Another spectacular year for telecom industry

NEW DELHI, INDIA: Despite overall showdown and hiccups in allocation of spectrum to new and existing players, the Indian telecom industry had an awesome run in 2009, adding some 170 million phone connections to take the subscriber base to nearly 550 million.

In the process, the country's tele-density went up to an impressive 46.32 per cent at the end of November, against 32.34 per cent a year ago, with the potential still bright in the hinterland where penetration remains relatively low.

"It is indeed a matter of great satisfaction that the Indian telecom industry continued to grow even when most other sectors grappled with a demand slowdown," said T.R. Dua, deputy director general of Cellular Operators Association of India (COAI).

"But we need to ensure this growth is sustainable. At present, the industry is operating in an environment where it is burdened with a very high cost structure on one hand and offering the lowest tariffs in the world on the other," Dua told IANS.

Industry experts attributed this phenomenal growth in telecom connections to the sharp drop in call rates, where operators even offered per-second billing at just half a paisa, unimaginable a decade ago.

The last time such tariff cuts were witnessed was in 2002 when incoming calls were made free.

"We scaled the target of 500 million telephone connections in September 2009, much ahead of the scheduled time of December 2010," Communications Minister A. Raja said, adding that the sector contributed 5.6 per cent to the country's gross domestic product (GDP).

Thus, the total phone connections in India as on Nov 30 stood at 543.2 million, as opposed to 374.13 million Nov 30 last year -- an addition of 169.07 million during the 12-month period at an average of over 14 million new connections a month.

"A major reason for this growth has been the pricing. Right now telecom players are trying to outsmart each other by pricing and not using innovative solutions to market themselves," said Romal Shetty, head of telecom business at consultancy KPMG.

"A lot of Indians also use mobile phones for conducting trade, which means if the economy grows at 9-10 per cent, the telecom subscriber base will continue to grow as more people will be able to use the mobile phone to trade," Shetty told IANS.

In fact, the telecom sector has been a major enabler of economic growth.

A study by the Indian Council for Research on International Economic Relations (Icrier) shows that states with higher mobile penetration are expected to grow faster, with the growth rate being 1.2 per centage points higher for every 10 per cent increase in mobile penetration.

But the year did not pass without setbacks for the telecom industry, even though India managed to consolidate its position of having the world's second largest mobile phone network behind China, after easing out the US last year.

As policymakers struggled to go ahead with auction of frequencies for start of third generation telecom services among private players, controversies continued to frustrate the issue of allocating spectrum.

Third generation telephony services allow faster connectivity than what is available now, and will enable applications like Internet TV, video-on-demand, audio-video calls and high-speed data exchange.

Now the industry sees a ray of hope as the government hopes to start the process of allocating spectrum early next year to enable yet another revolution in the country's telecom industry, enabling much-faster data communications.

"Auction of spectrum will immediately make the delivery of faster data products and services possible. The use of mobile broadband services and applications will also pick up as and when the market demands the service," said Dua.

The year also saw India's largest mobile telecom player Bharti Airtel nearly ink a deal with South Africa's MTN in what was a reflection of the growing maturity of the country's telecom industry.

Even Prime Minister Manmohan Singh had intervened to see it through.

The deal, worth some $24 billion in cash and equity, had called for Bharti to get 49-per cent stake in MTN, and the South African firm and its shareholders 36 per cent equity in the Indian telecom major.

But the deal got stuck because of the different policies followed by the two countries.

The South African government was pushing for a dual listing since it would have allowed MTN to retain its national character. But the Indian authorities baulked, saying that would be tantamount to convertibility of the rupee.

Had the deal gone through, the combined Bharti-MTN entity would have been the third largest mobile phone company in the world, behind China Mobile and Vodafone Group, with a subscription base of 207 million.

The year also saw the telecom sector continue to attract significant foreign investment, pegged at over $2 billion between April 1 and Sep 30.

As the country enters the New Year, the focus is likely to shift from urban areas, where the telecom penetration is over 100 per cent, to the hinterland, which was once thought of as a highly cost-ineffective market.

"Consistent efforts both by the government and industry helped in reducing the high imbalance of rural-urban divide ratio from 1:10 to 1:5 in a short span of three years and the rural tele-density jumped from 4.5 per cent to 19 per cent," said minister Raja.

"The private sector has started participating in rural sector in a much bigger way and accounts for 80 per cent of the market. Their continued participation will help us achieve the target of 40 per cent rural tele-density well before the set timeline of 2014."

©IANS