential pricing for data unit transmissions
Revenue Sharing (as a % of total revenue from MVAS)
• Content creators: 30% • Content aggregators: 35% • Telecom service providers: 35%
Value innovation phase
This phase will mark a reinvigorated paradigm where the service providers will place equal emphasis on both value and innovation. Innovation will be aligned with utility, cost and price positions and MVAS providers will explore new business opportunities. Competition will not be a parameter for consideration during strategy formulation. The traditional sources of competitive advantage such as access to capital, physical location or raw materials will become hygiene factors. There will be stringent regulations and guidelines for MVAS, effectuating the distribution of standalone VAS through retail channels without being linked to a service provider. The VAS will be transferred using bluetooth, activated using memory cards or any newer channels. Once service innovation in MVAS reaches the plateau of Value Innovation, each MVAS provider will accentuate its respective uncontested market space. The innovation focus will take a 360 degree turn whereby there will be an extensive reversal towards internal business processes. The internal focus will complement the external focus and ensure a perfect
24 | P a g e
alignment of the service offerings with the intuitive needs of the customer. Hence, innovation will assume a visceral form between demand and supply. This explains the absence of a dip in the Service Innovation Curve in this stage.
Marketing Focus
• Targeting at individual levels • Personalization
Pricing of VAS
• Customized plans • Tailored pricing
Revenue Sharing (as • Content creators: 45% a % of total revenue • Content aggregators: 40% • Telecom service providers: 15% from MVAS)
25 | P a g e
The trends that will influence the collaboration among individuals and enterprises are: ? ? ? Ubiquitous connectivity in quadruple-play (voice, data and video on mobile) service offerings Omnipresent access to computing at minimal costs through innovative delivery models and platforms Vibrant platforms for social networking addressing the personal and professional needs
Positioning of MVAS on the Service Innovation Curve
The positioning of a particular MVAS is guided by the innate focus on service innovation. This focus will radically differ across countries as ethnocentric understanding will be a key input to service innovation. As a result, the same MVAS may have different positioning on the SIC across different countries. For example, innovation within a gaming MVAS having hand-painted, textured and stylized avatars may sluggishly rise through the stage of ebullience in South Korea as compared to India.
26 | P a g e
Mikoishi’s real time strategy mobile gaming: South Korea is the market leader when it comes
to gaming hardware, handsets and bandwidth. Currently, Mikoishi is making greater efforts in brand awareness and using flat and contractual methods of pricing for this gaming service.
Voice SMS in India: There is a growing realisation that voice SMS is similar to voice mail. It has
been packaged differently so that we have an old wine in a new bottle. Thus, the service is entering a phase of radical innovation, wherein the offerings need to be aligned to address the needs of the masses or face obsolescence.
Caller Ring Back Tunes (CRBT), India: The mobile subscriber base in India had welcomed
CRBTs with awe and admiration. However, the exclusivity and relevance of the service has lost its steam with time. The operators are currently piloting innovative measures like ad-funded CRBTs. The service is slated to face obsolescence unless a radical innovation facilitates the turnaround.
27 | P a g e
Alokito tele-medicine initiative, Bangladesh: Ericsson’s Alokito Bangladesh project brought
high-speed, Internet-enabled mobile health care to the districts of Dhaka. It has been positioned at the phase of incremental innovation as the diseases covered under the initiative have increased with time. District wide disease surveillance and control have also been accentuated along with collection of basic health data in remote areas.
Financials New Telecom Policy 1999
The most important milestone and instrument of telecom reforms in India is the New Telecom Policy 1999 (NTP 99). The New Telecom Policy, 1999 (NTP-99) was approved on 26th March 1999, to become effective from 1st April 1999. NTP-99 laid down a clear roadmap for future reforms, contemplating the opening up of all the segments of the telecom sector for private sector participation. It clearly recognized the need for strengthening the regulatory regime as well as restructuring the departmental telecom services to that of a public sector corporation so as to separate the licensing and policy functions of the Government from that of being an operator. It also recognized the need for resolving the prevailing problems faced by the operators so as to restore their confidence and improve the investment climate. Key features of the NTP 99 include: · · · · Strengthening of Regulator. National long distance services opened to private operators. International Long Distance Services opened to private sectors. Private telecom operators licensed on a revenue sharing basis, plus a one-time entry fee. Resolution of problems of existing operators envisaged. · Direct interconnectivity and sharing of network with other telecom operators within the service area was permitted.
28 | P a g e
· ·
Department of Telecommunication Services (DTS) corporatised in 2000. Spectrum Management made transparent and more efficient.
All the commitments made under NTP 99 have been fulfilled; each one of them, in letter and spirit, some even ahead of schedule, and the reform process is now complete with all the sectors in telecommunications opened for private competition. National Long Distance National Long Distance opened for private participation. The Government announced on 13.08.2000 the guidelines for entry of private sector in National Long Distance Services without any restriction on the number of operators. The DOT guidelines of license for the National Long Distance operations were also issued. Highlights - NLD Guidelines · · Unlimited entry for carrying both inter-circle and intra-circle calls. Total foreign equity (including equity of NRIs and international funding agencies) must not exceed 74%. Promoters must have a combined net worth of Rs.25 million. · Private operators will have to enter into an arrangement with fixed-service providers within a circle for traffic between long-distance and short-distance charging centres. · Seven years time frame set for rollout of network, spread over four phases. Any shortfall in network coverage would result in encashment and forfeiture of bank guarantee of that phase. · Private operators to pay one-time entry fee of Rs.25 million plus a Financial Bank Guarantee (FBG) of Rs.200 million. The revenue sharing agreement would be to the extent of 6%. · Private operators allowed to set up landing facilities that access submarine cables and use excess bandwidth available.
29 | P a g e
·
Licence period would be for 20 years and extendable by 10 years.
International Long Distance In the field of international telephony, India had agreed under the GATS to review its opening up in 2004. However, open competition in this sector was allowed with effect from April 2002 itself. There is now no limit on the number of service providers in this sector. The licence for ILD service is issued initially for a period of 20 years, with automatic extension of the licence by a period of 5 years. The applicant company pays one-time non-refundable entry fee of Rs.25 million plus a bank guarantee of Rs.250 million, which will be released on fulfillment of the roll out obligations. The annual licence fee including USO contribution is @ 6% of the Adjusted Gross Revenue and the fee/royalty for the use of spectrum and possession of wireless telegraphy equipment are payable separately. At present 24 ILD service providers (22 Private and 2 Public Sector Undertaking) are there. As per current roll out obligations under ILD license, the licensee undertakes to fulfill the minimum network roll out obligations for installing at least one Gateway Switch having appropriate interconnections with at least one National Long Distance service licensee. There is no bar in setting up of Point of Presence (PoP) or Gateway switches in remaining location of Level I Tax’s. Preferably, these PoPs should conform to Open Network Architecture (ONA) i.e. should be based on internationally accepted standards to ensure seamless working with other Carrier’s Network. Unified Access Services Unified access license regime was introduced in November’2003. Unified Access Services operators are free to provide, within their area of operation, services, which cover collection, carriage, transmission and delivery of voice and/or non-voice messages over Licensee’s network by deploying circuit, and/or packet switched equipment. Further, the Licensee can also provide Voice Mail, Audiotex services, Video Conferencing, Videotex, E-Mail, Closed User Group (CUG) as Value Added Services over its network to the subscribers falling within its service area on non-discriminatory basis. The country is divided into 23 Service Areas consisting of 19 Telecom Circle and 4 Metro Service Areas for providing Unified Access Services (UAS). The licence for Unified Access Services is issued on non-exclusive basis, for a period of 20 years,
30 | P a g e
extendable by 10 years at one time within the territorial jurisdiction of a licensed Service Area. The licence Fee is 10%, 8% & 6% of Adjusted Gross Revenue (AGR) for Metro and Category `A’, Category `B’ and Category `C’ Service Areas, respectively. Revenue and the fee/royalty for the use of spectrum and possession of wireless telegraphy equipment are payable separately. The frequencies are assigned by WPC wing of the Department of Telecommunications from the frequency bands earmarked in the applicable National Frequency Allocation Plan and in coordination with various users subject to availability of scarce spectrum.
Internet Service Providers (ISPs) Internet service was opened for private participation in 1998 with a view to encourage growth of Internet and increase its penetration. The sector has seen tremendous technological advancement for a period of time and has necessitated taking steps to facilitate technological ingenuity and provision of various services. The Government in the public interest in general, and consumer interest in particular, and for proper conduct of telegraph and telecom services has decided to issue the new guidelines for grant of licence of Internet services on non-exclusive basis. Any Indian company with a maximum foreign equity of 74% is eligible for grant of licence. 2 G Licensing costs It has been fixed at 1660 crore rupees in 1999 and is subjected to revision. License is valid for 5 years 3 G Services 3 G services auction has been finished in September 2010 and pan India license costs US $3.6 billion and there has been no pan India buyer BWA Licensing Costs
31 | P a g e
Breakdown of Winning Bids Infotel Qualcomm Bharti Delhi Mumbai Maharashtra Gujarat Andhra Pradesh Karnataka 2241.02 2292.95 915.64 613.85 2241.02 2292.95 915.64 613.85 Tikona Aircel Augere
1059.12
1059.12
1543.25
1543.25 2069.45 523.2 258.67 332.27 119.9
Tamil Nadu 2069.45 Kolata Kerala Punjab Haryana Utter Pradesh (E) Utter Pradesh 523.2 258.67 332.27 119.9
142.5
142.5
183.87
183.87
32 | P a g e
(W) Rajasthan Madhya Pradesh West Bengal Himachal Pradesh Bihar Orissa Assam North East Jammu & Kashmir 97.32 97.32
124.66
124.66
70.97
70.97
20.66
20.66
99.28 63.63 33.02 21.27
99.28 63.63 33.02 21.27
21.27
21.27
Rs Crore US Dollar
12847.77 $2.74bn
4912.54
3314.36
1058.2
3438.01
124.66
$1.05bn $706.3mn $225.5mn $732.64mn $26.57mn
33 | P a g e
Other costs
The other costs details has been calculated by examining Airtel outsourcing deals and are subjected to rise
The costs are Service delivery costs which includes cost for call centres: US $20 million per year IT costs which is around US $ 70 million per year Infrastructure costs which is around US$350 million each year Besides there are additional promotion costs and marketing expenses which can reach 100 million dollars
Foreign Direct Investment (FDI)
· In Basic, Cellular Mobile, Paging and Value Added Service, and Global Mobile Personal Communications by Satellite, Composite FDI permitted is 74% (49% under automatic route) subject to grant of license from Department of Telecommunications subject to security and license conditions. (para 5.38.1 to 5.38.4 of consolidate FDI Policy circular 1/2010 of DIPP) FDI upto 74% (49% under automatic route) is also permitted for the following: · . · Radio Paging Service Internet Service Providers (ISP's)
·
FDI upto 100% permitted in respect of the following telecom services: · · · Infrastructure Providers providing dark fibre (IP Category I); Electronic Mail; and Voice Mail
34 | P a g e
Subject to the conditions that such companies would divest 26% of their equity in favor of Indian public in 5 years, if these companies were listed in other parts of the world. · · In telecom manufacturing sector 100% FDI is permitted under automatic route. The Government has modified method of calculation of Direct and Indirect Foreign Investment in sector with caps (para 4.1 of consolidate FDI Policy circular 1/2010 of DIPP) and have also issued guidelines on downstream investment by Indian Companies. (para 4.6 of consolidate FDI Policy circular 1/2010 of DIPP) Guidelines for transfer of ownership or control of Indian companies in sectors with caps from resident Indian citizens to non-resident entities have been issued (para 4.2.3 of consolidate FDI Policy circular 1/2010 of DIPP)
·
Investment Opportunities and Incentives An attractive trade and investment policy and lucrative incentives for foreign collaborations have made India one of the world’s most attractive markets for the telecom equipment suppliers and service providers. · No industrial license required for setting up manufacturing units for telecom equipment. 100% Foreign Direct Investment (FDI) is allowed through automatic route for manufacturing of telecom equipments. Payments for royalty, lump sum fee for transfer of technology and payments for use of trademark/brand name on the automatic route. Foreign equity of 74% (49 % under automatic route) permitted for telecom services basic, cellular mobile, paging, value added services, NLD, ILD, ISPs - and global mobile personal communications by satellite. Full reparability of dividend income and capital invested in the telecom sector.
·
·
·
35 | P a g e
REFERENCES ? ? ? Telecommunication Services, Indian Industry: A Monthly Review, CMIE – November 2008 Telecommunication Sector Report – March 2008, CRISIL The Indian Telecom Success Story (2009), Report submitted at India Telecom 2009. KPMG, DOT & FICCI
Websites ? http://www.airtel.in/wps/wcm/connect/about+bharti+airtel/Bharti+Airtel/About+Bharti+Airt el/ ? ? http://www.ibef.org/artdispview.aspx?in=72&art_id=26434&cat_id=470&page=3 http://www.reportbuyer.com/telecoms/country_overviews_telecommunications/indian_tel ecom_analysis_2008_2012.html ? http://www.2012-doomsday-predictions.com/17747/growth-opportunities-in-indiantelecom-market/ ? ? http://en.wikipedia.org/wiki/Bharti_Airtel www.som.iitb.ac.in/live/L!VE_March2010.pdf
36 | P a g e
doc_799983198.docx
It including its PESTAL analysis, SWOT analysis and application of porter five forces. It also suggests market entry strategy for new telecom company into indian telecom market.
“Move not unless you see an advantage; use not your troops unless there is something to be gained; fight not unless the position is critical. If it is to your [Pick the date] advantage, make a forward move; if not, stay where you are…” – Sun Tzu
SM-II
AVG CORPORATE PLAN TO ENTER TELECOM INDUSTRY
| abc
Contents TELECOM INDUSTRY ANALYSIS ............................................................................................................................... 4 Growth of Mobile Technology ..................................................................................................................................... 4 Regulatory bodies ............................................................................................................................................................. 5 Telecom Commission ................................................................................................................................................. 5 Department of Telecommunications: .................................................................................................................. 5 Telecom Regulatory Authority of India (TRAI) ............................................................................................... 6 Telecom Dispute Settlement and Appellate Tribunal (TDSAT) ............................................................. 6 Policy Initiatives ................................................................................................................................................................. 7 Current Indian Telecom Market ................................................................................................................................. 7 Players in Telecom Market......................................................................................................................................... 10 Bharti Airtel .................................................................................................................................................................... 10 Reliance Communications ..................................................................................................................................... 10 Bharat Sanchar Nigam Limited (BSNL) .......................................................................................................... 10 Tata Indicom ................................................................................................................................................................. 10 New Players .................................................................................................................................................................. 10 PESTEL Analysis ............................................................................................................................................................ 10 1. 2. 3. 4. Political factor...................................................................................................................................................... 11 Economical factor: ............................................................................................................................................ 11 Social factors: ..................................................................................................................................................... 11 Technological factors: ..................................................................................................................................... 12
SWOT Analysis ................................................................................................................................................................ 12 Strengths......................................................................................................................................................................... 12 Weaknesses.................................................................................................................................................................. 12 Opportunities................................................................................................................................................................. 12 Threats ............................................................................................................................................................................. 13 Porter’s 5 forces model ................................................................................................................................................ 13 Power of Buyers (High): .......................................................................................................................................... 13 Power of Suppliers (Low): ...................................................................................................................................... 13 Availability of Substitutes (High): ........................................................................................................................ 13 Threat of New Entrants (Moderate): ................................................................................................................. 14 Competitive Rivalry (High): .................................................................................................................................... 14 RECOMMENDATIONS FOR THE BOARD OF AVG ................................................................................... 15 1|Page
Positioning of AVG ......................................................................................................................................................... 15 Modes of entry .................................................................................................................................................................. 15 Business Strategy ........................................................................................................................................................... 16 Corporate Plan ........................................................................................................................................................................ 17 Entry Strategy .................................................................................................................................................................... 17 Strategic Intent ............................................................................................................................................................. 17 Focus ................................................................................................................................................................................. 17 Customer Acquisition ................................................................................................................................................. 17 Strategy Development .................................................................................................................................................... 17 Technology Acquisition/Transfer/Creation ..................................................................................................... 18 Strategic Tie Ups........................................................................................................................................................... 18 Strategy Implementation .............................................................................................................................................. 19 Managing technology and Resources .................................................................................................................. 19 Vision ..................................................................................................................................................................................... 19 Organizational Structure ............................................................................................................................................... 19 Marketing Strategies ....................................................................................................................................................... 21 Service innovation in Mobile Value Added Services (MVAS) .................................................................... 21 Phase of ebullience ...................................................................................................................................................... 21 Disenchantment Phase .............................................................................................................................................. 22 Radical Innovation Phase ......................................................................................................................................... 22 Incremental innovation ............................................................................................................................................. 23 Value innovation phase ............................................................................................................................................. 24 Positioning of MVAS on the Service Innovation Curve ................................................................................. 26 REFERENCES ...................................................................................................................................................................... 36
2|Page
3|Page
TELECOM INDUSTRY ANALYSIS
India's mobile telecom sector is one of the fastest growing sectors. Unlike in the 1990s when the mobile phone was an elitist product, mobile operators now tap a mass market with mass marketing techniques. "Unified licensing" rules allow basic and mobile operators into each other's territory, and have ushered in perhaps the final phase of industry consolidation.
It seems that only companies with deep pockets can effectively compete as primary operators mobile markets. Economies of scale, scope, and end-to-end presence in long-distance as well as local telecom, are desirable.
There are, besides, new challenges. Operators are having to find new growth drivers for the wire line business. There are problems of getting broadband to take off, of technology choice, of when to introduce new technologies, and of developing a viable business model in an era of convergence.
India has always been an attractive destination for international companies across the world. With its rapidly growing economy, India is making developments in all the sectors including the telecom. The telecom sector is gaining momentum with the advent of private players like Airtel, Reliance, Tata etc. in the field. Previously, telecom sector was monopolized by governmentcontrolled BSNL (Bhartiya Sanchar Nigam Limited).
Growth of Mobile Technology India has become one of the fastest growing mobile markets in the world. The mobiles ervices were commercially launched in August 1995 in India. In the initial 5-6 years the average monthly subscribers additions were around 0.05 to 0.1 million only and the total mobile subscribers base in December 2002 stood at 10.5 millions. However, after the number of proactive initiatives taken by regulator and licensor, the monthly mobile subscriber additions increased to around 2 million per month in the year 2003-04 and 2004-05.
Although mobile telephones followed the New Telecom Policy 1994, growth was tardy in the early years because of the high price of hand sets as well as the high tariff structure of mobile telephones. The New Telecom Policy in 1999, the industry heralded several pro consumer 4|Page
initiatives. Mobile subscriber additions started picking up. The number of mobile phones added throughout the country in 2003 was 16 million, followed by 22 millions in 2004, 32 million in 2005 and 65 million in 2006. The only countries with more mobile phones than India with 156.31 million mobile phones are China -408 million and USA with 170 million.
Regulatory bodies The regulatory bodies in the Indian telecom market are Telecom Commission, Department of Telecommunication, Telecom Regulatory Authority of India (TRAI) and Telecom Dispute Settlement and Appellate Tribunal (TDSAT). They are described below one by one. Telecom Commission was set up by the Government of India and has the administrative and financial powers of the government to deal with various aspects of telecommunications. The strategies followed by the Telecom Commission have not only transformed the very structure of this market but also have motivated all partners to contribute in accelerating the growth of the market. Telecom Commission: The functions of the Telecom Commission include: • Policy formulation, • Licensing, • Wireless spectrum management, • Administrative monitoring of public sector units (PSUs), • Research and development, • Standardization and validation of equipment Department of Telecommunications: has the following function: • Policy formulation, licensing and coordination of matters related to telegraphs, telephones, wireless, data, facsimile and telematic services and other like forms of communications • Granting licenses to operators for providing fixed and value added services in various cities in accordance with the policy of government • Implementing treaties and agreements with other countries • International relations in matters connected with telecommunications including matters relating to all international bodies dealing with tele-communications such as International Telecommunication Union, International Telecommunication Satellite Organization, International Mobile Satellite Organization and Asia Pacific Telecommunication
5|Page
• Promotion of standardization, and research and development in telecommunications • Promotion of private investment in telecommunications • Financial assistance for research and study in telecommunications technology to adequately train manpower • Administration of laws with respect to The Indian Telegraph Act 1885, The Indian Wireless Telegraphy Act, 1933 and The Telecom Regulatory Authority of India Act, 1997 Telecom Regulatory Authority of India (TRAI) is empowered to provide recommendations on various aspects related to the functioning of telecom service providers and to enforce the following regulatory functions: • Monitor the quality of services provided by the service providers • Protect consumer’s interest • Recommend the provision of Universal Service Obligation (USO) • Fix tariffs for various telecom services • Advise the government on - need and timing for introduction of new service providers - terms and conditions of the license
Telecom Dispute Settlement and Appellate Tribunal (TDSAT) is empowered with the following authorities: • Adjudicate on disputes - between licensor and licensee - between two or more service providers - between service provider and group of consumers • Acts as the appellate authority in respect of any directions, decisions or orders of TRAI; any appeal beyond TDSAT is only to the Supreme court
To summarize, India has set up separate bodies to deal with clearly demarcated areas of responsibility. The telecom commission has administrative and financial powers from the Government of India. The Department of Telecommunication is responsible for international activities and for the grant of licenses to telecom operators in accordance with the policy of the government. The Telecom Regulatory Authority of India is responsible for fixing tariffs for various telecom services and for protecting the interests of consumers as well as that of the suppliers. The Telecom Dispute Settlement and Appellate Tribunal is responsible for 6|Page
adjudication of disputes between the players in the market. By the operation of these bodies, both there is a sound framework and a relatively rigorous implementation of policies, which have been responsible for and continue to drive the liberalization and growth of a competitive, flourishing and growing market in India.
Policy Initiatives The government has taken many proactive initiatives to facilitate the rapid growth of the Indian telecom industry.
?
In the area of telecom equipment manufacturing and provision of IT-enabled services, 100 per cent FDI is permitted
?
No cap on the number of access providers in any service area. In 2008, 122 new Unified Access Service (UAS) licences were granted to 17 companies in 22 services areas of the country
?
Revised subscriber based criteria for allocation of Global System of Mobile Communication (GSM) and Code Division Multiple Access (CDMA) spectra were issued in January 2008
?
To provide infrastructure support for mobile services a scheme has been launched to provide support for setting up and managing 7,436 infrastructure sites spread over 500 districts in 27 states. As on December 31, 2009, about 6,956 towers had been set up under the scheme
Current Indian Telecom Market BSNL is the largest telecom company in India. BSNL and MTNL leads in the landline services while Bharati Airtel is the most important player in the cellular services. Telecom companies are facing stiff competition entering of the new players. This has led to sharp decline in the call rates and price of mobile handsets has also become cheaper. One can buy a branded handset at Rs. 1000.
Companies such as Reliance, Airtel, Tata and Idea are offering several schemes to attract consumers. Some of the schemes are call rates being Re.1 per second, making calls on the 7|Page
same network has become free or very nominal rate is charged. The monthly rentals have also decreased. Their ads are also very innovative and creative. Who can forget the Vodafone’s Zoozoo ads or Idea’s social message ads endorsed by Abhishek Bachchan? Mobile companies are also providing best offers on musical ring tones downloading wallpapers etc.
However, Indian market has still not reached to its saturation point. The telecom sector has to still make inroads in the rural areas. Companies should divert their attention to the rural areas to cater to the rural market. Government should also provide the companies secure environment so that they invest in India. This will ultimately benefit the consumers. ? India is the fourth largest telecom market in Asia after China, Japan and South Korea. ? The Indian telecom network is the eighth largest in the world and the second largest among emerging economies. ? The Indian telecom market size of over US $ 8 billion is expected to increase three fold by 2012. The expansion of the telecom industry in India has been fuelled by a massive growth in mobile phone users, which has reached a level of 10 million users in December 2002, an increase of nearly 100 per cent in 2002. ? This exponential growth of mobile telephony can be attributed to the introduction of digital cellular technology and decrease in tariffs due to competitive pressures. For the first time in India, the growth of cellular subscriber base has exceeded the fixed line subscriber base. However, cellular penetration is still 1 per cent as compared to world average of around 16 per cent.
The Indian telecommunications industry is one of the fastest growing in the world and India is projected to become the second largest telecom market globally. According to the Telecom Regulatory Authority of India (TRAI), the number of telecom subscribers in the country increased to 562.21 million in December 2009, an increase of 3.5 per cent from 543.20 million in November 2009. With this the overall teledensity (telephones per 100 people) has touched 47.89.
8|Page
According to Business Monitor International, India is currently adding 8-10 million mobile subscribers every month. It is estimated that by mid 2012, around half the country's population will own a mobile phone. This would translate into 612 million mobile subscribers, accounting for a tele density of around 51 per cent by 2012. Moreover, according to a study conducted by Nokia, the communications sector is expected to emerge as the single largest component of the country's GDP with 15.4 per cent by 2014. With the availability of the 3G spectrum, about 275 million Indian subscribers will use 3Genabled services, and the number of 3G-enabled handsets will reach close to 395 million by 2013-end, estimates the latest report by Evalueserve. According to a Frost & Sullivan industry analyst, by 2012, fixed line revenues are expected to touch US$ 12.2 billion while mobile revenues will reach US$ 39.8 billion in India. State-run telecom operator BSNL has rolled out 3G services in 318 cities with 856,000 subscribers. BSNL has plans to cross 760 cities by September 2010. And even as debate on 3G continues, TRAI has started consultation on the next level of telecom services. Fourth generation or 4G offers download at faster speeds. Telecommunication industry is mainly classified into two sub headings – voice and data. Voice service can be provided through either wire-less or wire-line. Wire-less segment is booming nowadays after investment of foreign companies. The major players in this field are Bharti, Vodafone, Reliance, BSNL etc The booming domestic telecom market has been attracting huge amounts of investment which is likely to accelerate with the entry of new players and launch of new services. According to the Department of Industrial Policy and Promotion (DIPP), the telecommunications sector which includes radio paging, mobile services and basic telephone services attracted foreign direct investment (FDI) worth US$ 2,554 million during 2009-10. The cumulative flow of FDI in the sector during April 2000 and March 2010 is US$ 8,930.61 million. Further, the Indian telecom sector is expected to witness investment of around US$ 40 billion during the current fiscal, as per the Telecom Equipment and Services Export Promotion Council. With the development of 3G, expansion of the current networks and widening of Broadband Wireless Access (BSA) network, the investment in the sector is likely to increase from the US$ 20 billion witnessed last year. 9|Page
Players in Telecom Market Bharti Airtel Airtel is providing cellular services in Delhi, Mumbai, Kolkata, Chennai, Andhra Pradesh, Gujarat, Haryana, Himachal Pradesh, Jammu and Kashmir, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Goa, Orissa, Punjab, Rajasthan, Tamil Nadu, UP and West Bengal. Airtel is the No.1 cellular service provider in India using GSM technology. Airtel has 23%market share in India with a total subscriber base of 38 million. Reliance Communications Reliance has both CDMA and GSM networks and total subscriber base of 29 million or 17%market share. It has GSM network in Assam, Bihar, Himachal Pradesh, Kolkata, North East,Madhya Pradesh, Orissa and West Bengal. Reliance has CDMA networks in other states and cities. Bharat Sanchar Nigam Limited (BSNL) BSNL is a state owned telecom company which has GSM presence in almost every cities and towns. BSNL has 27 million subscribers with a market share of 16% Tata Indicom Tata Indicom is a main CDMA provider in India with 16 million subscribers all over India. Tata Indicom has presence in almost every states and cities in India New Players ? ? ? Uninor Videocon MTS
PESTEL Analysis
A PEST analysis of the macro environment indicates that economic (a phone call being a cheaper way to stay in touch than outstation travel for example) and social factors (working outside the home town) have forced the pace of utilization of technology (Public Call Offices, mobile phones, networked companies). 10 | P a g e
Increasing customer awareness has raised expectations and vocal demands are being articulated for consumer rights; such political factors have in turn impacted the competitive environment by way of entry of private players, independent regulation, and a policy framework tilted towards a ?level playing field? for new entrants. 1. Political factor o High entry fees in 3G market
In India legal obligations are there regarding 3G auction and bidding which limits it to the existing players and not available to the new entrants this political factor forbids the entry of new companies in to 3G services. o Reduction in tariff plan
Earlier the tariff rates were higher due to high taxes, but now it has become lowest in the world by tax reforms. o Extension of license period
Government has replaced the license fees with revenue sharing scheme and extended the license period from 10 year to 20 years. A company can merge with another operator only after 3 years of receiving license. This rule can be eased to help new comapnies merge with established players.
2. Economical factor: India is one of the most vibrant and fastest growing telecom market in the world enjoys the steady growth rate of 10 million mobile users every month .India has a moderate but still a healthy growth rate which will provide a good base for new as well as existing companies to grow with growing economy. 3. Social factors: o Perception of new entrant in the market
A new brand in the Indian market it will be facing problems regarding the perception of a new entrant, this image will adversely affect the buying capacity of customers, they will think about the network, and the kind of service they will get after sale.
11 | P a g e
o
Social status
Anything customers buy that reflects their social status, people will be conscious about their social status this will affect a new company‘s growth adversely.
4. Technological factors: The business in a country is greatly influenced by the technological development. The technology adopted by the industries determines the type and quality of goods and services to be produced and the type and quality of plant and equipment to be used. A company should be aiming to come up with something new that is not been available to its competitors. SWOT Analysis Strengths ? ? ? Strong mobile growth(around 10%) , with latest technology being offered at faster pace An attractive business environment witnessed by number of foreign players entering Indian market A vast untapped rural population which needs telecom services at their fingertips Weaknesses ? ? ? Wireless business segment is growing faster than wire line and more demand is coming for pre-paid services. The falling SIM card, lower tariff plan led to lower APRU Delayed implementation of key policies because of dispute among TRAI, telecom ministry Opportunities ? ? ? All of the providers are keen to provide more content which provides great opportunity for content providers Regulator has recommended that foreign player can participate without any local partner The government will cut the license fee by 33% for those operators which has over 95% residential coverage
12 | P a g e
Threats ? ? ? ? 3 G spectrum charges are more and which will have negative impact on demand for licenses Due to price war , APRU is falling and further deterioration will lead to significant decline in top line growth Capacity constraint may hamper the expected growth in Mobile segment MNP will become reality in 2010, it will add further pressure to operator to retain the existing customer
Porter’s 5 forces model Power of Buyers (High): Lack of differentiation amongst the service providers has led to sort of commoditization of the product. A company provides the same service as others provide, this lack of differentiation gives customer an edge to bargain with service providers, they can switch to any other provider any time they want. Fierce competition among the competitors also offers a great deal to bargain. As the switching cost is also very low, all these situations are creating problems in the growth of many companies Power of Suppliers (Low): At first glance, it might look like telecom equipment suppliers have considerable bargaining power over telecom operators. Indeed, without high-tech broadband switching equipment, fiberoptic cables, and mobile handsets and billing software, telecom operators would not be able to do the job of transmitting voice and data from place to place. But there are actually a number of large equipment makers around. There are enough vendors, arguably, to dilute bargaining power. A company will have a variety of suppliers to choose from, because most of the suppliers would be eying to get the contract to be the supplier of the company.
Availability of Substitutes (High): Products and services from non-traditional telecom industries pose serious substitution threats. Cable TV and satellite operators now compete for buyers. The cable guys, with their own direct lines into homes, offer broadband internet services, and satellite links can substitute for highspeed business networking needs. The threat of the substitutes for any company is very high in 13 | P a g e
Indian market as the already existent players have a huge market share and better brand perception among the consumers, making it tough for a comapny to win the trust of its customer and increase its market share. . Threat of New Entrants (Moderate): It comes as no surprise that in the capital-intensive telecom industry the biggest barrier to entry is access to finance. To cover high fixed costs, serious contenders typically require a lot of cash. In addition, it is important to remember that solid operating skills and management experience is fairly scarce, making entry even more difficult. But still Threat of new entrants is always there for any company.
Competitive Rivalry (High): Competition is "cut throat". The wave of industry deregulation together with the receptive capital markets paved the way for a rush of new entrants. New technology is prompting a raft of substitute services. Nearly everybody already pays for phone services, so all competitors now must lure customers with lower prices and more exciting services. This tends to drive industry profitability down. In addition to low profits, the telecom industry suffers from high exit barriers, mainly due to its specialized equipment. A new company will face a cut throat competition from its well established competitors
14 | P a g e
RECOMMENDATIONS FOR THE BOARD OF AVG “What is of the greatest importance in war is extraordinary speed: One cannot afford to neglect opportunity...” – Sun Tzu
Positioning of AVG To enter the Indian Telecom market, instead of concentrating on the basic services like calling, AVG should focus on value added services, based on 4G technology. Some of the services that AVG can offer are: •Content rich applications •Youth: Gaming Zones, videos and music based applications •Business: Office based applications •Students: Education based applications, like study material
Modes of entry
•JVs and Alliances: There have been new entrants in the Indian Telecom market, like Videocon, Uninor, Loop, etc. These players are yet to get any foothold in the market, as they are still unable to have a differentiated position. Combined with the differentiated strategy of AVG, these companies will be able to better penetrate the market. •Licensing: The country has been divided into 23 territorial service areas called circles for the purposes of telecom operations and to operate in each of this circle, the operator has to obtain a licence. The licence for operations involves allocation of spectrum for the companies to operate. There has been a recent allotment of the spectrum for 3G operations. Since, the spectrum bandwidth is narrow, the possibility of a re-issue is grim. The probability of purchasing licenses 15 | P a g e
from new entrants like Etisalat or Escotel is low, as they are big telecom companies and might not be willing to part with their prestigious licenses. •Acquiring an existing operator: Purchasing an existing operator has a high risk. It requires a huge investment, in buying that company. Possibility of buying leaders such as Airtel, Vodaphone and Reliance is grim. Companies such as Uninor or Sistema can be bought, but as they are not doing well, it would require a major repositioning strategy, which involves high risk.
Business Strategy Using strategic clock, AVG can take the following competitive strategy options: •Differentiation without price premium: AVG can offer basic 4G services like faster email access, net surfing, GPRS, etc. •Differentiation with price premium (focused differentiation): Specialized products, e.g. applications for business users, content rich applications for the youth, etc. Should be offered at a premium rate by AVG.
Fig: Strategy Clock 16 | P a g e
Corporate Plan
Entry Strategy
This section defines the entry strategy of ACG into Telecom Sector. The sector is has a long term growth especially in a country like India which is the 2nd highest growing market in the telecom sector worldwide after China. The strategic moves for AVG to enter Telecom would require AVG to tackle government regulations, competition, new movers, customers. With 14 different telecom service providers, AVG should have a unique strategy to enter an over – crowded fragmented market. Strategic Intent The Intended Strategy for AVG to enter telecom is to look for long term gains. The Strategic Intent for the organization would be to among the industry leaders and achieve a cost effective leader passing the gains to the consumers in terms of lower price. Focus AVG should follow a strategy to have a regional focus like Idea rather than have a national focus at one go like Videocon. AVG should focus on the ever expanding rural market with a rural teledensity of less than 20% currently. Thus there is huge opportunity in rural teledensity in India. Customer Acquisition AVG should focus to Tap into already disgruntled customers with the MNP in the urban market and acquire new customers in the rural market with the coming of affordable rural specific phones.
Strategy Development
17 | P a g e
Entry Strategy for Telecom Sector with Advantages and Disadvantages Technology Acquisition/Transfer/Creation There are two ways for AVG to tackle technology by acquiring or getting it transferred. Technology transfer is the strategy followed by the all new players. Eg Tata Docomo, Uninor etc. Also in order to be cost effective, AVG would need to follow the famous factory model of Bharti Airtel. Strategic Tie Ups AVG needs to make strategic alliances with handset makers especially the low cost ones to tap into the rural market. 18 | P a g e
Also in order to acquire a market and mind share, AVG would need to change the rules of the game as Tata Docomo did with its pay per second scheme.
Strategy Implementation
Managing technology and Resources ? With ever changing Technology(2G,3G,4G-anytime soon) in the Industry, there is a need to be efficient in learning and managing new technology ? Strategic Plans and moves to tap customers towards new technology adoption to overcome the chasm. Eg: BSNL 3G, Idea MNP, Docomo 3G ? Spectrum ? Infrastruture.
Vision
By 2015 we will be the most loved brand, enriching the lives of millions. " Enriching lives means putting the customer at the heart of everything we do. We will meet their needs based on our deep understanding of their ambitions, wherever they are. By having this focus we will enrich our own lives and those of our other key stakeholders. Only then will we be thought of as exciting, innovation, on their side and a truly world class company."
Organizational Structure
As an outcome of a restructuring exercise conducted within the company; a new integrated organizational structure has emerged; with realigned roles, responsibilities and reporting relationships of Bharti’s key team players. With effect from March 01, 2006, this unified management structure of 'One Airtel' aims at enabling continued improvement in the delivery of the Group’s strategic vision.
19 | P a g e
The organizational structure proposed should be a hybrid of the Functional and Multidivisional Structure.
Functional Structure • Finance • HR • Legal & Regulatory • IT • Internal Assurance • Supply Chain
Multidivisional Structure • Enterprise Services • DTH Services • Mobile services • Telemedia Services
This has allowed the company to benefit from the advantages of both the structures like • High Control • Clear definition of responsibilities • Flexibility • Ownership of strategy • Specialization of competences The present structure seems to be give Bharti Airtel a strong foundation to meet the challenges the telecom industry may have to face in future.
20 | P a g e
Marketing Strategies
Service innovation in Mobile Value Added Services (MVAS)
Imagine a situation: An Indian trader, dealing with red chillies, uses a mobile application that gives a minute-by-minute comparison of the domestic prices of chillies with those of Chicago trade board. He then decides whether to export the chillies or sell them in the domestic markets. Service innovation is the key facilitator towards driving higher ARPU levels. These innovation phases are captured in the Service Innovation Curve (SIC).
Phase of ebullience
It is characterized by the public perception of value arising out of pure speculations and promises of MVAS. Services will be launched after significant promotion in press and industry bodies. Launching of new products and brands will be the key priority for the marketers as they will aim to maximize the impact of the mass media hype. The innovation methods by service providers will focus on the excitement generated among the customers.
21 | P a g e
Skimming will be followed as a pricing strategy whereby the marketers will set higher price points for the services. It will help the firm to recover sunk costs before competition crowds the market. Even if 5-15% of the user base adopts MVAS at this stage, the capital expenditure will be recovered to a reasonable extent due to high premium in pricing.
Marketing Focus
• Increase brand awareness • Customer community participation • Need creation
Pricing of VAS
• Flat rates including premium • Contractual subscription
Revenue Sharing (as • Content creators: 15% a % of total revenue • Content aggregators: 15% • Telecom service providers: 70% from MVAS)
Disenchantment Phase
This phase will be dominated by customer realization of the inadequacies associated with the MVAS offerings. MVAS providers will recognize the chasm in the ‘service innovation’ front. They realise that this chasm is due to their extended focus in the marketing of the MVAS offerings. The visibility and the hype for MVAS will decrease as the services will be construed as a bunch of inflated or exaggerated promises. There will be a growing discontent among customers as the high price points will not justify the utility of the delivered services. The key dictates in this phase will be similar to those of the ebullience phase, the difference being the lacking intensity in the marketing focus and a slight increase in the revenue share of content creators and content aggregators.
Radical Innovation Phase
This phase will mark the radical strategies by MVAS providers to regain their lost market shares and customer confidence. The radical strategies will be aimed towards disrupting the dynamics of the market and they will be complemented by parallel efforts to work on the feedback of the
22 | P a g e
end customer. The biggest facilitator will be the mobile advertising platform. It will effectuate response-based media advertising whereby customers will be targeted on a personalised and nonintrusive basis. The marketers will reach out to the customer and proactively engage him/her in the design and deployment stages of innovation.
Marketing Focus
• Increase customer retention • Acquire new customers • Voice of customer programs
Pricing of VAS
• Advertisement funded calls • Home zone pricing • Unlimited voice calls / data usage • Choice between cheaper tariffs and subsidies • Lifetime subscriptions
Revenue Sharing (as a % of total revenue from MVAS)
• Content creators: 20% • Content aggregators: 30% • Telecom service providers: 50%
Incremental innovation
Based on a self-competency assessment, VAS players will realize that their service basket is seemingly incompetent to suffice the entire needs of the customer. This stage will embark identification of collaborative growth opportunities by telecom service providers and greater efforts to reconcile the VAS poviders’ competency with the collaborator’s resources pace. As a result, there will be several content creators and content aggregators displaying varying degrees of collective innovation. The telecom service providers will infuse greater flexibility in their scalable technical architectures and greater efficiency in their customer orientation.
23 | P a g e
Marketing Focus
• Improve marketing ROI • Increase customer lifetime value • Integrate communications • Ethnographical studies on customer personas • Customer advisory boards
Pricing of VAS
• Charging by traffic volumes • Charging by call durations using low pulse • Differential pricing for data unit transmissions
Revenue Sharing (as a % of total revenue from MVAS)
• Content creators: 30% • Content aggregators: 35% • Telecom service providers: 35%
Value innovation phase
This phase will mark a reinvigorated paradigm where the service providers will place equal emphasis on both value and innovation. Innovation will be aligned with utility, cost and price positions and MVAS providers will explore new business opportunities. Competition will not be a parameter for consideration during strategy formulation. The traditional sources of competitive advantage such as access to capital, physical location or raw materials will become hygiene factors. There will be stringent regulations and guidelines for MVAS, effectuating the distribution of standalone VAS through retail channels without being linked to a service provider. The VAS will be transferred using bluetooth, activated using memory cards or any newer channels. Once service innovation in MVAS reaches the plateau of Value Innovation, each MVAS provider will accentuate its respective uncontested market space. The innovation focus will take a 360 degree turn whereby there will be an extensive reversal towards internal business processes. The internal focus will complement the external focus and ensure a perfect
24 | P a g e
alignment of the service offerings with the intuitive needs of the customer. Hence, innovation will assume a visceral form between demand and supply. This explains the absence of a dip in the Service Innovation Curve in this stage.
Marketing Focus
• Targeting at individual levels • Personalization
Pricing of VAS
• Customized plans • Tailored pricing
Revenue Sharing (as • Content creators: 45% a % of total revenue • Content aggregators: 40% • Telecom service providers: 15% from MVAS)
25 | P a g e
The trends that will influence the collaboration among individuals and enterprises are: ? ? ? Ubiquitous connectivity in quadruple-play (voice, data and video on mobile) service offerings Omnipresent access to computing at minimal costs through innovative delivery models and platforms Vibrant platforms for social networking addressing the personal and professional needs
Positioning of MVAS on the Service Innovation Curve
The positioning of a particular MVAS is guided by the innate focus on service innovation. This focus will radically differ across countries as ethnocentric understanding will be a key input to service innovation. As a result, the same MVAS may have different positioning on the SIC across different countries. For example, innovation within a gaming MVAS having hand-painted, textured and stylized avatars may sluggishly rise through the stage of ebullience in South Korea as compared to India.
26 | P a g e
Mikoishi’s real time strategy mobile gaming: South Korea is the market leader when it comes
to gaming hardware, handsets and bandwidth. Currently, Mikoishi is making greater efforts in brand awareness and using flat and contractual methods of pricing for this gaming service.
Voice SMS in India: There is a growing realisation that voice SMS is similar to voice mail. It has
been packaged differently so that we have an old wine in a new bottle. Thus, the service is entering a phase of radical innovation, wherein the offerings need to be aligned to address the needs of the masses or face obsolescence.
Caller Ring Back Tunes (CRBT), India: The mobile subscriber base in India had welcomed
CRBTs with awe and admiration. However, the exclusivity and relevance of the service has lost its steam with time. The operators are currently piloting innovative measures like ad-funded CRBTs. The service is slated to face obsolescence unless a radical innovation facilitates the turnaround.
27 | P a g e
Alokito tele-medicine initiative, Bangladesh: Ericsson’s Alokito Bangladesh project brought
high-speed, Internet-enabled mobile health care to the districts of Dhaka. It has been positioned at the phase of incremental innovation as the diseases covered under the initiative have increased with time. District wide disease surveillance and control have also been accentuated along with collection of basic health data in remote areas.
Financials New Telecom Policy 1999
The most important milestone and instrument of telecom reforms in India is the New Telecom Policy 1999 (NTP 99). The New Telecom Policy, 1999 (NTP-99) was approved on 26th March 1999, to become effective from 1st April 1999. NTP-99 laid down a clear roadmap for future reforms, contemplating the opening up of all the segments of the telecom sector for private sector participation. It clearly recognized the need for strengthening the regulatory regime as well as restructuring the departmental telecom services to that of a public sector corporation so as to separate the licensing and policy functions of the Government from that of being an operator. It also recognized the need for resolving the prevailing problems faced by the operators so as to restore their confidence and improve the investment climate. Key features of the NTP 99 include: · · · · Strengthening of Regulator. National long distance services opened to private operators. International Long Distance Services opened to private sectors. Private telecom operators licensed on a revenue sharing basis, plus a one-time entry fee. Resolution of problems of existing operators envisaged. · Direct interconnectivity and sharing of network with other telecom operators within the service area was permitted.
28 | P a g e
· ·
Department of Telecommunication Services (DTS) corporatised in 2000. Spectrum Management made transparent and more efficient.
All the commitments made under NTP 99 have been fulfilled; each one of them, in letter and spirit, some even ahead of schedule, and the reform process is now complete with all the sectors in telecommunications opened for private competition. National Long Distance National Long Distance opened for private participation. The Government announced on 13.08.2000 the guidelines for entry of private sector in National Long Distance Services without any restriction on the number of operators. The DOT guidelines of license for the National Long Distance operations were also issued. Highlights - NLD Guidelines · · Unlimited entry for carrying both inter-circle and intra-circle calls. Total foreign equity (including equity of NRIs and international funding agencies) must not exceed 74%. Promoters must have a combined net worth of Rs.25 million. · Private operators will have to enter into an arrangement with fixed-service providers within a circle for traffic between long-distance and short-distance charging centres. · Seven years time frame set for rollout of network, spread over four phases. Any shortfall in network coverage would result in encashment and forfeiture of bank guarantee of that phase. · Private operators to pay one-time entry fee of Rs.25 million plus a Financial Bank Guarantee (FBG) of Rs.200 million. The revenue sharing agreement would be to the extent of 6%. · Private operators allowed to set up landing facilities that access submarine cables and use excess bandwidth available.
29 | P a g e
·
Licence period would be for 20 years and extendable by 10 years.
International Long Distance In the field of international telephony, India had agreed under the GATS to review its opening up in 2004. However, open competition in this sector was allowed with effect from April 2002 itself. There is now no limit on the number of service providers in this sector. The licence for ILD service is issued initially for a period of 20 years, with automatic extension of the licence by a period of 5 years. The applicant company pays one-time non-refundable entry fee of Rs.25 million plus a bank guarantee of Rs.250 million, which will be released on fulfillment of the roll out obligations. The annual licence fee including USO contribution is @ 6% of the Adjusted Gross Revenue and the fee/royalty for the use of spectrum and possession of wireless telegraphy equipment are payable separately. At present 24 ILD service providers (22 Private and 2 Public Sector Undertaking) are there. As per current roll out obligations under ILD license, the licensee undertakes to fulfill the minimum network roll out obligations for installing at least one Gateway Switch having appropriate interconnections with at least one National Long Distance service licensee. There is no bar in setting up of Point of Presence (PoP) or Gateway switches in remaining location of Level I Tax’s. Preferably, these PoPs should conform to Open Network Architecture (ONA) i.e. should be based on internationally accepted standards to ensure seamless working with other Carrier’s Network. Unified Access Services Unified access license regime was introduced in November’2003. Unified Access Services operators are free to provide, within their area of operation, services, which cover collection, carriage, transmission and delivery of voice and/or non-voice messages over Licensee’s network by deploying circuit, and/or packet switched equipment. Further, the Licensee can also provide Voice Mail, Audiotex services, Video Conferencing, Videotex, E-Mail, Closed User Group (CUG) as Value Added Services over its network to the subscribers falling within its service area on non-discriminatory basis. The country is divided into 23 Service Areas consisting of 19 Telecom Circle and 4 Metro Service Areas for providing Unified Access Services (UAS). The licence for Unified Access Services is issued on non-exclusive basis, for a period of 20 years,
30 | P a g e
extendable by 10 years at one time within the territorial jurisdiction of a licensed Service Area. The licence Fee is 10%, 8% & 6% of Adjusted Gross Revenue (AGR) for Metro and Category `A’, Category `B’ and Category `C’ Service Areas, respectively. Revenue and the fee/royalty for the use of spectrum and possession of wireless telegraphy equipment are payable separately. The frequencies are assigned by WPC wing of the Department of Telecommunications from the frequency bands earmarked in the applicable National Frequency Allocation Plan and in coordination with various users subject to availability of scarce spectrum.
Internet Service Providers (ISPs) Internet service was opened for private participation in 1998 with a view to encourage growth of Internet and increase its penetration. The sector has seen tremendous technological advancement for a period of time and has necessitated taking steps to facilitate technological ingenuity and provision of various services. The Government in the public interest in general, and consumer interest in particular, and for proper conduct of telegraph and telecom services has decided to issue the new guidelines for grant of licence of Internet services on non-exclusive basis. Any Indian company with a maximum foreign equity of 74% is eligible for grant of licence. 2 G Licensing costs It has been fixed at 1660 crore rupees in 1999 and is subjected to revision. License is valid for 5 years 3 G Services 3 G services auction has been finished in September 2010 and pan India license costs US $3.6 billion and there has been no pan India buyer BWA Licensing Costs
31 | P a g e
Breakdown of Winning Bids Infotel Qualcomm Bharti Delhi Mumbai Maharashtra Gujarat Andhra Pradesh Karnataka 2241.02 2292.95 915.64 613.85 2241.02 2292.95 915.64 613.85 Tikona Aircel Augere
1059.12
1059.12
1543.25
1543.25 2069.45 523.2 258.67 332.27 119.9
Tamil Nadu 2069.45 Kolata Kerala Punjab Haryana Utter Pradesh (E) Utter Pradesh 523.2 258.67 332.27 119.9
142.5
142.5
183.87
183.87
32 | P a g e
(W) Rajasthan Madhya Pradesh West Bengal Himachal Pradesh Bihar Orissa Assam North East Jammu & Kashmir 97.32 97.32
124.66
124.66
70.97
70.97
20.66
20.66
99.28 63.63 33.02 21.27
99.28 63.63 33.02 21.27
21.27
21.27
Rs Crore US Dollar
12847.77 $2.74bn
4912.54
3314.36
1058.2
3438.01
124.66
$1.05bn $706.3mn $225.5mn $732.64mn $26.57mn
33 | P a g e
Other costs
The other costs details has been calculated by examining Airtel outsourcing deals and are subjected to rise
The costs are Service delivery costs which includes cost for call centres: US $20 million per year IT costs which is around US $ 70 million per year Infrastructure costs which is around US$350 million each year Besides there are additional promotion costs and marketing expenses which can reach 100 million dollars
Foreign Direct Investment (FDI)
· In Basic, Cellular Mobile, Paging and Value Added Service, and Global Mobile Personal Communications by Satellite, Composite FDI permitted is 74% (49% under automatic route) subject to grant of license from Department of Telecommunications subject to security and license conditions. (para 5.38.1 to 5.38.4 of consolidate FDI Policy circular 1/2010 of DIPP) FDI upto 74% (49% under automatic route) is also permitted for the following: · . · Radio Paging Service Internet Service Providers (ISP's)
·
FDI upto 100% permitted in respect of the following telecom services: · · · Infrastructure Providers providing dark fibre (IP Category I); Electronic Mail; and Voice Mail
34 | P a g e
Subject to the conditions that such companies would divest 26% of their equity in favor of Indian public in 5 years, if these companies were listed in other parts of the world. · · In telecom manufacturing sector 100% FDI is permitted under automatic route. The Government has modified method of calculation of Direct and Indirect Foreign Investment in sector with caps (para 4.1 of consolidate FDI Policy circular 1/2010 of DIPP) and have also issued guidelines on downstream investment by Indian Companies. (para 4.6 of consolidate FDI Policy circular 1/2010 of DIPP) Guidelines for transfer of ownership or control of Indian companies in sectors with caps from resident Indian citizens to non-resident entities have been issued (para 4.2.3 of consolidate FDI Policy circular 1/2010 of DIPP)
·
Investment Opportunities and Incentives An attractive trade and investment policy and lucrative incentives for foreign collaborations have made India one of the world’s most attractive markets for the telecom equipment suppliers and service providers. · No industrial license required for setting up manufacturing units for telecom equipment. 100% Foreign Direct Investment (FDI) is allowed through automatic route for manufacturing of telecom equipments. Payments for royalty, lump sum fee for transfer of technology and payments for use of trademark/brand name on the automatic route. Foreign equity of 74% (49 % under automatic route) permitted for telecom services basic, cellular mobile, paging, value added services, NLD, ILD, ISPs - and global mobile personal communications by satellite. Full reparability of dividend income and capital invested in the telecom sector.
·
·
·
35 | P a g e
REFERENCES ? ? ? Telecommunication Services, Indian Industry: A Monthly Review, CMIE – November 2008 Telecommunication Sector Report – March 2008, CRISIL The Indian Telecom Success Story (2009), Report submitted at India Telecom 2009. KPMG, DOT & FICCI
Websites ? http://www.airtel.in/wps/wcm/connect/about+bharti+airtel/Bharti+Airtel/About+Bharti+Airt el/ ? ? http://www.ibef.org/artdispview.aspx?in=72&art_id=26434&cat_id=470&page=3 http://www.reportbuyer.com/telecoms/country_overviews_telecommunications/indian_tel ecom_analysis_2008_2012.html ? http://www.2012-doomsday-predictions.com/17747/growth-opportunities-in-indiantelecom-market/ ? ? http://en.wikipedia.org/wiki/Bharti_Airtel www.som.iitb.ac.in/live/L!VE_March2010.pdf
36 | P a g e
doc_799983198.docx