mpowering india 2011

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Foreword

The Indian telecom sector has emerged as a strong growth engine or the Indianeconomy in the last decade, with the country witnessing a voice revolution. Theupcoming decade will usher in an inormation era through Mobile Value-Added

Services (MVAS).

MVAS has assumed vast signicance in recent times due to the rapid growthin wireless subscriber base, the ocus on data services and the increase inthe uptake o 3G. Consequently, the mobile phone has transormed into apersuasive medium to deliver inormation services spanning various usageareas such as governance, commerce, agriculture, education and health.This, coupled with the sheer pervasiveness o mobile telephony(865.71 million subscribers as o August 2011), is contributing to a moreinclusive and better empowered nation.

A conducive regulatory environment, the ocus on India’s untappedrural sector, enhanced quality o services, better technology andincreasingly aordable devices are imperative or MVAS to be able toempower each and every citizen o India – both rural as well as urban.Not only will these services lead to improved inormation access orsubscribers, but they will also open up new and alternative revenuestreams or service providers.

On the occasion o India Telecom 2011, the 6th InternationalConerence and Exhibition, the Department oTelecommunications takes immense pleasure in releasing this

report titled ‘m-Powering India’. Developed by KPMG in Indiaand FICCI, the report explores how mobile telephony is leadingto empowerment in the nation against the backdrop o theoverall telecom sector. This report is expected to serve as a

useul reerence manual or all stakeholders.

R. Chandrashekar Secretary

Department o Telecommunications

Ministry o Communications & ITGovernment o IndiaNew Delhi



The Federation o Indian Chambers o Commerce and Industry (FICCI) and KPMG, in association with the Department oTelecommunications, are proud to present the report ‘India Telecom 2011 – m-Powering India’.

This report ocuses on the uture o MVAS in India and its role in empowering the nation. These services will digitally transormthe nation and help oster inclusive growth. The report highlights the key m-services such as m-banking, m-education,m-governance, m-health, m-agriculture, etc., and draws out their growth drivers and challenges. It also outlines the evolvingecosystem and steps undertaken to create a win-win ecosystem or the stakeholders. The report underlines the key rolethat equipment manuacturing and inrastructure development will play in making MVAS another exemplary chapter in thesuccessul Indian telecom growth story.

The report highlights the investment opportunities and potential in the Indian telecom sector. The report also provides thereader an insight into the evolution o the telecom industry over the last decade.

We extend our deep gratitude to the DoT or providing us an opportunity to work with them or the India Telecom 2011 event.

Dr. Rajiv Kumar

Secretary GeneralFICCI

Sean Collins

Global ChairKPMG Communications and

Media Practice

Romal Shetty

Partner and Head,TelecomKPMG in India

Jaideep Ghosh

Partner, Management ConsultingKPMG in India



CONTENTS

TABLE OF

Growing and Empowered India – A Macro View 03

The Global Telecom Market – USD 2 Trillion and Still Growing 13

The Indian Telecom Market – On the Cusp o an Inormation Revolution 21

Wireless Communication – The Key to Connecting India 31

m-Powering India – Inclusive Growth through the Mobile Phone 41

M-Banking – The Killer Application or m-Powerment 49

Other Innovative Mobile Services Leading to Empowerment 61

Technology and Inrastructure – The Basic Enablers o Empowerment 69

Delivering m-Powerment through a Win-Win Ecosystem 75

Telecom Manuacturing – Enabling Sustainable Growth 81

Telecom Research and Development 89

Investment Opportunities in the Indian Telecom Sector 93

Regulatory and Policy Environment 101

International Best Practices in Creating Successul

m-Powerment Services 109

Conclusion 115



1 | m-POWERING INDIA - INDIA TELECOM 2011

EXECUTIVE

SUMMARYIndia’s incredible growth story ismaniested in the country’s sustainedperormance to become the ourth-largest economy in the world byPurchasing Power Parity (PPP), ater the

US, China and Japan. A strong domesticdemand and infow o investmentshave been the driving actors behindthis phenomenal economic growth.Also, while growth in most o the Asianeconomies, such as China, Thailandand Malaysia, has been driven by themanuacturing sector, growth in Indiahas been driven by the services sector.The vitality o the telecom sector tothe country is implicit rom its ever-increasing contribution to India’s GDP

(increased to three percent in 2010 rom1.6 percent in 2006).

The last decade can be rightly calledthe decade o the voice revolution. Thetotal telecom subscriber base, includingwireless and wireline subscribers,reached 899.8 million in August 2011rom 41 million in 2000. The totalteledensity in India reached 74.9 percentin August 2011 – a growth o 15.3

percentage points over the precedingyear. Even ater this strong rise inteledensity, the Indian telecom marketis ar rom saturated. A large part o thecountry’s population base, primarily

in the rural areas, still does not haveaccess to quality telecommunicationsservices, and thereore presentsignicant opportunities or growth.

The Indian mobile market is stilllargely a voice market. Data revenueaccounted or about 15 percent o thetotal mobile revenue in March 2011, asagainst close to 30 percent in China andthe UK. However, data is undeniablygoing to be the key driver o the Indianmobile market in the years to come.

The year 2010 was a landmark year inthe history o the Indian telecom sectorwith the auction and allocation o 3Gand Broadband Wireless Access (BWA)spectrum blocks. With the advent obetter networks, India now stands atthe cusp o another revolution – theinormation revolution.

Mobile Value Added Services (MVAS) isbecoming an integral and indispensiblepart o the telecom industry valuechain. The MVAS market is expected toincrease rom INR 122 billion in 2010

to INR 482 billion by 2015, driven bythe uptake o 3G services in urban aswell as in rural areas. It is expectedto change the dynamics o the Indiantelecom sector by empowering userson one hand and providing signicantcommercial opportunities or all serviceproviders across the value chain, on theother. Some o the services expected tomake an impact on the Indian telecommarket are listed here:



m-POWERING INDIA - INDIA TELECOM 2011 | 2

m-Banking

The Indian banking sector has grown signicantly over the years with strong undamentals; however,as per estimates rom the Reserve Bank o India, about 40 percent o the Indian population still lacksaccess to ormal nancial institutions and thereore, is largely unbanked. Mobile phones have thepotential to deliver nancial services to this unbanked population in the orm o m-banking. Driven byprogressive banking regulations by the government, m-banking services are picking up in India, with707,496 m-banking transactions or INR 616.1 million being reported in February 2011.

m-Education

Quality education is crucial to create a skilled workorce and thereore is a pre-requisite to the Indiagrowth story. In order to increase the accessibility o the Indian rural population to aordable basiceducation, the Government o India, along with private education players, has planned to leveragewireless technology and oer m-education services, such as basic education lessons, exam tips andresult alerts.

m-Governance

Eective governance can increase the country’s productivity and thereore its competitiveness.In a country as populous and diverse as India, delivering good governance services can be quite achallenge. Basic governance services delivered through the mobile phone can help governmentsdeliver public services in an inclusive manner. The sheer reach o mobile phones, coupled with theinnovative potential o mobile applications, is making m-governance a cornerstone o various stategovernment schemes.

m-Health

India needs to build a robust healthcare system or its growing population. m-Health – the useo mobile devices in collecting health data, delivering healthcare inormation to practitioners,researchers and patients, real-time monitoring o patients, and direct provision o care – is expectedto contribute signicantly in providing basic healthcare services to the remotest parts o the country.

m-Agriculture

With over 50 percent o the Indian workorce engaged in agriculture, agricultural growth playsa pivotal role in the overall economic health o the nation. In order to enable aster growth othe agricultural sector, wireless technology can be leveraged to disseminate vital inormation toarmers. This can include basic inormation such as weather orecast and crop advisory and also

complex machine-to-machine automation services that increase arm productivity. Along withacilitating inormation access, m-Agriculture is also expected to play a prominent role in overcominginrastructure constraints and supply chain ineciencies in the agricultural sector.

Location-basedservices (LBS)

Location-based services delivered through the mobile phone hold signicant potential oempowerment. These services use knowledge o the geographical position o a mobile device togenerate useul inormation or the subscriber and the service provider alike. Navigation assistance,emergency or disaster relie, social networking and map assistance are some examples o location-based services which benet subscribers.

Machine-to-Machine (M2M)

applications

Machine-to-machine (M2M) communication, comprising services such as feet management, smartmetering, agro and irrigation monitoring, etc., have the potential to unleash signicant eciencygains across urban and rural markets cutting across the customer and enterprise segments.

Although in a nascent stage in India, these services are expected to orm a part o the inormationrevolution o the upcoming decade.

Technology and inrastructure are the basic enablers o MVAS. There is a need to work towardscreating a collaborative ecosystem comprising all stakeholders – regulators, industry players and endusers – through which the mobile phone can become the preerred platorm or promoting socio-economic development o the country. There is also a need to ocus on domestic telecom equipmentmanuacturing and to invest continuously in R&D to oster innovation. With these prerequisites inplace, the digital inrastructure created by the mobile phone can address the various gaps in physicalinrastructure and drive inclusive growth.



CHAPTER 1

Growing andEmpowered India

A Macro View




The India growth storyIndia’s economic growth has been atremendous growth story. Driven by thedomestic reorm measures adopted inthe 1980s and the 1990s, India has beenon an upward economic growth pathor the last three decades. However,a marked acceleration in growth wasonly witnessed rom 2003-04 onward.During the ve years preceding theglobal nancial crisis in 2008, India’s

economy grew at an annual averagegrowth rate o 8.9 percent1 to becomethe second-astest growing economy inthe world ater China. It is currently theourth-largest economy in the world byPurchasing Power Parity (PPP), ater theUS, China and Japan.2

India’s capacity or strong economicgrowth and resilience was best

showcased during the global nancial

meltdown in 2008-09, when growthplunged to 6.8 percent, only to returnto the pre-crisis growth levels withina year. The Indian economy posted agrowth o 8 percent and 8.5 percent inthe subsequent two years, respectively.Furthermore, in the current scal,growth is expected to remain withinthe range o 8 percent to 8.5 percent,despite infationary concerns.3


Average decadal growth o GDP (%)

Source: CSO, KPMG Analysis

GDP annual growth (%) (2001-12F)

1 CSO, Summary o macro economic aggregates at current prices, 1950-51 to 2008-09; KPMG Analysis

2 CIA, World Fact Book, 2010

3 CSO, National Accounts Statistics, Press Releases, May 2011

Recessionary

plunge

Quick

return



Key growth driversIndia’s growth story has largely beendriven by domestic demand andinvestment. The gradual but steadyliberalisation o government policiessince 1991 has created conditions or asustained investment boom, a buoyantinternational economic environmentand a rapidly expanding services sector.Along with the usual demand side andsupply side drivers, India also owes this

growth to a certain set o sector-specicdrivers, as some sectors, such as thetelecom and IT sectors, have distinctlycontributed signicantly to the country’sgrowth.

Demand-side drivers

On the demand side, increasinginvestment has been the principaldriver o growth since 2003-04. Thecontribution o investment to GDPgrowth was 33.6 percent during1998-99 to 2002-03 and increasedto a remarkably high level o 58percent during 2003-04 to 2007-08.4

Accordingly, the investment rate(investment-to-GDP ratio) increasedrom 27.6 percent in 2003-04 to around36 percent in 2010-11.5

Such strong undamentals have resultedin growing cross-border interest in

the country, leading to a growingmomentum in FDI infow rom 2003-04onward. FDI infow increased rom USD4 billion in 2003-04 to a whopping USD38.0 billion in 2009-10.6 Cushioned bythe country’s growing capital marketand an increasingly growing andprosperous consumer segment, FDIinfow showed strong resilience duringthe global nancial crisis o 2008 and

continued to increase. India now rankssecond in the list o top FDI destinationsin the world and the country is expectedto retain its position among the top-veattractive destinations or internationalinvestors during 2010-12.7


Components o India’s GDP growth (%)


4 CSO, Summary o macro economic aggregates at current prices, 1950-51 to

2008-09; KPMG Analysis

5 Economic Advisory Council to the Prime Minister , e Economic Outlook 2011-

12, July 2010

6 RBI, Monthly Bulletin, July 2011

7 UNCTAD , World Investment Prospects Survey 2010-2012, September 2010



Rising investment...


8 CSO, Summary o macro economic aggregates at current prices, 1950-51 to 2008-09; KPMG Analysis

9 Economic Advisory Council to the Prime Minister , Economic Outlook 2011-12

10 World Bank, World Development Indicators, September 2011

11 Government o India, Economic Survey, 2007-08

Investment as a percentage o GDP (2001-12F)

Source: Economic Advisory Council to the Prime Minister, RBI Monthly Bulletin

Foregin inows - USD billion (2001-11)

Supply-side drivers

The surge in savings has been the principal supply-side driver o growth in India. Theinvestment boom in India has been matched by a concurrent upward movement indomestic savings; gross domestic savings increased rom 27.6 percent o GDP in2003-04 to around 34 percent o GDP in 2010-11.9

Currently, India has one o the highest national savings ratios in the world (34

percent compared with 23.6 percent in Japan and 9.8 percent in the US).10

Thisis expected to increase urther as the dependency ratio continues to decline. Toillustrate, the dependency ratio in India declined rom 0.8 in 1991 to 0.7 in 2001 andis urther expected to decline to 0.6 in 2011.11

In addition to investment, the other important demand-side driver o growth in

India has been private consumption. The contribution o private consumption toGDP growth at 45 percent during 2003-04 to 2007-08 was the second highest aterinvestment.8



Increasing savings...


12 Edelweiss, India 2020 Report, March 2010

13 CSO, National Accounts Statistics, May 2011; KPMG Analysis

14 Statist ical data, CSO, Accessed in August 2011

15 World Bank, Unnished Business: Mobilizing new eorts to achieve the 2015 millennium development goals, September 2010

Savings as a percentage o GDP (2001-12F)

Growing importance o the service sector (%) (1980-2011)

Source: Economic Advisory Council to the Prime Minister, RBI Monthly Bulletin


Comparison o savings ratio (2011)

Sector-specifc drivers

Unlike other growing Asian economies such as China,Thailand and Malaysia, where growth has been driven by theindustrial segment12, growth in India has been largely drivenby the services sector. The share o the overall servicessector in India’s GDP increased rom 44 percent in 1990-91to 55 percent in 2010-11, making India a primarily services-led economy rom a traditional agriculture-driven economy.13 The telecom sector has been a signicant growth catalystor the Indian economy. The contribution o the telecomsector to the GDP has increased rom 0.7 percent in 1990-

91 to 3.6 percent in 2009-10.

14

There is a direct correlationbetween telecom penetration and GDP growth. As pera World Bank study, a 10 percent increase in teledensityincreases the GDP growth by 0.06 percentage points.15




An empowered IndiaEconomic growth has empoweredIndians by enabling a better quality olie. India entered the category o ‘lowermiddle-income’ countries in 2008 asper the World Bank classication.16

With growing per capita income, India’sburgeoning middle class is takingconsumption to levels comparable tothat in other emerging and developedeconomies.

Increase in income levels has also enabled widespread access to services such astelecom and banking, which have multiplied the empowerment eect.

Indians are earning more and spending more

Contribution o the telecom sector to GDP (1980-2010)

Per capita income (current USD) Percentage o Indian households in dierent income

brackets


Source: Edelweiss

Note: Per capita income is Gross National Income (GNI) per capita, Elite category (> INR 1000k), Consuming classes (INR 90k-1000k) and Deprived segment (<

INR 90k) based on annual income levels as in year 2000

* Latest Available Data

16 Edelweiss, India 2020 Report, March 2010

India’s increasing

per capita income




17 TRAI, Telecom Subscription Data, August 2011

18 United Nations, World Population Prospects 2010,

Accessed in August 2011

19 The Hindu, India’s open door to oreign

universities, April 2010

20 GoI, Press Inormation Bureau, June 2011

Working age population as a percentage o total population

Source: UN Population Statistics

Telecommunications – A key

driver o growth

Fuelled by the telecommunicationsrevolution o the 2000s, the growthin the Indian telecom sector hasbeen pivotal in accelerating India’ssocio-economic growth. Increasedconnectivity and access to variousinnovative inormation, communication,and entertainment services havegiven Indians better control over theirlives along with increasing businessproductivity, better governance,

eective security systems andimproved response to emergencies.

India is among the astest growingtelecommunications markets acrossthe world. It is also the second-largestwireless market in the world aterChina. The overall telecom penetrationin India almost touched 75 percent inAugust 2011 and the market continuesto exhibit unabated growth.17

Telecom services, especially wireless

services, have led to signicantempowerment o the urban Indianpopulation. From ubiquitous voiceconnectivity to accessing sophisticatedapplications on high-end smart phonesand eature phones, the mobile phonehas become an ultimate platorm oconvenience or these consumers.Owing to the sector’s potential increating empowerment, it has attractedthe attention o not only enterprises,but also the government. In line with

the inclusive model o development,the Government o India (GoI) isaiming to make mobile empowermentinclusive. Wireline telephony beingeconomically unviable in many partso rural India due to inrastructureconstraints, wireless is being lookedupon as the primary means o voiceconnectivity and Internet access inrural India. By oering timely access tocritical market inormation that enableeective response to market changesand improved provision o basic

services such as healthcare, educationand banking, the mobile phone is trulybecoming an eective empowermentplatorm in rural India.

A promising outlookThe long-term growth outlook o theIndian economy is positive. For the nextew years, the economy is expectedto grow at a rapid pace on the back ostrong domestic undamentals.

High demographic dividendDemographic dividend is expected todrive India’s growth over the next ewyears. While catering to the demand or

a large worker base, a young populationis also expected to play a huge role indriving consumption and investmentin the country. The average age in Indiais currently 25 years and by 2050, 68percent o its population is expectedto be in the working age group (15-64 years); this is in contrast to manycountries in the developed world andregional competitors such as China.18

A skilled and educatedworkorce

The large pool o skilled, English-speaking and low-cost workorce

has positioned India as a preerredmanuacturing, production andoutsourcing centre in the world. Indiahas the third-largest higher educationsystem in the world ater China andthe US.19 Recognizing the importance

o skills or sustaining the country’sgrowth momentum, the government

is expected to introduce programmesor the provision o vocational trainingto 500 million workers by 2022.20 Abetter skilled workorce is expected toboost economic growth through higheremployability and productivity.




21 Census o India, Provisional Population Totals, Accessed in August 2011

Improved inrastructure

Increasing inrastructure investment through Public Private Partnerships (PPP) iscreating immense growth opportunities by boosting trade and investment andconnecting rural India, where close to 70 percent21 o the Indian population resides.

The gradual liberalisation o the inrastructure sector is urther expected toboost investment and trade. Relaxed labour laws and the proposed NationalManuacturing Policy are also expected to play a signicant role in the growth o thenation.

Inrastructure investment (2007-16F)

Source: Planning Commission o India

Note: Inrastructure includes electricity, roads and bridges, railways, ports, airports, storage, telecom,

irrigation, water supply and sanitation, and oil & gas pipelines



CHAPTER 2

The GlobalTelecom Market

USD 2 Trillion and Still Growing




Globally, the telecom sector continues to be a key growth sector.

Having generated revenues worth USD 2.01 trillion in 2010, it

is expected to grow at a moderate pace in 2011.1 Until 2009,

the global telecom sector grew across regions, with growth in

wireless services osetting the decline in wireline revenues.

However, since 2007, when wireless revenues surpassed wireline

revenues, the sluggish growth in mature markets has started

impacting overall industry growth. Telecom service providers’

shelved investment plans, especially as an atermath o the recent

nancial crisis, have severely limited the growth potential in thesemature markets.

Telecom markets in emerging nations, on the other hand, have

retained their growth paths. These markets, not yet saturated, are

being driven by increasing telecom penetration and concurrent

introduction o new technologies and services.

Growth stemming rom data and mobile device saleGlobal telecommunications revenuesincreased 5.5 percent year-on-year(Y-o-Y) in 2010 to reach USD 2.01trillion1, mainly driven by an increase in

revenues rom data services and thesale o mobile devices. The revenues areexpected to grow at a moderate pacein 2011. Moreover, growth is expected

to be uelled by incremental revenuesrom emerging markets in Asia-Pacic,the Middle East North Arica (MENA)region, and Latin America.


1 Gartner, Market Trends: Global Telecommunications Market, May 2011

Global telecom market revenue by segments (2009-2015F)

Source: Gartner



Telecom services continue to dominatethe global telecom market, with theservices to equipment revenue ratioexceeding 3:1 in 2010.2 However, thistrend is undergoing a change withincreasing investment in telecom

inrastructure, which is expected toincrease urther. This is refected in theact that the contribution o telecomequipment revenues to total telecomrevenues grew 100 basis points in2010.2



Global telecom market - share o segments (2010)

Break-out o global telecom services revenue (2010) (Total revenues = USD 2 trillion)

Source: Gartner

Source: Gartner



Mobile subscriber base continues to growOver the last decade, the global telecomsubscriber base has grown at a CAGRo 12.4 percent.3The continuing growthin wireless subscriptions has been onlypartly oset by the continuous decline in

wireline subscriptions. However, sincethe last ew years, saturated maturemarkets have arrested this aggressivegrowth rate to some extent; the year-over-year (YoY) growth o global wireless

subscriptions stood at 11.8 percentin 2010 compared with 13.2 percentand 15.8 percent in 2009 and 2008,respectively.3


3 Economic Intel ligence Unit, Data Tool, Accessed in August 2011

Global wireless and wireline subscriptions

Global wireless and wireline penetration (%)

Source: Economic Intelligence Unit




Emerging markets to drive wireless growth, witnessing surge ininvestmentsIn developing countries, wirelesssubscriptions, oten the only meanso connectivity due to low wirelinepenetration, have witnessed stronguptake. In India and China, or instance,monthly net additions have beenaround 16-18 million and 8-10 millionsubscribers, respectively over thelast year ending March 2011, with the

two nations accounting or around 60percent o the total subscriber base inthe Asia-Pacic.4 As per Ovum, BRIC(Brazil, Russia, India and China) nations

would account or 40.6 percent5 o theglobal mobile subscriptions in 2015.This growth is expected to be drivenby continued competitive pressure onhandset prices and taris that havemade wireless services aordable ormass adoption.

While the global recessionaryenvironment in 2008-09 negativelyimpacted capital spending in developednations, telecom investments inemerging markets such as India and

China continued nearly unabated. Drivenby the assurance o signicant untappeddemand, telecom service providers inthese markets have been committinghuge investments on expandingnetwork coverage and launchingnew technology. Moreover, structuralsubsidies in China and India, andgovernment expenditures have created

a avourable investment environmentor telecom service providers andequipment manuacturers.


4 BuddeComm, Asia - Telecom Forecasts, April 2011

5 Ovum, Mobile Connections Forecast: 2011–16, July 2011

Telecom investment in key markets (2007-10)




Focus on mobile data services to sustain growthDeclining ARPU and rising costsare putting pressure on telecomservice providers’ margins across theworld. With voice becoming highlycommoditised in most markets, bothdeveloped and emerging, it is evidentthat uture growth in ARPU will comerom increased uptake in data services,or Mobile Value Added Services (MVAS).The strong uptake o smartphoneshas led to an increase in the demandor applications, and thereby higheradoption o data plans in developedmarkets. Even in developing markets,

data services such as P2P SMS andCaller Ring Back Tones (CBRT) havegenerated substantial revenues.Globally, in 2010, mobile data accountedor 16 percent6 o the total telecomservices revenue. It is expected thatrevenues rom mobile data will continueto grow strongly, driven by a rise in saleso tablets and other related consumerelectronic devices.

Service providers are ocusing onnew MVAS oerings to drive ARPU. Indeveloped markets, high-end services,

such as video calling, high-speed mobileInternet, mobile gaming, mobile TV,Global Positioning System (GPS), mobilemoney, etc. are gaining popularity. Indeveloping countries, on the other hand,more utilitarian services such as mobilebanking, mobile healthcare, mobileeducation, etc. are being developed anddeployed.

Globally, mobile data revenues are

expected to account or 29.3 percent ototal revenues in 2015.6

Mobile payments – a killer application in developing marketsMobile payment services, particularlymobile banking, are emerging to bethe perect solution to address thebanking needs o the world’s largeunbanked population base. Gartnerprojects the number o mobile paymentusers globally to surpass 141.1 million

in 2011 and mobile payments volume

to cross USD 86 billion, a growth o75.9 percent over 2010 (USD 48.9billion).7 The growth in transactionvolumes is expected to be driven mostlyby money transers and prepaid top-ups in developing markets. That said,service providers in these markets

have not quite adopted global success

models rom countries such as Kenyaand the Philippines, on the belie thatthese models may not be suitable ortheir markets. As per KPMG’s MobilePayments Outlook 2011, businessleaders globally view security as themain challenge in developing and

deploying mobile payments strategies.



7 Gartner, Worldwide Mobile Payment Users to Reach 141 Million in 2011, July 2011

Global wireless ARPU comparison (2010)

Source: Economic Intelligence Unit database, KPMG Analysis



Broadband or allAlthough the number o Internet usersglobally has doubled since 2005,8

only about 30 percent9 o the worldpopulation is currently connected tothe Internet owing to a very low level ohome Internet penetration in developingnations. To overcome this bottleneck,

governments are investing heavilyin public Internet access. With the

International Telecommunications Union(ITU) proposing broadband access to50 percent o the world’s population by20158, the ocus is also on promotinghigh-speed wireless broadband access

and the development o content andapplications in local languages. The

introduction o 3G and other moreadvanced wireless standards such asLTE and WiMax is expected to acilitatewireless broadband access across theworld.

Globally, broadband subscriptions grew at a CAGR o 31.2percent to reach 1.4 billion primarily driven by a strong rise inmobile broadband subscriptions.8


8 International Telecommunication Union, Key Global Telecom Indicators, Accessed in August 2011

9 US Census Bureau , International Data Base: Total Midyear Population or the World: 1950-2050, Accessed in August 2011

Global Internet and broadband subscribers Global fxed and mobile broadband subscriptions

Source: International Telecommunication UnionNote: Broadband users comprise xed and mobile broadband users

Source: International Telecommunication Union



CHAPTER 3

The IndianTelecom Market

On the Cusp o anInormation Revolution




The Indian telecom market has witnessed tremendous growthover the past decade. It has been one o the astest growing

telecom markets in the world. In 2010, India accounted or

about 14.9 percent o the global wireless subscriber base1. With

increasing ocus on MVAS and network rollouts in the untapped

rural and semi-rural areas, the Indian telecom market is braced or

signicant uture growth.

Subscriber base - A global comparisonIn the past year, with 27.4 percentY-o-Y growth in total subscriber base2 (both wireless and wireline), the Indiantelecom market again surpassedother emerging telecom markets.Various avourable initiatives rom thegovernment, such as the introduction oMobile Number Portability (MNP) and3G, have contributed to this growth.

With low penetration levels,especially in the rural areas, the Indiantelecom market presents signicantopportunities o growth. However, acontinuous decline in taris and minuteso usage (MoU) per subscriber pose astrong challenge to market growth.


1 EIU, Telecom data, Accessed in August 2011 2 TRAI, Telecom Subscription Data, August 2010 and 2011

Growth in total subscriber base in India and other key markets (2006-10)

Source: Economic Intelligence Unit, TRAI



Increasing telecom penetrationThe total telecom (wireline andwireless) penetration in India reached74.9 percent in August 2011, surging

15.3 percentage points Y-o-Y.3

Whilewireless services have penetratedwell into the urban regions (157.8percent penetration in August 2011),

wireless telephony is still out o reachor a majority o the rural population(35.2 percent in August 2011).4The

penetration o wireline services inthe country is even lower at 7.1 and1 percent in urban and rural areas,respectively as o August 2011.4


3 TRAI, Telecom Subscription Data, August 2010 and 2011


Break-out o global mobile subscriber base by key countries (2010)

India - telecom subscriber base and penetration





Wireless services driving growthThe wireless services market in India is one o the largest wireless markets in theworld, with 865.7 million subscribers as o August 2011.5

However, despite a strong growthin the subscriber base (29.1 percentY-o-Y in August 20115), the market ischaracterised by very low ARPU levelsaccompanied by signicant churn.

The wireless services market in India,catered to by 15 service providers,is highly competitive. This has led topricing pressures, which have, in turn,pushed down wireless taris and henceARPU levels (record low ARPU o

INR 98 and INR 64 per month or GSMand CDMA subscribers, respectively, inJune 2011).6

The 22 telecom circles in India (18telecom circle service areas and 4metro service areas) are classiedunder 4 categories – Metros, CategoryA, Category B and Category C – on thebasis o revenues derived rom eachcircle. Metros, with only 4 percent othe total population base, have about

12 percent o the total subscriberbase, implying a high penetration level.Circle A ollows in penetration, with 32percent o the population base and 35percent o the wireless subscriber base.Circles B and C, with 45 percent and 19percent population base, respectively,account or a mere 39 percent and 14percent o the wireless subscriber base,respectively.5



6 TRAI, Telecom Perormance Indicator Report, June 2011

India - wireless subscriber base and penetration

Source: TRAI



The shrinking wireline segmentThe Indian wireline services sector toois competitive, with the presence o

seven service providers, including thestate-run incumbents BSNL and MTNL.The sector has been losing subscribersover the last ew years, mainly due

to the act that wireless services areexpanding in coverage and becoming

increasingly more aordable or themasses. As per TRAI, wireline serviceproviders lost 0.1 million subscribers inAugust 2011.7

The urban market, with a penetrationo 157.8 percent7 in August 2011 is

nearing saturation. During the sameperiod, net additions in urban Indiaincreased only 0.8 percent as against0.9 percent in rural areas.7 It is clear thatuture growth lies in circles B and C. Theentire telecom ecosystem, includingservice providers, network equipment

players and passive inrastructureplayers, is ocusing on developing

low-cost delivery solutions (reducedtelecom network rollout costs and otherkey operating costs such as energycharges), which would create a businesscase or serving the sizeable untappednon-urban opportunity.



Circle-wise break-out o wireless subscribers (August 2011)

Source: HSBC Global Research and KPMG Analysis



While wireline has been largelysubstituted by wireless in most urbanareas, in rural areas, where wirelesspenetration is still quite low, wirelineplays an important role in the orm oVillage Public Telephones (VPTs). The

number o VPTs increased rom 581,000in December 2010, to 583,000 in June2011, connecting 98.1 per cent o theinhabited villages in the country.8

While the number o VPTs have beenincreasing over the past ew years, the

number o Public Call Oces (PCO)has continuously declined since 2008.The total number o PCOs plunged 29.8percent Y-o-Y to 2.83 million, mainly dueto the increasing penetration o wirelessconnections.8

There could be two reasons thatenabled VPTs to weather the wirelesschallenge better than PCOs:

• The call charges made rom a VPT areless than those rom a PCO

• The commission payable to theoperative custodian o a VPT is higher

than that payable to a PCO operatorcustodian

Going orward, easier and moreaordable oerings on the BroadbandWireless Access (BWA) spectrum, bothin urban and rural areas, can urtherimpact wireline penetration. Futuregrowth in wireline services can only be

generated through the delivery o high-speed xed broadband access at lowcosts. Also o prime importance will bevalue added services such as bundledtriple play oers, IPTV services, and

localised/community-based services.


8 TRAI, Telecom Perormance Indicators Report, June 2011

India - wireline subscriber base and penetration

Village Public Telephones and Public Call Ofces

Source: TRAI

Source: TRAI



Broadband and Internet opportunitiesThe Internet subscriber base in Indiahas grown signicantly over thelast ew years (11.11 million Internetsubscribers have been added betweenJune 2007 and June 2011 at a CAGRo 21.9 percent).9This growth wasuelled by a continuous all in the priceso personal computers and Internet

taris. Furthermore, the growth in thenumber o public Internet caes has alsocontributed to increased Internet usagein the country.

Although Internet use is increasing, theratio o broadband subscribers to the

total number o Internet users is stillvery low. Broadband access is a keyocus area or the GoI and as a result ovarious government initiatives, the totalnumber o broadband subscriptionsgrew signicantly (25.9 percent Y-o-Y) toreach 12.7 million in August 2011.10Thebroadband penetration is expected to

get another boost through an increasein the uptake o 3G services and theauction o the 4G spectrum in 700 MHzrequency bands.


9 TRAI, Telecom Perormance Indicators Reports, June 2007 and 2011

10 TRAI, Telecom Subscription Data, August 2010 and 2011

Internet and broadband subscribers in India

Source: TRAI

*Broadband in India is dened as a connection with speed o more than 256 kbps



The Indian Internet market is dominated by our big players,which together accounted or 88.3 percent11 o the totalsubscriber base in June 2011.

The Internet subscriber base in India has grown signicantly over the last two tothree years due to increasing user comort with Internet applications. However,despite a strong growth in the subscriber base, penetration levels still remain verylow at 1 percent as o March 2011.

The government realises the importance o Internet connectivity or urthering thenational growth agenda and aims at addressing the issue o low penetration andcoverage across the country. The 3G and BWA auctions that took place last yearare expected to act as catalysts or enabling Internet access to even the remotestparts o India. With net broadband additions at 0.1 to 0.2 million per month and

broadband penetration at just 0.7 percent, the broadband market provides hugepotential or growth.12

Among the dierent Internet access technologies oeredby service providers, Digital Subscriber Line (DSL) is thekey one, accounting or 52.3 percent o the total Internetsubscriptions and 85.7 percent o the total broadbandsubscriptions as o June 2011.11



12 TRAI, Consultation Paper on National Broadband Plan, June 2010

Internet market share by operators - June 2011 Share o alternative Internet access technologies - June 2011

Source: TRAI Source: TRAI



New rontiers o growth

Rural telephonyThe Indian telecom growth storyhas so ar been primarily uelled byurban demand. However, the overallpenetration o 36.2 percent as o August2011 in rural areas presents a hugegrowth potential.13

In 2003, the Department oTelecommunications (DoT) in Indiainitiated the Universal ServiceObligation Fund (USOF) to promotethe development o rural telecom

inrastructure or ostering ruralconnectivity. The und providessubsidies to private players whoestablish telecom inrastructure in ruralareas. The USOF has already allocatedunds worth INR 103.71 billion towardsvarious activities, o which INR 24 billionwere allocated in the year 2010-11.14

To ensure broadband coverage, theGovernment has approved a schemeor creation o a National Optical FibreNetwork (NOFN) in October 2011, or

providing broadband connectivity tovillage panchayats. The objective is toextend the existing optical bre networkwhich is available to the districts/ block Head-Quarter’s level to the GramPanchayat level initially by utilising theUSOF. The cost o the initial phase othe NOFN scheme is estimated to beabout INR 200 billion. A similar amounto investment is also envisaged by theprivate sector to complement the NOFNinrastructure while providing services

to the individual users.

In October 2011, the Indian governmentlaunched its low-cost tablet, ‘Akash’ ora subsidised price o USD 35.15 Fastnetworks, coupled with aordabledevices will nally bring high speedbroadband within the reach o India’svast rural population. According tothe drat National Telecom Policy2011 (NTP – 2011), the Governmentintends to provide high speed andhigh quality broadband access to allvillage panchayats through opticalbre -in next two years. Along with

broadband access, the Governmentis also considering making computersand peripherals more aordable toevery Gram Panchayat.16Emphasis hasalso been given to increasing the ruralteledensidty.

Along with the Government’s eorts,the private sector too is targetinggrowth at the bottom o the pyramid.Along with ocussing on low costdelivery, operators are targetingutilitarian wireless data services thatrural subscribers will actually nd veryuseul. The proposed launch o BWAin 2012, especially WiMax, will urtherboost access to low cost voice and datain Indian villages (WiMax is consideredby many as the ideal BWA standard orrural India as WiMAX base stations areparticularly cost-eective).

Data servicesGlobally, data services are being bankedupon to compensate or sluggish voicerevenues. India is no exception to thistrend. Ater two decades o stronggrowth in voice services, data serviceswill be the next trigger or growth in theIndian telecom market – or both thewireline and the wireless segment.

In the wireline segment, high speedaccess will positively impact data usage.In advanced markets such as the US,

services providers have had to capwireline data usage ater moving theirwireline broadband subscribers to theirbre networks. I India can match upthese services in terms o quality oservice and pricing, the market will seesimilar traction in data consumption.

In the wireless segment, mobileInternet access holds the key to growth.India is second only to the US orInternet browsing on mobile phones(by the number o web page views

using handsets ). The introduction o3G will urther boost the use o mobilebroadband, mobile data as well asapplications. According to estimates bytelecom research rm Analysys Mason,India will have 17 million 3G dongleusers in 2014 rom a mere 0.1 millionin 2009. Mobile data users will total 77million in 2014, rom 0.4 million in 2009.This represents signicant potentialor service providers, equipmentmanuacturers and content providers

alike.



14 DoT, Status o Disbursements made and availability o Funds, Accessed in August 2011

15 Economic Times, India debuts world’s cheapest tablet computer at $35 tomorrow, October 2011

16 Ministry o Communications and Inormation Technology, Drat National Telecom Policy – 2011, October 2011



CHAPTER 4

WirelessCommunication

The Key to Connecting India




Evolution o the Indian wireless industryover a decadeThe telecom sector in India hasundergone many changes in the lastdecade relating to regulation, industrystructure, call taris, innovative servicesand other new areas o growth. Asa result, wireless penetration hasincreased rom a mere 2 percent in2000 to reach about 72.1 percent inAugust 2011.1

Wireless subscribers have been a majorcontributor to this growth, crossing

865.7 million1 in August 2011 rom 3million2 in 2000. The ast pace o growthover the period has changed the mobilehandset rom a luxury device to a must-have communication tool. The successo the wireless technology is refected inthe act that wireless subscribers nowaccount or 96.2 percent o the totaltelecom subscriber base (as o August2011).3



2 Planning Commission, Telecom Sector in India: Vision 2020, Accessed in April 2011


Wireless subscribers vis-a-vis wirelines subscribers - growth over a decade

Source: Economic Intelligence Unit, TRAI * Till August 2011




The current state o the Indian wirelesstelecom marketThe Indian wireless sector is witnessingan interesting phase, with wirelesspenetration over 72.1 percent.5Theindustry expects tough challenges inthe next ew years, especially in theurban segment. The presence o 15players in the market has brought down

taris to gure among the lowest tarisglobally. The dominance o pre-paidsubscriptions (over 97 percent o thetotal wireless subscriber base as oJune 2011) urther contributes to lowARPU.6

Wireless revenues constituted more than 85 percent o the total telecom services

revenues as o December 2010.4

Along with a ast growing economy, new technology and healthy competition, thegrowth o supporting industries such as equipment and inrastructure has alsohelped in the growth o wireless services in India.


4 Economic Intell igence Unit, Data Tool, Accessed in August 2011



Wireless revenues vis-a-vis wireline revenues - growth over a decade

Prepaid versus postpaid subscribers (June 2011)


Source: TRAI



India has traditionally been a technology-agnostic country, with the co-existenceo both GSM and CDMA services.Owing to their rst mover advantage,GSM players have been able to captureover 86.6 percent7 share o the wirelessmarket as o June 2011. As or CDMA,despite a relatively delayed start, thesubscriber base grew strongly until2009. However ater 2009, the share oCDMA subscribers has declined by 6.3

percentage points rom 19.7 percent inDecember 2009 to reach 13.4 percentin June 20118 due to the cannibalizationo CDMA subscriber base by launch oGSM services by major CDMA players.8 The decline in CDMA subscriptions canalso be attributed to handset-relatedissues, such as limited choice, lowerbattery lie, costlier handsets and theabsence o the USSD code.

Increasing competition and thegovernment’s progressive policies haveled to a decrease in taris, which hasresulted in higher penetration rate butlower ARPU. The ARPU per month or

access services declined 22.5 percentY-o-Y in June 2011.9 However, thedecreasing ARPU has been oset bythe continuous increase in subscriber

base, resulting in stable but slowgrowth in revenues in the last ew years.Decreasing margins due to low tarishave compelled service providers tolaunch innovative schemes, such as pay

per second, payment or incoming calls,lietime prepaid and low-cost handsetbundling, to increase ARPU.


7 TRAI, Telecom Subscription Data, June 2011

8 TRAI, Telecom Perormance Indicators Report, December 2009 and June 2011


Wireless subscriptions by technology (GSM and CDMA)

Source: TRAI



Trends and opportunities in the wireless segmentThe last ew years have witnessed anumber o much-awaited, consumer-riendly developments in the Indianwireless market.

• Pan-India mobile number portability(MNP), launched in January 2011,allowed subscribes to switchbetween service providers whileretaining their mobile numbers. Thedrat National Telecom Policy-2011(NTP – 2011) aims or nation-wideMNP and this will urther benetsubscribers.10

• The launch o 3G has givensubscribers a taste o high-speedInternet access rom their mobile

handsets. A large number oinnovative applications have literallybrought the world at the subscribers’ngertips. With the proposed launcho BWA next year, the wireless dataexperience is set to urther improve.

• The drat NTP – 2011 has advocatedthe abolition o roaming charges. This

will imply signicant cost savings,especially or business users.

Given these signicant developments,the opportunities o developing

innovative services and businessmodels have become more pronouncedthan ever. Some o the trends andopportunities expected to drive thewireless market in India are as ollows:

The rural opportunity willdrive growth

The drat NTP – 2011 aims to increaserural teledensity rom the current levelo around 35 percent to 60 percent bythe year 2017 and 100 percent by the

year 2020. For the wireless segment,BWA technologies to be launchedin 2012 will create additional voiceas well as data opportunities.10TheGovernment’s intention to minimizethe cost per site in rural areas will meanaordable services or rural subscribers.For service and equipment providers,this means an opportunity to launch

a host o new services and solutionscustomised or the rural market.

Handset innovations boostinglocal manuacturing

The emergence o various domestichandset manuacturers in competitionto international players has encouragedplayers to innovate constantly onhandset technologies. Smartphoneshipments in India are estimated togrow by a whopping 70 percent Y-o-Yuntil 201511. The latest innovation in thehandheld market, tablets, has alreadycaught on in urban markets. Ruralmarkets too have not been deprivedo the tablet experience thanks to the

Government’s eorts at launching anultra low-cost tablet model specicallydesigned or the rural population. Asrural markets get more connected, theneed or good quality, yet aordablehandsets will boost the domestichandset industry.


10 Ministry o Communications and Inormation Technology, Drat National Telecom Policy – 2011, October 2011

11 Bloomberg News, Apple Cedes Surging India Smartphone Market to Nokia-RIM, October 2011

Adjusted gross revenue Wireless ARPU (blended)

Source: TRAI Source: TRAI, KPMG analysis



Value-added services to drivegrowthNon-voice, value added services,will drive uture growth in the Indianwireless market. The launch o 3Gservices by telecom players is expectedto increase the demand or dataservices, especially in urban regions.While MVAS in urban areas will revolvearound high-end applications enablingbetter inormation, entertainment andcommunication (or example instantmessaging, social networking, high

quality gaming, video sharing, streamingmusic, enterprise applications, etc.),in rural areas, empowerment osubscribers will come through basic,but more utilitarian services suchas m-healthcare, m-governance,m-banking, m-education, etc.

The MVAS ecosystem

The MVAS ecosystem is a complex oneinvolving a wide variety o stake-holders,oten with overlapping roles.

The ollowing are the broad stake-holdergroups in this ecosystem:

• Content providers: content ownersand aggregators

• Technology enablers: platormproviders and application serviceproviders

• Content delivery bodies: carriers andhandset vendors

• Content consumers: subscribers

MVAS can be delivered either on-deckor through the o-deck mode. In theon-deck mode, VAS providers supplycontent, platorms and solutionsto carriers through contractualagreements. These agreements arenot governed by any policy ramework.In the o-deck model, VAS providersdeliver content directly to subscribers.However, carriers still oten serve as thebilling interace.

With mobile advertising becoming anintegral part o VAS, the ecosystemhas expanded to include advertisingagencies and marketers.

MVAS market size and growth

The MVAS growth story is as impressiveas that o the overall telecom sector.SMS has been the most popular ormo MVAS, because along with being apopular peer-to-peer MVAS service, itis also a popular access mode or otherMVAS (content pushed to subscribers

through SMS). The MVAS market isexpected to grow rom INR 122 billion in2010 to INR 482 billion by 201512, drivenby the increase in the uptake o high-end entertainment and communicationservices in urban areas and theincreasing adoption o various utility-driven data services and applications inrural areas.

The non-SMS VAS market in Indiacontinues to be dominated by music– ringtones (RT) and CRBT. Together,RT and CRBT continue to account orover 30 percent o non-SMS VAS.13 According to various industry estimates,SMS and CRBT will continue to remainthe heaviest contributors to Indian VASrevenues in the next ve years. Amongother VAS, mobile Internet (both throughhandsets as well as dongles) will rapidlygain traction, driven by more aordableaccess to aster networks.


11 TRAI, Consultation Paper On Mobile Value Added Services, July 2011

12 IAMAI, Mobile VAS in India, July 2011

MVAS market size (2009-15F)

Source: TRAI




13 Macquarie Research, India telecom sector: Mobile data… the silver lining, May 2011

Data revenues as a percentage o total revenues

VAS meeting dierent needs in urban and rural areas

Source: Macquarie Research

Source: KPMG analysis

The growing size o the VAS market is refected in the increasing share o datarevenues as percentage o total revenues – up 5.3 percentage points in a little lessthan two and hal years.13

MVAS consumption trends – the rural urban divideAlthough VAS usage is growing across the country, the usage patterns are dierent in rural and urbanIndia. In the urban regions, subscribers’ needs are very dierent rom the needs o rural users. Urbansubscribers both need and want business mobility (access to corporate e-mail and other businessapplications on their mobile phones) and high-end entertainment services such as access to social

networking sites, video sharing sites, rich media games, etc. Rural subscribers, on the other hand,need access to basic inrastructure services such as education, healthcare, banking, agriculturalsupport, etc. through their mobile phones.



MVAS growth drivers

• Increase in penetration and

spending power:The use o themobile phone is ast becomingwidespread. Along with this, withincrease in disposable income,consumers – especially urbanconsumers – have developed anappetite or mobile data services thatbring value.

• Advancement in handset/devices: The share o GPRS-enabled handsets

in the total handset base increasedrom 51 percent to 65 percentbetween 2009 and 2010.14 A recentstudy by Nielsen ound that India’sgrowing population o smartphoneusers are spending more timeon entertainment and Internet-based content than on calling andmessaging.15 For the rural market,handset manuacturers have starteddesigning handsets which not onlyhave all the basic eatures, but alsoadditional, customised eatures suchas insect repellent capabilities.

• Innovative data oerings,

particularly applications:

Traditionally, Indian subscribershave shown their anity or SMSand various orms o mobile music.Mobile applications are consideredto be a big driving orce in VASconsumption. A recent research byNokia along with Proessor TrevorPinch o Cornell University revealed

that 77 percent o people in Indiahave up to 30 applications on theirsmartphones. Social networking,music, business unctions(e-mail, expense management),utilities and games are the mostpopular categories o applicationsdownloaded and used.16 Analyst rmOvum predicts that mobile applicationdownload in the Asia Pacic regionwill hit 5 billion by the end o year 2011compared to just 1.6 billion in 2010,and India will account or a sizeable

share o this incremental growth.17

• Introduction o 3G: Since its launch,3G services have been adopted bymore than 9 million Indian mobilesubscribers as o May 2011.18Thelaunch o 3G services has allowedcustomers to access data servicesat a aster rate and reasonable price.Subsequently, their data usage hasincreased. Nielsen estimates datausage or 3G users in India to be closeto 44 percent more than that o 2Gusers.19

Challenges in the MVAS marketThe MVAS market in India is ull opossibilities. However, the market hasbeen acing several challenges, whichneed to be addressed to unlock its truegrowth potential.

• Lack o compelling applications

and localised content:The incipientmobile application boom in India islargely limited to the urban areas.Soon, to be able to sustain growth,the application market will need to

transcend into semi-urban and ruralareas too. Currently, the number ocompelling applications – applicationsthat go beyond music, business orsocial media to oer real utility tosubscribers – is limited. For instance,the mobile banking service m-PESAin Kenya was instrumental in oeringbanking services to the country’ssubstantial unbanked population. TheVAS industry in India needs to comeup with such applications to gather

mass appeal.A related constraint is the lack oavailability o localised content andcontent in vernacular languages.

• Structural inefciencies in the

ecosystem:The complex VASecosystem in India is characterised byseveral structural ineciencies thatare hampering growth.20

In the on-deck model, some o theseare:

- Disproportionate revenue sharing: In the existing revenue sharingarrangement, the network providerclaims the majority share o VASrevenue (over 60 percent).

- Lack of policy framework: Sincethe contractual arrangementbetween the operator and contentowner/aggregator in the on-deckmodel is not governed by a policyramework, there is no ormaldispute resolution authority in caseo conficts over ManagementInormation System (MIS).

- Innovation disincentive: Contentdevelopers and VAS providers areoten orced to invest in only thoseservices and applications which arepopular and guarantee immediatereturns to network operators. Thisthwarts the innovation potential.

Limited penetration o alternate billingmechanisms such as mobile walletsand credit cards has kept the network

operators’ control at a airly highlevel even in the o-deck model. VASproviders in this model are hamperedby the loss o control on pricing otheir products and also their revenueshares.

These bottlenecks in the VAS markethave prevented international VASplayers rom entering it, thereoreurther limiting expansion and growth.

• Lack o consumer awareness:

Indian subscribers’ awareness aboutthe various VAS oerings availableon the market is limited. Traditionally,the main service touch points orsubscribers, the network operators,have been promoting VAS throughSMS marketing campaigns. However,or a long time, VAS never assumedas great importance in operators’marketing communication as otherservice parameters such as networkcoverage and tari plans.


14 IAMAI, Mobile VAS in India, July 2011

15 Nielsen, Trends & Insights, September 2011

16 Business Standard, Nokia’s Global Study reveals Indians preer Business-

ocused apps, February 2011

17 ZDnet, APAC mobile app downloads to hit 5B in 2011, September 2011

18 Telecom Talk, India Adds 9.5 Million GSM Subscribers in May – Airtel Leads, June 2011

19 Nielsen, Data usage or 3G users close to 44% more than 2G users, September 2011

20 TRAI, Consultation paper on Mobile Value Added Services, July 2011




21 Ministry o Communicat ions and Inormation Technology, Drat National Telecom Policy – 2011, October 2011


Mobile broadband and broadband wirelessaccess to drive growthThe drat NTP – 2011 targets achieving 175 million broadbandusers by 2017 and 600 million by 2020.21The high cost osetting up wireline broadband inrastructure has acted asa signicant impediment to the widespread broadbandadoption in India. This is especially true in the rural areas,where lack o availability o basic inrastructure such as powerhas prevented investment and restricted growth in wirelinebroadband access. As o August 2011, the wireline broadbandsubscriber base in the country stood at approximately 12.7million – a penetration o only 1 percent.22

Mobile broadband (through 3G) and wireless broadbandaccess (through 4G standards LTE and WiMax) are beingconsidered as the solution to the poor broadband coveragein the country. While mobile and wireless broadband willsupplement wireline broadband in urban India, in many semi-urban and rural areas, these technologies, primarily BWA, arebeing considered to be a substitute or wireline broadband.

India’s BWA landscape, likely to be dominated by LTE, willoer subscribers a speed o around 10 Mbps (theoreticalspeed o BWA technologies is around 100 Mbps). This highspeed data access will be instrumental in meeting rural India’sneed or basic inrastructure.




CHAPTER 5

m-Powering India

Inclusive Growth throughthe Mobile Phone




The Indian government and industry players understand the

importance o social and economic inclusion and are working

toward creating platorms and mechanisms or inclusive growth.

The high penetration o wireless technology, both in terms o area

covered and technology adoption, has made the mobile phone an

obvious choice or promoting inclusive growth and development.

The MVAS ecosystem is playing an instrumental role in bringing

about empowerment in all strata o society by oering convenient

services that address the need-want balance o dierent

subscriber segments.

Inormation servicesThe current adoption o MVAS in urban India is hindered because o the lack o

relevant content and limited unctionalities o traditional mobile devices. However,the situation is transorming at a rapid pace, with an increase in the demand orservices, such as news, live trac and weather updates.

Other MVAS oerings to urban subscribers are related to m-commerce, morespecically to services, such as updates on bank balances, transaction alerts,mobile ticketing and order/package tracking.

The revolution in inormation MVAS is giving urban consumers access toinormation in a myriad o ways not possible earlier, thereby empowering them totake more inormed decisions regardless o their location.

43 | m-POWERING INDIA - INDIA TELECOM 201143 | m-POWERING INDIA - INDIA TELECOM 2011




1 Census o India, Overview o Rural population, Accessed in August 2011

2 FICCI & Nielsen, Challenges beore an Integrated India: Bridging The Rural-Urban Divide, 2010

3 NCAER, Pre- and Post- Reorm India: A Revised Look at Employment, Wages, and Inequality, 2009

4 ICRIER, Socio-Economic impact o mobile phones on Indian agriculture, Sep 2010

Urban m-powerment – personalized inormation,communication and entertainment on the goThe Indian urban population, unlike therural segment, has access to multiplesources o inormation, communicationand entertainment. These includetelevision, newspapers and magazines,theatres, wireline broadband services,etc. However, due to the additionalelements o personalization andmobility, accessing inormation,

communication and entertainmentthrough mobile devices has the powerto empower like no other source ormedium.

Inormation andcommunication beyond P2PSMSOther than voice calls, the oldest ormo communication through the mobilephone, SMS, has been the most popularcommunication service in urban India.

Beginning with simple peer-to-peerSMS – an easy-to-use, aordable andnon-intrusive communication medium– SMS services grew to become amedium to deliver other digital content,such as alerts, horoscopes ringtones,advertisements, etc.

More advanced communication VAS,such as video calls and push email onhandsets urther empower subscribersby giving them more control over theircommunication needs. Similarly, theuse o social networking and mobileinstant messaging applicationsbrings in more variety and fexibility incommunication. Enterprise users ndmobile access to enterprise applicationssignicantly contributing to their work-lie balance.

Along with communication services,inormation services such as

applications rom leading newspapersand magazines, stock market alerts,cricket score alerts, and various networkmessages alerting the subscriber ondata usage, bill details, etc. add a much-needed element o convenience in busyurban liestyles.

Entertainment, whenever

whereverMusic, wallpapers and ringtonesconstitute the majority o uptake inentertainment MVAS in urban India.When using these services, subscriberslike to enjoy the high degree opersonalization that they oer. Thereedom to view and consume contento their choice at a time when theychoose to also coners an element oempowerment.

Rural m-powerment – the confuence oconsumer needs and business opportunitiesWith 70 percent o India’s population1 accounting or almost 50 percent othe nation’s GDP2, empowering therural population is high on the nation’sagenda. Rural India is still largelycharacterised by inrastructure gaps,addressing which will involve time aswell as signicant resources. In thisbackdrop, the growing penetrationo mobile phones among the ruralpopulace can be harnessed to addressits need or inormation, nancialinclusion and social reorms. The mobilephone, thereore, has rightly beenidentied as an alternative medium togenerate rural empowerment.

Access to inormationempowering agri-workersAgriculture continues to be a majorcontributor to rural GDP, with a shareo almost 40 percent.3 Some o thekey challenges impacting agricultural

productivity are decits in physicalinrastructure, the lack o availabilityo agricultural input and poor accessto agriculture-related inormation.Thereore, the next revolution inagriculture would necessarily be drivenby greater adoption o inormation andtechnology inrastructure.4

Mobile phones can play a major role inreducing the inormation asymmetryby orming an eective link to marketinormation or armers. Various

international studies on armers inSenegal, Ghana and Uganda haveshown the adoption o mobiletelephony to have played an importantrole in reducing price dispersion,transportation and transaction costs.

The Indian armer is dependent onmiddle-men who control the supplychain and infuence the price. A numbero ICT initiatives in agriculture, such ascomputerisation o agriculture markets,e-Choupal and e-Sagu, have loweredtransactional costs or armers andincreased system transparency. Mobileapplications can also be developed onthese lines to help armers.




Access to fnancial servicesempowering unbankedpopulationFinancial inclusion ensures widespreadaccess to reliable systems or credit,savings, remittances, insuranceand payments. It promotes nancialsecurity, which has a positive socio-economic impact. Despite a numbero policy initiatives by the government,India continues to be characterized byvery low levels o nancial inclusion.

According to the RBI, only 40 percento the Indian population has a savingsaccount, only about 10 percent has anykind o insurance cover and only 0.6percent has any kind o non-insurancecover.5The situation in rural India ismuch more acute, with almost 60percent o the rural populace acingnancial exclusion.6

The key challenges acing greaternancial inclusion in rural areas havebeen the lack o access to bank

acilities and high operational costs.Besides, there is a need to customiseproducts suited to the needs o therural populace. For instance the ruralpopulation preers to transer moneyin small amounts paying minimaltransaction costs. Furthermore,considering the unpredictability oagricultural income, the rural populationrequires greater fexibility in loanrepayment and investment schedules.

Internationally, mobile data servicessuch as m-PESA have been verysuccessul in bringing banking servicesat an aordable cost to the unbankedand under-banked population segments.Rural India needs such services whichcan extend nancial inclusion to itsresidents and empower them withnancial security.

A variety o services meetingthe need or social andpolitical inclusionAccording to the 2010 UNDP report,India was ranked 119 out o 169countries in terms o successullyimplementing social reorms.7 The report underlined India’s poorperormance in penetrating socialreorm, especially in the areas oequality, healthcare and education.m-Health, m-education and

m-governance can potentially contributetoward addressing the basic socialneeds o the rural population.

m-Health

India has 0.5 physicians per 1,000patients, which is much lower thanthe global average o 1.9 physiciansper 1,000 patients.8This poses amajor challenge in healthcare delivery,especially in the rural areas. m-Healthcan play an important role in improvingthe delivery o healthcare servicesto rural and other remote areas inthe country. The key applications om-health are education and awareness,remote data collection, monitoring,disease and epidemic tracking, anddiagnostic and treatment support.

m-Education

Education is a key area o concern, withover 30 percent o Indians still unableto read or write. Although 85 percent oschools in India are in rural areas,9 these

schools lack adequate acilities andinrastructure.

To remediate this issue, the SNDTUniversity collaborated with aleading wireless service providerand launched a mobile educationinitiative or rural communities and the

physically challenged in 2008. Mobileinitiatives such as these can openavenues or enhancing awareness anddissemination o education in remoteand rural communities.

m-Governance

m-Governance has emerged as akey tool to enhance the quality ogovernment services to citizensand bring in more transparency.Advancement in technologies helpsin the reduction o leakages and

transaction costs, and improves theeciency o service delivery. Severale-governance projects, such as thecomputerisation o land records,the Bhoomi project in Karnataka,eSeva in Andhra Pradesh, and theFRIENDS project in Kerala, havebeen quite successul. However, thelimited penetration o the Internetand computers has impacted theireectiveness, especially in rural areas.m-Governance can complement

e-governance by addressing the issueo reach and lead to greater social andnancial inclusion

Recognising this potential, theDepartment o Inormation Technology(DIT) has initiated the ormulationo a new policy ramework onm-governance. The specic ocus othis policy is on expanding access andreach o public services to all residents,especially in rural areas10.

5 Governance Now. Financially excluded households put India to shame, June 2011

6 Basic Statistical Returns (BSR) o Scheduled Commercial Banks, Accessed in August 2011

7 UNDP “Human Development Report”2010, Accessed in August 2011

8 Universal health coverage, Planning Commission, September 2011

9 UNDP, Human Development Report - 2010, Accessed in August 2011

10 DIT, Drat Consultation Paper on Mobile Governance Policy

Framework, 2011




Modes o delivering m-PowermentVAS content is delivered to subscribersthrough dierent delivery platormsbased on the type o content.Historically, VAS distribution has been

predominantly based on SMS andIVR platorms, and to a lesser extent,on GPRS and WAP portal platorms.With the introduction o 3G servicesand converged networks by leadingservice providers, distribution platormsare undergoing signicant changes.High bandwidth multimedia contentservices, such as mobile TV and onlinegaming, are driving innovation in VASproduct oerings, which can also beaccessed through the mobile Internet.

This trend is expected to continuebecause o increasing penetration osmartphones and the demand or data-rich applications, such as videos andgaming. While browser-based serviceswould account or a larger proportiono the market, voice- and SMS-basedapplications are likely to continue todominate.

Short Messaging Service (SMS): SMSis a orm o text-based VAS oered onmobile phones. The content that canbe distributed through SMS commonly

includes inormation SMSes or newsupdates, cricket scores, monophonicringtones, etc.

IVR: Interactive Voice Response (IVR)is a technology that allows a computerat the service provider’s end to detectvoice and touch tones through a normalphone call. IVR has particularly benetedareas o low literacy rates due to theease o use and local language support.IVR service is now being used or high-

end applications, such as m-banking andmusic on demand. One case in point isan m-education initiative by a leadingservice provider that allows subscribersto take conversational English languagelessons through an IVR application thatguides subscribers through audio clips.

Wireless Application Protocol (WAP) /

General Packet Radio Service (GPRS):

WAP and GPRS are used to deliverrich content, such as songs, videos

and games, to a subscriber. A GPRSsubscription also allows a subscriberto browse the Web, receive and sendemails and instant message.

For subscribers that are less conversantwith personalising handsets, wirelessservice providers are providing contentto subscribers directly through theirretail outlets. A number o VAS playershave invested heavily in traditionalmodes (SMS and IVR) o distribution.

Given the increasing utilisation obrowser-based delivery platorms,innovative services other than musicwould need to be delivered throughthese channels to generate monetarybenets. Given the ARPU sustainabilitythat data-rich applications provide toservice providers, the ocus on GPRS/ WAP and browser-based deliverymodes is expected to increase.




11 ACM, Transactions on Computer-Human Interaction (TOCHI) TOCHI - Volume 18 Issue 1, Apri l 2011

Prerequisites to inclusive growthSeveral actors will be instrumental indelivering empowerment to rural andurban India through mobile services.

Availability – The right kindo services to the rightsegmentsSince the rural and urban subscribersegments have very dierentempowerment needs, it is importantor the industry to be cognizant o

these dierences and design servicestargeted to specic needs. For instance,urban teenagers do not need toaccess m-education, but they needto be connected to social networkingwebsites through their handsets.Similarly, a armer in a remote village willnd regular weather alerts much moreuseul than alerts on cricket scores.Service providers need to ensure thatthey are capitalising on these diverseneeds by careully customising their

oers.

Usability – Ease o use todrive mass adoptionOne o the main reasons why SMShas been so phenomenally popularall over the world is its simplicity andease o use. To gain wide acceptanceand adoption, mobile data servicesaimed at empowerment need to besimple to use. Recent research on ruralmobile subscribers by Association orComputing Machinery (ACM) conrmsthat textual interaces are dicult touse by rst-time, low-literacy users,and error-prone or literate, but newusers.11 Localised IVR menus and multi-lingual content can help low-literacysubscribers and rst-time users ullyutilize the potential o various MVAS.Similarly, pre-loaded content andapplications on handsets can enhancecomort levels o users.

Aordability – Services priced

by spending power o themassesThe aordability o MVAS dependson the aordability o three relatedcomponents:

Low-cost handsets and tablets: The handsets that are used to accessempowering MVAS need to be availableat aordable prices. For rural areas, easynancing o handsets is also important.Handset subsidies, such as thoseoered by handset manuacturers, also

add to aordability. With BWA servicesbeing available rom 2012, aordabilityo tablets will also play a major role inmaking empowering MVAS available torural users.

Data taris and price o applications: Data taris in India have allensignicantly over the last decade, butcan be still considered expensive inrural and semi-rural areas. Cheaper,fat-rate data taris will encourage datausage. Also, in a market dominated byprepaid subscribers, service providersoering low value recharge vouchersand balance transer options add tothe aordability. Most utility-based

applications or the rural market areree to download, but in the uture, asthe rural MVAS market matures, theseapplications might become paid andthen the price o these applications willalso determine usage.

Data (2.5G) plan taris

Source: IAMAI

Note: Estimated price or entry level plan with

unlimited monthly data usage



CHAPTER 6

m-Banking

The Killer Applicationor m-Powerment




Over the last decade, banking has evolved rom the brick andmortar model to an Internet-based model where individuals can

access banking services 24/7 through mobile phones. Combining

the mobile and banking sectors has not only empowered

customers, but has also generated signicant opportunities or

both banks and service providers.

About 41 percent o urban India isunbanked. In the rural regions, theproportion o unbanked population ishigher at 60 percent.1 Banking touchpoints are expected to reach just0.07 per 1,000 people2 by December2011, still leaving a huge proportiono the population with no access tobanking acilities. This high degree onancial exclusion makes the provisiono banking services through themobile phone a huge empowermentopportunity.

M-Banking services, in addition to beingaccessible to the unbanked, also involvelow transaction costs. In India, bankingtransaction cost through the mobilechannel is only INR 2 per transaction incontrast to INR 50 through the branchand INR 15 through the ATM channel.3 Thus, the RBI has urged banks topromote m-banking to reduce costsand pass the benet to customers bylowering lending rates and increasingdeposit rates.


Global transaction costs by banking channel

Source: Tower Group, Fiserve, Mcom data

Note: Data as o 2009

1 Macquarie Research, India telecom sector: Mobile data… the silver lining, May 2011

2 Business Standard, Are you ready or M-banking?, January 2011

3 CRISIL Research, Market potential o m-commerce, August 2011




The concept o m-bankingIn the simplest orm, m-banking is a medium that provides subscribers 24/7 accessto basic banking services through their mobile phones. However, m-banking canalso include more complex banking services such as access to demat accounts,loan accounts, unds transers, investment options, etc.

While m-banking involves consumers’ direct transactions with a bank, the broaderconcept o m-payments, which allow consumers to make payments or purchasesrom their mobile phones also include retailers and merchants.

In m-banking, banks decide on both the bouquet o services to be oered and the

technology platorm to be deployed to make them accessible. The most commondelivery platorm is a Wireless Application Protocol (WAP) site that can be securelyviewed on mobile devices. More recently, banks have also started ocusing onplatorm-specic applications that provide dynamic content and greater ease ouse.

The concept o m-banking has evolved to include inormationand transaction-based services:

Inormation services: Inormation-based services are thosewhich provide the subscriber with various useul alerts andupdates concerning his banking account and transactions.These services, which can be either push or pull services, arelargely delivered through SMS as security concerns involvedare minimal. Push alerts use preset rules to notiy a customero nancial transactions; in contrast, pull alerts provide on-demand inormation to customers.

Transaction services: Transaction-based services aredelivered over an application platorm. The bank account andcredit or debit card is linked as a payment instrument andnancial transactions can be eected on request.

Type o inormation services through m-banking

Type o transaction services through m-banking

Source: CRISIL Research *Illustrative list

Source: CRISIL Research *Illustrative list

Push service Pull service

Alert or a transactionthrough debit/credit card

Request or transactionhistory

Bank account Credit/Debit

card

Demat

account

Funds transerMerchant/Bill

payments

Buy/Sell

transactions and

status

Loan repaymentAccess to card

statements

SIP payments

Minimum balance alert Demat holding status

Bill payment alert Balance equiry

Alert or und traner Cheque book request




Potential in nancial inclusionm-Banking has received wideacceptance among mobile subscribersglobally mainly on account o theconvenience and ease o use it coners.In countries such as the Philippinesand Kenya, concerted eorts rom thegovernments and the industry have

created very successul m-bankingchannels. The replication o such modelsin India can have a very positive impacton the country’s GDP.

m-Banking can be a potent empoweringtool or both the rural and urban regions.

In the inrastructure-enabled urbanregions, accessing banking operationsthrough the mobile phone can addto convenience. In many semi-urbanand rural regions, the empowermentpotential lies in granting basic bankingservices to the unbanked population.

Adoption trends in IndiaSince the time the RBI allowed 40 banksto launch m-banking services, about50 million subscribers4 have alreadyregistered or the services (primarilyinormation-based services). In February2011, 707,496 m-banking transactionsworth Rs 616.1 million were reported.5 The RBI estimates that as o May 2011,6.8 lakh m-banking transactions, worthRs 610 million, were being settled

through this channel every month.6 Also, as o April 2011, the NationalPayment Corporation o India hadissued about 8.5 million Mobile MoneyIdentiers (MMID - a unique seven-digit

account number used in mobile undstranser operations) and numbers wereestimated to be growing at the rate o10,000 users each day7.

The RBI believes that, althoughthe number o m-banking users issubstantial in absolute numbers, it isvery low vis-à-vis the number o mobilephone subscribers in the country.

Moreover, the uptake o m-bankingservices or making payments hasprimarily been restricted to urbanhouseholds because o low levels oawareness and low literacy rates in rural

regions. With the majority o India’sunbanked population residing in ruralareas, the potential o m-banking in ruralareas is immense.

Indian subscribers’ use o m-bankingis currently restricted to low-costtransactions such as checking accountbalance, viewing transaction details andchecking on cheque status. However,

security concerns, coupled with lowawareness levels, are making themcautious o using mobile platormsor more complex operations such astranserring unds.

4 CRISIL Research, Market potential o m-commerce, August 2011

5 MediaNama, Inormation sourced rom Reserve Bank o India (RBI) through RTI Act, April 2011

6 Business Standard, Mobile banking, cash at point-o-sales services remain dismal, says RBI, May 2011

7 Times o India, Mobile payment system to gain steam in coming months, May 2011

m-Banking usage in India (March 2011)

Source: Department o Inormation Technology

*Data based on total o 129.21 million transactions on mobiles




Regulation and governancem-Banking in India is governed byguidelines issued rom the RBI. The rstguidelines or m-banking transactions– covering m-banking, money transer,m-payments and m-commerce – wereissued in October 2008. Subsequently,in December 2009, the RBI revisedthese guidelines to bring in morefexibility and thereore, nancialinclusion. The three main areas where

the central bank relaxed regulatorycontrol on m-banking transactions are:

• Transaction limits: Raised the dailyceiling to INR 50,000 per customeror both unds transer and mobile

payments rom INR 5,000 andINR 10,000, respectively.

• Security standards or lower valuetransactions: Allowed banks toundertake transactions up toINR 1,000 without end to endencryption. This, in a way, reducedthe transaction cost.

• Cash delivery in unds transerservices: Facilitated transer o undsrom the accounts o m-banking usersor delivery in cash to the recipientsthrough agents appointed by thebanks as business correspondents.

Currently, the RBI’s guidelines onm-banking cover the ollowing criticalareas:

• Regulatory and supervisoryinterventions

• Registration or service

• Technology and security standards

• Interoperability

• Inter-bank clearance and settlementguidelines

• Customer complaints and grievanceredressal

• Transaction limit

The m-banking ecosystemThe success o m-banking rests on successul collaboration among all players in

the complex ecosystem – the regulator, technology enablers, nancial institutions,service providers and merchants.

Participants in the m-banking (including m-payments) ecosystem


Merchants

Consumers

Financial

institutions

Network

operators

Sotware and

technology

providers

Handset

manuactures

TheRegulator




• Financial institutions: Banks, credit/ debit cards issuers, prepaid cardissuers, and mobile wallet issuers arethe primary providers o m-bankingand m-payments services.

• Telecom service providers:Telecomservice providers oer platormssuch as Unstructured SupplementaryService Data (USSD), service providerWAP sites and SIM Application Toolkit(STK) to provide m-banking services.Service providers dene the design

and are involved in the delivery oservices.

• Technology enablers:Technologyenablers design and developapplications compatible withhandsets and sell those applicationsas products. They also maintain theapplications ater deployment andplay the role o aggregators.

• Handset manuacturers:The roleo handset manuacturers is not

that prominent in simple m-bankingservices that are delivered via SMSand WAP sites. However, when itcomes to the use o m-paymentsservices, handset manuacturersneed to ensure that their productseither come pre-loaded withpopular applications (which areeither sel designed or sourced

rom a third-party) and/or supportthe various platorms (e.g. JAVA)and technologies (e.g. Near FieldCommunication) required to accessthese applications.

• Merchants: Merchants are notinvolved in the ecosystem orm-banking in the strictest orm –that is accessing the bank througha handset. Their role is, however,very critical in m-payments becausethey accept payments rom the

consumers by reading the card at thePoint o Sale (PoS) machine. In orderto provide a seamless experienceto consumers, it is imperative thatmerchants are empanelled on a singleplatorm.

• Regulator:The regulator providesthe overall regulatory ramework andis responsible or governance o andcompliance to the ramework.

Within the ecosystem described above,

m-banking services are delivered bythe ollowing three alternative modelsdepending on which participant hasmore operational control, and thereore,more control on revenue sharing:

• Bank-led

• Operator-led

• Third-party led

Bank-led modelUnder this model, the banks extendtheir services to customers bypartnering with operators and the otherstake-holders in the ecosystem. Thebank-led model may be implementedby either using correspondentarrangements or through a joint venturebetween a bank and an operator. Theownership o the customer lies with thebank.

Example: First National Bank (SouthArica)

Operator-led modelIn this delivery model, mobile operatorsorm the ace o the service, whichthey deliver by orming alliances withbanks and other nancial institutions.Operators get the principal proportiono the revenues and banks claim theprocessing ee.

Example: M-PESA (Saaricom, Kenya),A1 Bank (mobilkom, Austria)



m-banking and payments - expectations o ecosystem participants


Third-party service provider-led modelThird-party service providers tie up with banks and telecom service providers, and provide m-bankingand m-payments services through their own applications. Third-party service providers keep the majorproportion o the revenues, while nancial institutions earn through processing ees. Operators earnthrough data carriage charges that apply to the download and use o these applications.

Examples: Obopay and Paypal

Keeping in mind various concerns (such as security) and priorities (nancial inclusion), in India, the RBI hasexpressed preerence over the bank-led model. However, irrespective o the underlying business model,in order to ull its empowerment potential, m-banking services must address some basic expectationsrom the various participants in the ecosystem. These are illustrated in the diagram below:

Participants in the m-banking (including m-payments) ecosystem


Ease o use

Increased ARPU

Network agnostic

solutions

Faster transaction

time

Customer loyality

Speedy settlement

Brandingopportunity

Easy integration with

existing systems

Security

Security

Low or zero cost o

adoption

Security

Low or zero cost

Interoperability

Accessibility

Personalization

Lower churn

ConsumersNetwork

operators

Financial

InstitutionMerchants




Growth drivers • Increasing mobile penetration:

The increasing mobile penetrationin the country is making the mobilephone nearly ubiquitous. With thegovernment’s emphasis on the ruraltelecom sector, even rural Indiais increasingly getting connectedthrough the mobile phone. This bodeswell or the uptake o all utilitarianVAS, including m-banking.

• Increasing spending power in rural

India: Rural India’s purchasing poweris on the rise and telecom is one othe sectors which rural Indians arechoosing to spend their additionalincome on. A 2011 study by research

rm GK Nielsen revealed that 7percent o all mobile phones sold inthe rural areas were touch screenhandsets as against 10 percent inurban areas.10

• Unbanked population in India: About 72.111 Indians have accessto mobiles, while only 40 percent12 have access to bank acilities. This

gap provides a huge opportunity orm-banking.

• Favourable age structure: India isexpected to add 120 million people toits working-age group during 2010-20, taking the country’s working

population at 28 percent o the globalworking population13. Consumersbelonging to this age group havehigh inclination toward real-time,sel-service transactions such asaccessing their banking accountsthrough their mobile handsets.

• Encouraging regulatory

environment:The RBI has been

encouraging the uptake o m-bankingby progressively simpliying theregulatory environment. This isencouraging banks and telecomoperators to increasingly oerm-banking services to theirsubscribers.

Challenges and impediments • Gap in awareness and usage:

Various studies have pointedtoward the gap between consumerawareness and the use o m-banking,and have stressed on bridging thisgap to enhance the uptake. About 60percent o the unbanked populationin India resides in rural areas14, whereilliteracy rate is very high. Thus, thechallenge lies in designing services ina way that can be easily understoodand used by the rural population.

• Security concerns:The securityo nancial transactions plays avital role in winning the trust ocustomers and encouraging themto use m-banking services. Theexecution o transactions rom aremote location and the transmissiono nancial inormation over thewireless network pose complicated

security challenges. Thereore, thereis a need or stronger regulationsor m-banking services on the samelines as e-banking. There is a need orupdating m-banking regulations asthe static PINs currently being usedin m-banking are vulnerable to beingeasily hacked.

• Handset compatibility: Not allhandsets available on the marketsupport the dierent technologies

that banks deploy to oer m-bankingservices, such WAP, or applications.Thereore, there is a need to simpliythe technological platorm usedto provide m-banking service. Forinstance, in rural areas, the populationmainly uses handsets in the range oINR 2,000. These handsets cannot beused to access high-end applicationsor platorms.

10 Communications Today, Rural India gadget-savvy too, January 2011


12 Economic Times, India to have more than 5 crore bank accounts, February 2011

13 SME Times, Subir Gokarn, Deputy Governor, Reserve Bank o India, March 2010

14 Macquarie Research, India telecom sector: Mobile data… the silver lining,

May 2011




What the world can learn rom Kenyam-PESA, the m-banking service romSaaricom and Vodaone in Kenya,is known as the most successulm-banking service in the world. Thisoperator-led service, launched in 2007,gathered nearly 14 million users withina span o our years. One o the biggestbenets o the service is that it can beused or the smallest o transaction

volumes. As o June 2010, m-PESAtransactions amounted to about 70percent o the volume o electronictransactions in Kenya but were only 2.30percent in value15. At the end o 2010,USD 400 million, or 29 percent o thecountry’s GDP, was travelling throughthe m-PESA system16.

The success o m-PESA can beattributed to several actors – somespecic to the service while someothers pertaining to the market andregulatory environment.

m-PESA: Key success actors(external) • The banking environment in Kenya:

Prior to the launch o m-PESA inKenya, 38 percent o people did notuse any orm o nancial service;ormal, semi ormal or inormal.National money transer is one o themost needed nancial services inKenya because o the high populationo urban migrant workers who needto send money back to their amiliesin the villages. Prior to m-PESA

many people would have to resort to

sending money through inormal andpotentially unsae routes (e.g. via astranger travelling to the village).

• Mobile penetration in Kenya: Atthe end o 2008, mobile penetrationin Kenya was 39 percent or over15 million subscribers. Most o thesubscriber base knew how to makebasic voice calls and send SMSes17.

• The regulatory environment in

Kenya:The Central Bank o Kenyahas actively been involved in theregulation o mobile money servicesin Kenya. The open approach adoptedby the bank allowed Saaricom tooer m-payment services withoutpartnering with a bank. This meant

that users o the service did not needto have a prior bank account.

m-PESA revenues and users

Source: Saaricom

15 CGAP, 10 things you thought you knew about M-PESA, November 2010

16 Beyond Prot, Where Mobile Money Matters, April 2011

17 International Finance Corporation, M-Money Channel Distribution Case – Kenya, 2010




Initiatives rom the Government o IndiaThe success o m-PESA indicates thatin a developing country, m-paymentsand m-banking can play a huge rolein bringing about empowerment.Recognizing its potential, theGovernment has undertaken severalm-banking projects in India.

•

The National Payments Corporationo India (NPCI), in association withseveral banks, launched the InterbankMobile Payment Service (IMPS) inNovember 2010. The IMPS oersinstantaneous, 24X7, interbankelectronic und transer servicethrough mobile phones.

• A Little World (ALW) (a technologyimplementation partner) tied up withNXP Semiconductors to design anm-banking platorm or the AndhraPradesh government. ALW has alsocarried out pilot projects with SBI invillages located in some o the mostinaccessible and dicult terrains o

the country such as Pithoragarh inUttarakhand, Mizoram, Meghalaya,and remote villages in AndhraPradesh.

m-PESA: Key success actors(internal) • Product oering: m-PESA is

designed around the provision onational remittance services. It isan SMS-based system that enablesusers to deposit, send, and withdrawunds using their mobile phone.Customers do not need to have abank account; they can transact using17,600 agent18 outlets in the country(as against only 840 bank branches).m-PESA also allows users to purchase

airtime, pay bills, and withdraw/ deposit money and purchase goodsand services.

• Pricing: Registration and deposits areree. Most other transactions have atiered price structure where the userpays depending on the volume o thetransaction. Transaction values aretypically small, ranging rom USD 5 toUSD 3019.

• Marketing communication: m-PESA carries the Saaricom brand,which is Kenya’s most valued brand.At the time o launch, Saaricominvested signicantly in above-the-line marketing campaigns aimed atincreasing awareness. Along withsignicant advertising in traditionalmedia such as TV and radio, roadshows and tents were organised thattravelled around the country signingpeople up, explaining the product anddemonstrating how to use it.

• Ecosystem: Saaricom has developedan extensive agent networknationwide. Currently, there are over17,600 active cash-in/cash-out pointsservicing m-PESA. Several largeinstitutions such as Kenya Power andLight Commission (KPLC), KenyaAirways, and Nakumatt Supermarketsalso support the product.

18 Mobile Money Arica, Going mobile: Egypt gears up or cellphone banking, June 2011

19 International Finance Corporation, M-Money Channel Distribution Case – Kenya, 2010



m-POWERING INDIA - INDIA TELECOM 2011 | 60m-POWERING INDIA - INDIA TELECOM 2011 | 60



CHAPTER 7

Other InnovativeMobile Services

Leading to

Empowerment




m-HealthOut o the 70 percent o India’spopulation that live in the rural areas,only an estimated 30 percent haveaccess to modern medicine. Every year,India’s educational system meets about30 percent o the total requirement

or doctors in the country1

. Deliveringaordable health care to India’s billion-plus population involves signicantinvestment and long gestation periods.Mobile devices, on the other hand, areused by an increasingly large proportiono the population and can thereore beused to empower the Indian populacewith aordable basic healthcareservices, especially in the rural areas.

m-health leverages mobile devices todeliver healthcare services and health-

related inormation exchange whichcan increase access, aordability, andquality o healthcare.

Adoption trends

The global m-health technology marketis expected to grow 25 percent annually,rom USD 1.5 billion (Rs 10,125 crores)in 2010 to USD 4.6 billion by 20142.Although it oers great potential orempowerment, the concept o m-healthis still an evolving concept in India.

One o the main reasons or this isthe lack o awareness among patientsand doctors about what m-health isand what benets it can provide. Themarket also lacks sustainable businessmodels, which is holding back a lot oprivate players. Currently, m-healthservices are predominantly used bythe government during epidemics to

drive awareness and best practices onprevention. However, private healthcareplayers too have started providing theseservices at a ew places in the countryin collaboration with telecom operatorsand equipment manuacturers.

Examples o m-healthprojects

Medical/Demographic datacollection3

In a large developing country suchas India, it is dicult to perorm acomprehensive collection exercise ohealth and population data. However,community health workers romMedia Lab Asia, along with All India

Institute o Medical Sciences and asotware company, launched an opensource application called ‘CommunityAccessible and Sustainable Health’system on Personal Digital Assistants(PDAs) as a pilot to collect medical anddemographic data in 2002.

An assessment o the pilot showed highacceptance among health workers. Italso led to the improvement in entrytime or data. The users were satisedwith the interace and were ready to

replace paper-based records with thehandheld device.

Patient monitoring4

The remote monitoring o patients willgive a lot o fexibility to doctors andhealth workers and help in increasingthe ratio o number o patients perdoctor. Keeping patients inormed about

their health status and medication,nutritional plan, etc., through mobilealerts is an exemplary way oempowering them.

Mobile Care, Support and TreatmentManager is a tool to improve the

management o HIV/AIDS in developingcountries. It enables HIV/AIDS patientsto access their lab tests and medicalhistory reports through mobile phones.

Tele-medicine

In 2003, a Java-enabled application waslaunched by Tele-Doc4 in 15 villages inHaryana to connect rural healthcareworkers with doctors in urban areasor remote diagnosis and treatment.It enabled doctors to receive real-time

diagnostic inormation and prescribeappropriate treatment. Another suchprogramme was introduced by a leadinghospital in the year 20005 to providemedical services to rural and semi-urbanareas through an audio-visual-enableddelivery system. The programme hasbeen successul in providing over57,000 tele-consultations across variousdisciplines over the years. It has morethan 71 tele-medicine centres acrossIndia and provides 24/7 consultation or

just INR 45.


Besides m-banking, a variety o other MVAS is leading to social and politicalinclusion in India, leading to empowerment o the masses.

1 DNA, October 2011

2 LiveMint

3 United Nations Foundation, mHealth or

Development, 2009

4 Center or Health Market Innovations, Mobile

Care, Support and Treatment Manager (MCST),

Accessed in September 2011

5 Modern Medicare, Wireless technology: Giving

wings to healthcare, February 2011



m-AgricultureThough agriculture is India’s largestoccupation with more than 506 percentpopulation still dependent on it, thecontribution o agriculture to India’s GDPis only 18.5 percent7. The governmentexpects the agriculture sector to growby 3-4 percent in the next ew years8.With a growing population and anincreasing need or sel-sustenance, theagriculture sector will continue to play amajor role in the economic developmento the country. Empowering the nation’s

armers is thereore a key priority or thegovernment.

Given the unpredictable nature o theiroccupation, the most benecial orm oempowerment or Indian armers is theability to take inormed decisions. Forthis, they need timely access to criticalinormation about weather orecasts,crop prices, irrigation tips, etc.m-Agriculture, or services that deliver

critical agricultural inormation andother services to agri-workers throughmobile handsets, can address this needand increase the nation’s agriculturalproductivity.

Adoption trends

Industry players with the help o thegovernment have launched variousm-agriculture applications, such asIFFCO Kisan Sanchar Limited (IKSL),

Nano Ganesh and m-krishi, to empowerarmers by reducing inormationasymmetry and increasing agricultureproductivity. The adoption o theseservices is still not phenomenal, but isincreasing owing to the eorts by thegovernment and the private sector.

Examples o m-agricultureprojects

IFFCO Kisan Sanchar Limited (IKSL)

The Indian Farmers FertilizerCooperative, IFFCO, along with privatesector telephony service providers,oers agricultural VAS to armersthrough a SIM card. Using this card,armers can access pre-recorded voiceSMS carrying important inormationsuch as weather orecasts, real-time

prices, arming tips, etc. They can alsoaccess a helpline rom where they canget answers to any agriculture-relatedquestions that might have. As o August2011, this service had around 2 millionsubscribers9.


6 Government o India, Overview o Agriculture,

April 2011

7 CIA, World Factbook, 2010

8 FICCI, Economy Watch, August 2011

9 GSM World: Case Study




m-Krishi

An agro-advisory service, m-krishiprovides armers to access agriculturalinormation, along with the opportunityto clariy doubts rom experts. Farmerscan download the application on theirhandsets and connect to geo-locationservices, such as GPS and Google Earthto receive inormation on local weather,soil conditions, pesticides and ood-grainprices.

Nano GaneshWhile the most common orm om-agriculture used in India is deliveryo agricultural inormation, there is alsosignicant need or automation in thelabour-intensive agricultural sector.To modernise irrigation services andoperations, an agricultural automationservice called Nano Ganesh waslaunched in 2009. This service,comprising a pair o devices and amobile connection, allows armers to

use their mobile phones to remotelyoperate their irrigation pumps and alsoalerts them i there an attempt to stealthe pump or any o its accessories. Aso October 2009, about 12,000 units oNano Ganesh had been sold in India10.

Future potential

The potential o innovative m-agricultureservices in India is signicant.Agriculture will continue to remaina priority sector in the country and

Indian armers’ need or inormationand automation will only grow withtime. Concurrently, mobile penetrationin rural India is also expected to rise,making m-agriculture a potent means oagricultural empowerment. Innovativeservices tailored to armers’ specicneeds, relevant content and sustainablebusiness models will be the key driverso m-agriculture in India.

m-GovernanceWith the rapid advancement in inormation technology in the last decade, thegovernment has digitalised the delivery o several public services. This increasingadoption o e-governance has increased accessibility o these services alongwith improving speed and transparency. However, the low Internet andbroadband penetration in the country has restricted the widespread adoption oe-governance services. In order to overcome this bottleneck, the government hastaken to the mobile platorm to deliver public services to the nation’s populace.

Adoption trends

With growing wireless penetration in rural areas in recent years, governmentbodies have started piloting m-governance services and integrating wirelesstechnology with various government departments to create cost-eective,ecient and 24/7 inormation systems. However, the introduction om-governance services in India can still be considered to be at a nascent stage.

10 Business Standard, October 2011




The various m-governance pilotsrunning/being considered in the can becategorised as ollows:

• Inormation-based services: It isvery critical or a government in ademocracy to transer accurate andtimely inormation to its citizensso that they can orm opinionsand take inormed decisions. Also,m-governance can act as a tool tocollect eedback and other inormationrom citizens or making the system

more robust and strong.

• Management/administration

services: The primary purposeo m-governance services is toimprove the internal operations opublic departments. It will enablethese agencies to work in a moretransparent and eective manner.

• Participatory services: m-governanceservices can be used in collectingcitizen inputs or political decision-

making. This can change the ace opolitical democracy and signicantlyenhance democratic participation.

Examples o m-governanceprojects

Road Transport Authority,Government o Kerala11

The Kerala government has introducedan m-governance service that allowsindividuals to receive the status oapplications and details o taxes andinsurances paid. Additionally, thescheme protects customers rompotential raud while purchasing second-

hand cars, as customers can senddetails o car parts (e.g., engine number,chassis number) via an SMS and receiveinormation on those parts, therebyeliminating any possibility o being soldstolen goods.

Goa State Service Delivery Gateway(SSDG)12

The state government in Goa haslaunched a state portal, Goa StateService Delivery Gateway (SSDG),

and a national Mobile Service DeliveryPlatorm (MSDP) under the nationale-governance plan. These will allowcitizens to le an online application ora ration card and check the status otheir applications by sending an SMSalong with the application number. Thegovernment is also working towardsetting up a central acility to providem-governance services using a cloudcomputing model.

Future potential

Increasing wireless penetration andbetter awareness o services will help inincreasing the uptake o m-governanceservices in uture. As the governmentcontinues to ocus on improvingm-governance, the gamut o servicescan range rom basic inormation-basedservices such as natural disaster alertsto enabling polls through mobile phones.

The availability o m-governance

services in regional languages andintegrated speech assistance toolscan be highly eective empowermentmeans as this will mean that even theilliterate rural masses can access theseservices rom the convenience o theirhomes or elds.

The central government is currentlyworking on a ramework that aims toormulate guidelines on the use omobile devices or providing governmentservices, such as paying utility bills andling tax returns. It would also ormulatestandards or easy interoperabilityo services across multiple serviceproviders and multiple governmentdepartments. It also aims to ullyintegrate existing inrastructure createdunder the National e-GovernancePlan by setting a Mobile ServiceDelivery Gateway (MSDG) platorm.The ramework is expected to be inplace by 2012 and would enable thecentral government to include various

government services under the ambit om-governance.

11 Kerala State IT Mission, Motor Vehicle

Department, Accessed in August 2011

12 Inotech Corporation o Goa Limited, SMS

Gateway - A Smart way to Connect, Accessed in

August 2011




m-EducationEducation is one o the potent meansto achieve empowerment. The Indiangovernment’s concerted eorts havebrought down the illiteracy level o thecountry to 26 percent (in 201113), but asizeable population in India, especiallyrural India, is still in the need oaordable basic education. m-Educationservices – or the delivery o educationalcontent and services through the

mobile handset – can signicantly add tothe government’s eorts at eliminatingilliteracy and establishing a scalableeducational in inrastructure or themasses.

Adoption trends

The Government o India, along withprivate education players, has startedoering various m-education services,such as basic education lessons, exam

tips, mobile tutorials or school syllabi,English lessons and general knowledge,and result alerts.

With an increase in wireless penetrationand the growing MVAS industry, variouscompanies are ocusing on providingservices, such as language training,mobile reading, adult literacy andvocational training on specic subjects,though mobile phones.

Future potentialIndia is one o the youngest populatedcountries in the world and thus, has ahuge demand or educational services inthe uture. Education would play a vitalpart in making the population skilled andemployable. The literacy rate at about 74percent13 still provides a huge potentialor imparting educational services inthe country. Moreover, there are somestates, which have literacy levels belowthe national average, and thereore theyneed to pay immediate attention to thesituation.

There is a huge potential orm-education services at all levels o theeducational ecosystem, rom primaryeducation to higher education and romgovernment schools to private coachinginstitutes.

The government plans to adopt mobilephone as an essential tool to imparteducation to students in the country.

This would allow students, primarily inrural areas, who cannot access qualityeducational services at their locations,to study subjects o their choice by justpaying a minimal ee.

Examples o m-educationprojects

MGurujee

It is an m-learning application/portal thatallows users to access content in the

areas o engineering, management,civil services, medicine, school syllabiand general knowledge tutorials. Itoers learning content in practice, quiz,timed or tutorial mode by charging anominal ee per question set and a xedsubscription amount per month.

English Seekho

English Seekho is an applicationthat provides conversational Englishlanguage lessons through an Interactive

Voice Response (IVR) application onmobile phones. It helps non-Englishspeaking people to get amiliar with thelanguage by taking interactive lessons.

Empowering womenGender equality and women’sempowerment is a very importantpart o social inclusion and the generaldevelopment o the nation. Sincethe last two decades, the growtho IT and the telecom industry hasplayed a signicant role in women’sempowerment, primarily in urban andsemi-urban regions. Recognizing thepotential, various players have started

developing women-specic mobileapplications, both or urban and ruralmarkets. These applications aim atproviding both social and nancialbenets to women through access toeducation, healthcare, sel-employmentopportunities and personal saety.

Examples o MVAS projectsleading to women’sempowerment

Soochna Shakti

Part o the DoT’s ‘Sanchar Shakti’scheme unded by USOF, SoochnaShakti is a service aimed at empoweringrural women through news, inormationand expert advice on health, education(including learning English), selemployment and nance. The serviceis available through a multi-lingualIVR portal that can be accessed romall handsets. Various government

bodies, NGOs, universities and privateorganizations are developing thecontent or this service.

Sel Employed Women’sAssociation (SEWA) Scheme

SEWA is a trade union o more than1.1 million women workers in theunorganised sector. Its main objectiveis to determine ‘livelihood security’ orits members. SEWA provides updatedinormation on commodity pricesto women workers so that they can

determine when and where to get thebest price or their produce. It also helpsin crop planning and making inormedharvesting decisions.

13 Census o India, Brie Analysis o provisional

population gures 2011 Census, Accessed in

August 2011




Fight Back

A local charity in New Delhi is soon about to launch a mobilepersonal saety application or women called Fight Back.Using this application, women in danger o their personalsecurity can trigger text messages with a GPS location to upto ve people, including the police. The SOS message will alsorefect on the users’ social networking pages.

m-Powerment platorms andtechnologies o the uture

Location-based services (LBS)

Many o the empowering applications described in thepreceding sections integrate the user’s location data toprovide useul communication services to the users.Location-based data helps in customizing a mobile service/ application to specically address the users’ needs. Thereore,mobile location-based services are very important in the wayto empowerment through the mobile phone.

The Indian market or Location-Based Services (LBS) hasgrown rom USD 22 million in 2007 to reach USD 500 million

in 2011. Driven by the various empowering mobile applicationsthat are being launched, this market is expected to growexponentially in the near uture. Navigation assistance,emergency assistance, disaster relie, transport alerts, peopletracking, local search etc., are some o the mobile LBS thatwill contribute signicantly to empowerment.

Machine-to-Machine (M2M) communications

With the pace o development exerting signicantdemands on the country’s productivity and eciency,automation is becoming a key route to empowerment. M2Mcommunications, a technology using which devices and

applications can relay messages to each other, can act as apowerul enabler o automation, and hence empowerment.

M2M communication can be useul in both rural and urbansegments. In rural areas, armers can leverage this technologyor automation o agro and irrigation services, water level

monitoring, and data gathering or milk and agri-cooperatives,sheries, poultry and soil analysis. On the other hand, in theurban region, people can leverage the technology or mobileticketing, purchasing in kiosks, vending machines, and remotemonitoring o oce and home equipment.

The introduction o large-scale national projects such as theRestructured Accelerated Power Development & ReormsProgram (R-APDRP) and Aadhaar (the Government o India’sunique user ID project) are uelling the growth o the M2Mmarket in India.

Near Field Communication (NFC)Near Field Communication (NFC) is a technology that allowscontactless data transer among compatible mobile handsetswithin a short range (less than 10 cms). Globally, NFC hasplayed a critical role in enabling successul m-paymentsservices in countries such as Japan. In India too, there existsconsiderable potential or NFC-enabled applications andservices. By making mobile phones unction as credit cards,NFC will provide a signicant boost to the m-paymentsmarket in urban India. In rural India, the potential o NFC lies inproviding remote access to nancial services such as bankingaccounts and pension accounts. Also, since NFC-based peer-

to-peer data transers are likely to be more user-riendly thanBluetooth transers (which require pairing o devices), evenelderly users can be comortable using this technology. Thiswill be a big step towards overall empowerment.




CHAPTER 8

Technology andInrastructure

The Basic Enablers oEmpowerment




Telecom technology orms the backbone o all advancements in

this sector. The huge empowerment potential o mobile phones

can be realised only i the underlying technology is strong

enough to support the expected level o innovation. Technological

advances not only enable the conception o innovative services,

but also play a huge role in making those services available to the

masses through user-riendly interaces and at aordable prices.

Table 2: Mobile technology in India

Technology Platorm Services available

1G Analogue network Voice calls

2G GSM, CDMA 1G + SMS, caller ID, conerence call

2.5G GPRS, EDGE 2G + MMS, Internet

3G UMTS, WCDMA2.5G + high-speed Internet, video calls,streaming music, 3D gaming

3.5G EVDO, HSDPA3G + video on demand, videoconerence

4G WiMax, LTE 3.5G + high-speed Internet

Source:Telecoms market research

The India growth storyMobile phones began with the rstgeneration (1G) technology in the1970s. The 1G analogue system orwireless communication saw two keyimprovements during the 1970s: theinvention o the microprocessor and thedigitisation o the control link betweenthe mobile phone and the cell site. 2Gis used to describe the advent o digitalwireless communication or cellularmobile systems. The leap rom 1G to

2G eectively took mobile phones romanalogue to digital. The 2G systemprovides better quality and highercapacity at lower cost to consumers.

2G utilises various digital protocols,including GSM, CDMA, TDMA, iDENand PDC.1

Beore making the major leap rom 2Gto 3G wireless networks, the lesser-known 2.5G was an interim standard.While 2G and 3G have been ormallydened as wireless standards, 2.5Gis not considered a standard and wascreated or the purposes o marketing.2.5G saw some o the advancesinherent in 3G networks, includingpacket-switched systems.

The recent evolution rom 2G to 3G hasushered in aster and higher-capacitydata transmission. 3G technologiesenable aster and greater networkcapacity and more advanced networkservices.


1 ITU, All about technology, Accessed in July 2011



Beyond 3G in India:Broadband Wireless Access(BWA)2

With growing competition and theneed or on-the-move connectivity, thedemand or ast, scalable, cost-eectiveand wireless networks to providebroadband connectivity is gainingground in the Indian market. 4G is astep up rom 3G, which is currently themost widespread, high-speed wireless

service. On average, 4G wireless issupposed to be 4 to 10 times aster than3G networks. The underlying technologyin 4G can be WiMax or long-termevolution (LTE).

In June 2010, the Indian governmentheld the auction o BWA (4G) s andcollected INR 385 billion. Inotel (ownedby Reliance Industries) emerged as thesole pan-India BWA service provider.

Worldwide inter-operability ormicrowave access (WiMax) technologyis designed to provide high-speedInternet access with ast datadownloads. LTE delivers aster dataspeeds and new services by creatinga new radio access technology that isoptimised or IP-based trac. LTE isthe result o ongoing work by the 3rdGeneration Partnership Project (3GPP),a collaborative group o internationalstandards organisations and wirelesstechnology companies. The results othe auction suggest that in India, LTE

will be preerred 4G standard whenservices are launched in 2012.

LTE will help in increasing capacity,reducing network complexity and thus,lowering deployment and operationalcosts. It will enable service providers tomeet the growing demand or mobiledata solutions, making it possibleor richer services to be delivered toconsumers more cost eectively.

Telecom inrastructure in IndiaIn a cellular network, cells are generally organised in groups o seven to orm acluster. There is a ‘cell site’ or ‘base station’ at the centre o each cell, which housesthe transmitter/receiver antennae and switching equipment. The BTSs are installedin a contiguous manner, so as to acilitate the handing over o signals rom oneBTS to another. The radius o each BTS varies rom 500 metres to as much as8-10 kilometres, depending upon subscriber usage, topography, requency-band

and spectrum availability. All base stations o each cell are connected to a centralpoint called the Mobile Switching Oce (MSO), which is generally connected tothe Public Switched Telephone Network (PSTN). Telecom towers are the lieline ocellular networks.

In India, Inrastructure Providers-1 (IP-1) can provide assets such as towers, darkbre, right o way (ROW) and duct space, through simple registration withoutpaying any ee. It can also create active inrastructure on behal o the e. As perTRAI, there were 400,000 telecom towers in India as o April 2011. The tenancy levelor the industry stood at 1.68 in 2010-11.3The telecom tower industry will requireapproximately 100,000 more towers to cater to the projected subscriber base oaround 1 billion by 2014 and to support the rollout o 3G and BWA services.4

Inrastructure sharing and consolidation

Initially, service providers used their tower inrastructure or competitive advantage.However, over the past ew years, the leading service providers have opted toshare their inrastructure. Inrastructure sharing provides excellent opportunity orwireless service providers to reduce their costs and emissions. There are two levelso inrastructure sharing: passive and active.

• Passive inrastructure reers to the sharing o civil inrastructure such as physicalsites, buildings, shelters, towers, masts, power supply and battery backup. This isby ar the most common orm o inrastructure sharing in India.

• Active inrastructure sharing: This reers to the sharing o electronic elementssuch as antennas, eeders, radio access network (RAN), cables, node B and

transmission equipment.


2 Verizon Wireless, LTE: The uture o mobile

broadband technology, Accessed in July 2011

3 Towers: standing tall, Voice & Data, June 2011

4 TRAI, Recommendations on Telecommunications

Inrastructure Policy, April 2011





Key drivers or inrastructure sharing

• Capex and opex savings: Thesetting up o a countrywide cellularnetwork requires substantial capex.Inrastructure sharing allows serviceproviders to maintain an asset-lightservice approach and releasessignicant cash resources.

• Faster rural rollout: As wirelessservice providers penetrate ruraland semi-urban areas, inrastructuresharing will act as an importanttool to achieve aster rollouts ateasible costs. Owing to higher landdevelopment costs, security costs,insurance costs, power shortages,a higher proportion o ground-basedtowers, unclear land ownership andexpensive backhaul connectivitycosts in rural areas, service providershave strong incentives to shareinrastructure.

• Reduction in execution risks: Signicant execution risks areinvolved in erecting towers. Itrequires as many as 40 clearancesrom separate authorities, such as

the Standing Advisory Committeeon Radio Frequency Allocation, stateelectricity boards and land owners,beore the tower and electronicinrastructure can be installed.Inrastructure sharing will help inreducing execution risks by reducingthe overall number o towers.

• Alternate revenue stream or

incumbents: Inrastructure sharingenables service providers to earnrevenues rom a new source andmake the tower business a protcentre, apart rom reeing upsignicant cash resources

• Government initiatives on

inrastructure sharing:Thegovernment avours asterdeployment and investmentoptimisation in the telecom sector.Inrastructure sharing limitsduplication and gears investmenttoward underserved areas, productinnovation and improved customerservice.

• Local restrictions and

environmental benefts: Localauthorities are becoming moreconcerned about the environmentaland aesthetic eects o the increasingnumber o towers. Zoning regulationsdrive service providers to share civilinrastructure.

Currently telecom companies can shareonly passive inrastructure. In the drat

National Telecom Policy 2011 (NTP –2011), the government has proposedto allow active inrastructure sharing.This will result in lower cost or settingup network and less time or rolling outservices.

Technology trends

National fbre optical network(NFON) to drive wirelinebroadband penetration

The prolieration o broadband enables

the growth o content, applicationsand services that will go a long wayin making India a truly competitiveknowledge-based economy. Broadbandis a powerul tool or making positiveimpact on the lie o people by providingaordable and equitable access toinormation and knowledge. While orindividuals, broadband has a directimpact on their liestyle and behaviour;it contributes enormously towardstrade and generation o employmentin states. It is estimated that every

10 percent increase in broadbandpenetration leads to a 1.3 percent

increase in GDP.5 The rapid growth owireless services has increased itspenetration rom about 2 percent in2000 to reach about 72.1percent inAugust 2011.6 However, the limited

availability o broadband connectivityhas led to a digital divide betweencitizens with access to high-speedconnectivity and those without it. ICTapplications require high-speed internetconnectivity. Bandwidth requirementor village panchayats will be higher dueto sharing and extensive use o audio/ video applications owing to low literacylevels. Thereore, it becomes imperativeto take optical bre up to the panchayatsto ensure broadband connectivity withadequate bandwidth.

5 International Telecommunications Users Group,

Broadband Commission Presents Report to

United Nations, September 2010

6 TRAI, Telecom Subscript ion Data, March 2000 and

August 2011




To ensure broadband coverage, theGovernment has approved a schemeor creation o a National Optical FibreNetwork (NOFN) in October 2011, orproviding broadband connectivity tovillage panchayats. The objective is toextend the existing optical bre networkwhich is available to the districts/blockHead-Quarter’s level to the GramPanchayat level initially by utilising theUSOF. The cost o the initial phase othe NOFN scheme is estimated to be

about INR 200 billion. A similar amounto investment is also envisaged by theprivate sector to complement the NOFNinrastructure while providing servicesto the individual users.

The network physical structurecomprises o three layers, viz. AccessLayer (also called as last mile),Aggregation Layer and Core Layer (alsocalled backbone). The existing coreOptical Fibre Cable (OFC) networkalready deployed by one or more service

providers covers State/District/Blockheadquarter (HQ) but does not extendto most o the Panchayats. Trac romvarious access networks is aggregatedthrough Aggregation Layer whichunctions as the collection agent odata rom several sources in the accessnetwork and eciently transports it tothe backbone/core network or deliveryto dierent destinations across thecountry. However, the existing OFChas little presence at Panchayats in the

Aggregation Layer.

The present scheme o NOFN intendsto bridge the gap in the AggregationLayer by extending the network toall the Gram Panchayats. The presentscheme o NOFN, however, does notcover the optical ber at the AccessLayer, which is largely expected to bemet through commercial and marketdynamics augmented with policyinitiatives, wherever necessary.

The scheme will generate benetsin orm o additional employment,e-education, e-health, e-agriculture andreduction in migration o rural populationto urban areas. It will also acilitateimplementation o e-governance toacilitate inclusive growth. It will enableeective and aster implementation ovarious mission mode e-governanceprojects amounting to about INR500 billion initiated by Department oInormation Technology as well delivery

o a whole range o e-services by theprivate sector to rural areas.

The drat NTP – 2011 ocuses oncreating knowledge-based society byproviding ‘broadband on demand’ by2015. It aims to achieve 175 millionbroadband users by 2017 and 600million by 2020 at minimum downloadspeed o 2 Mbps and make availablehigher speeds o at least 100 Mbps ondemand. It also envisions providinghigh speed and high quality broadband

access to all village panchayatsthrough optical bre by the year 2014and progressively to all villages andhabitations. It also strives to recognisetelecom and broadband connectivityas basic a necessity as education andhealth and coner ‘Right to Broadband’to Indian citizens.

Green telecom leading totwo-pronged empowerment

In December 2009, the Minister oState or Environment and Forestsannounced the Indian government’scommitment to reduce 20-25 percento carbon intensity rom the 2005 levelby 2020. The Indian government isalready providing various incentivesor the initiatives involving the useo renewable energy resources. Thegovernment has also oered theUSOF support to encourage serviceproviders to opt or green energy and

bio-uel as an alternative to powering

base stations. Besides governmentaleorts, ecient power managementis becoming a business necessity orwireless service providers in the Indianmarket. At present, operating expenses,including energy costs are nearly 25percent o the total network operatingcosts. Some o the initiatives beingtaken or developing energy-ecientnetworks and energy-ecient handsetsare as ollows:

• Designing low-energy base station

sites

• Deploying base stations powered byrenewable energy

• Implementing inrastructure sharing

• Reducing mobile device lie cycleemissions through recycling

• Community power and low powerhandsets.

Thus, green telecom oers two-pronged empowerment in the orm o

better aordability and environmentalprotection, mainly driven through loweropex costs.

Cloud computing will helpovercome device challengesin delivering m-Powerment

The latest buzz in inormationtechnology, cloud computing can act asa signicant enabler o m-Powermentby making the delivery o various

mobile applications agnostic to handsetstorage capacity and computing power.As and when available, this will be abreakthrough technology or rural India,where low-cost, low storage basicphones outnumber high-end handsetssignicantly. Using cloud applicationsto access the various empoweringservices and applications will meanthat even the owner o the most basichandset can enjoy access to theseapplications. This will be a signicantrefection o widespread socialinclusion.



CHAPTER 9

Deliveringm-Powerment

through a Win-Win

Ecosystem




India’s mobile market has all the right demand side drivers in place

to deliver widespread empowerment through mobile phones.

However, the cornerstone o m-Powerment is compelling MVAS.

To deliver m-Powerment successully through customised MVAS,

there needs to be a thriving ecosystem in which participants have

clear roles and which delivers equitable returns to all participants.

Source: KPMG Analysis

The MVAS ecosystemAn MVAS ecosystem driven byan m-Powerment vision has threebroad stake-holders: the industry,the regulator and the end-user. Eachparticipant ulls several roles andresponsibilities and in return, has severalexpectations rom his participation. Thebroader ecosystem aims to provide theright mix o content and applications at

the right price in a regulated ramework.It also helps to build awareness abouttelecom services among customersand recognise remarkable contributionamong suppliers. Under the overarchingobjective o delivering holisticempowerment, a successul MVASecosystem is one which creates valueor all the participants.




Source: KPMG Analysis

The broad ecosystem or MVAS in India,when segmented urther, reveals acomplex and ragmented environmentcomprising a wide variety o stakeholders, oten with overlapping roles.

The ollowing are the broad stake-holdergroups in this ecosystem:

• Content providers: Content ownersand aggregators

• Technology enablers: Platormproviders and application serviceproviders

• Content delivery bodies: Networkoperators and handset vendors

• End-users: Subscribers

The ollowing diagram depicts theparticipants in the MVAS industry.

With mobile advertising becoming an

integral part o VAS, the ecosystem hasexpanded to also include advertisingagencies and marketers.

Content owner

At the rst level o the MVAS value chainare the content copyright owners, whodevelop original copyright content.

Content creator

These are the companies that generatecustomised content as per subscriberpreerences. Examples includecompanies running their own mobileportal on voice, SMS, WAP or USSD.

Content aggregator

These are the companies that perormthe unctions o in-house contentdevelopment and aggregation ocontent rom other content owners. Thecompanies provide content to wirelessservice providers and also directly to theend user through their own portals.

Application developers

Application developers make useo dierent platorms provided bytechnology enablers to develop and

enhance the quality o applications. Theyalso build customised applications orservice providers, and in some cases,manage these services as well. The

revenue model is based on either a

lump sum ee paid on the completiono the application or metrics such as thenumber o downloads.

Platorm providers

Platorm providers oer the platormthat plugs into the telecom serviceprovider’s network and acts as a bridgebetween aggregators and serviceproviders. They also manage andmaintain the platorm as per SLAsand handles the integration o diverseapplications and reconciliation o

accounts and billing.




Handset manuacturers

Handset manuacturers are relativelyrecent entrants in the MVASecosystem. Handset manuacturerspre-load their devices with customisedcontent, or which they pay royalty tothe content owners. Most handsetmanuacturers oer application storesrom where their customers canpurchase applications. They sourcethese applications by directly reachingout to local developers, with whom theyshare revenue every time an applicationis downloaded. They also share revenuewith network providers or billingsupport.

Network providers

More than any other entity in this multi-party ecosystem, the service provideris in a unique position to understandcustomers and their intent, interests,needs and preerences. Serviceproviders are the custodians o all data/

inormation, and thereore hold a criticalvalue in the MVAS ecosystem. Theirprimary role in this regard is that o acarrier o content and other services tosubscribers.


Creating a win-win MVAS ecosystemInternationally, successul MVAS services have always been supported by a win-win ecosystem. In order to unleash the potential o the MVAS market in India, it isimperative that the various structural ineciencies in the existing ecosystem areaddressed to bring in more equity and transparency. The ollowing are some o thesteps that will lead to a win-win MVAS ecosystem in India.

Redistribution o control

Currently, the MVAS market in India revolves around network providers, whoretain the maximum control on the ecosystem. VAS providers (content providers,

technology providers, etc.) orm a niche, unorganized market comprising a largenumber o start-ups. The network provider, who bills VAS to the end-user, ormsthe ace o VAS delivery to subscribers and is thereore responsible or strategicdecisions around content and pricing. The network provider also retains control onall usage MIS or content consumed rom their portals.

This aects VAS providers in the ollowing ways:

• Inormation asymmetries on usage data and MIS prevents VAS players rombeing able to monitor sales and orecast demand

• Network providers want to concentrate on the most popular, ast-movingcategories o MVAS such as entertainment content. This prevents VAS providersrom being able to invest in more utilitarian content and applications that can truly

lead to empowerment

The drat NTP – 2011 advocates separation o carriage rom content. This proposal,when implemented, can bring about an equitable distribution o control in the VASecosystem.




Equitable revenue sharing

Some o the major driving orcesbehind a successul MVAS market arethe creativity and innovation o thecontent creators and the resource andenterprise o content aggregators. Eachstakeholder has an important role toplay in the value chain and hence anequitable revenue sharing model wouldbe one o the key actors to create a

win-win ecosystem or all the players.

A avourable regulatoryenvironment

Although the telecom market in Indiais one o the most highly regulatedtelecom markets in the world, theVAS market has traditionally remainedoutside the purview o regulations.There is currently no policy rameworkgoverning VAS providers’ associationwith network providers. To create a win-

win ecosystem, the VAS market needsto come under an optimal regulatoryramework. This will not only boost VASproviders’ position in the ecosystem,but will also be imperative in channellingthe right amount o resources in thedevelopment o MVAS that can lead toempowerment, especially in rural India.The government has hinted at such aregulatory ramework in the drat NTP– 2011.

Increased data usage, lowerchurn

Currently, data orms 13-15 percent oIndian network providers’ ARPU. In thedeveloped nations, this proportion isas high as 30-35 percent.1 A win-winecosystem will need to assure networkproviders o increased data usage andthereore increased ARPU and lowerchurn.

1 Ovum, Mobile Voice and Data Forecast: 2011–16, July 2011



CHAPTER 10

TelecomManuacturing

Enabling Sustainable Growth




Regulations governing telecommanuacturing2

All equipment manuactured,traded or used in India are requiredto meet the relevant InternationalTelecommunication Union (ITU) andTelecommunication EngineeringCentre (TEC) standards. A license andrequency clearance is required romthe WPC to import equipment. TelecomEquipment Manuacturers Association(TEMA), established in 1990, is anindustry association or telecomequipment manuacturers as well ascomponent and cable manuacturers. Itplays an active role in the dissemination

and exchange o inormation among theGoI, oreign agencies, embassies, trademissions and national and internationaltrade associations.

The drat NTP – 2011, released inOctober 2011, ocuses on encouragingthe domestic telecom manuacturingsector to propel the economic growth. Itaims to ulll 80 percent o the demandthrough domestic manuacturing witha value addition o 65 percent by year2020. To achieve these targets, thepolicy envisions creating a corpusto promote R&D, IPR creation andentrepreneurship and developing aramework with the Ministry o HumanResource Development (MHRD)to periodically upgrade academic

curriculum o telecommunicationcourses. The government oresees thechallenge o skilled workorce and seeksto establish an apex body to guide skilldevelopment in the telecom sector.3


State-o-the-art telecommunications equipment, the key to a modern, reliableand robust telecommunications system, is vital or leading India on the path om-Powerment. With a remarkable 2G ootprint, a rapidly growing 3G market andthe expected rollout o LTE and WiMax, there is a strong demand or telecomequipment in India. The massive growth in the number o subscribers willnecessitate the upgradation o networks and induction o new technologies andservices. This will create a huge demand or switching, transmission and subscriberequipment. It is estimated that or 3G alone, the investment would be to the tune oUSD 15 billion. The demand or network elements will translate into a requirementor components, tests and auxiliary equipment. The overall requirement is expectedto be USD 100 billion until 2015.1

This has led to excellent opportunities or domestic and oreign investors in themanuacturing sector. The last two years saw many renowned telecom companiessetting up their manuacturing base in India. Several home-grown handsetmanuacturers have also entered the telecom manuacturing segment.

1 TRAI, Recommendations on telecom equipment

manuacturing policy, April 2011

2 PSA, Equipment or Indian telecom boom,

Accessed in July 2011

3 Ministry o Communications and Inormation

Technology, Drat National Telecom Policy – 2011,

October 2011



Evolution o the telecom equipment segmentIndia boasts o a large and boomingdomestic telecom equipment market.Anticipated investment o INR 450billion in telecom inrastructure isneeded every year to cater to the ast-growing telecom subscriber base.4

Telecom equipment manuacturingwas exclusively reserved with GoIenterprises until 1984. Subsequently,private entry was allowed in thedomain o manuacturing o telephone

instruments, cables, transmissionequipment, small switching exchangesdeveloped by C-DoT and largeexchanges. With time, the regulationsgoverning private entry were urtherrelaxed and presently, the privatesector is allowed to manuacture theentire range o telecom equipment orcomponents.

The requirement or a license ormanuacturing equipment wasabolished in 1991 and the VAS sectorwas declared open to the privatesector in 1992, ollowing which radiopaging, cellular mobile and other VASwere opened gradually to the privatesector. The emergence o India asa major manuacturing export baseo equipment was one o the keyobjectives o the NTP, 1994. EricssonIndia established its manuacturing

unit in Kukas, Jaipur (Rajasthan). WithNTP, 1999, R&D eorts to build world-class manuacturing capabilities werestrengthened. In 2005, the FDI ceilingacross telecom services was raisedrom the existing 49 percent to 74percent. In the same year, LG set upits plant with a manuacturing capacityo 20 million GSM mobile phones near

Pune. In 2006, 100 percent FDI in thesector through the automatic route wasallowed. Soon ater, Nokia opened itsmanuacturing acility near Chennai. In2008, Motorola set up a manuacturingacility at Sriperumbudur, Chennai. InOctober 2011, the drat NTP – 2011 wasunveiled with telecom manuacturingsector highlighted as a key ocus area inthe coming years.5






October 2011



Telecom equipment– demand,production andexports

The total demand or telecomequipment, including handsets, stoodat INR 547.65 billion or 2009-10. Thedemand is projected to be about INR1.08 trillion in 2015-16 and INR 1.7 trillionby 2019-20.6

Despite the growth in domesticmanuacturing, only 40 percent othe requirement or equipment ismet through local sourcing, withthe remainder coming rom globalcompanies manuacturing in India.

Lately, the trend is shiting to build in-house expertise or indigenous growthwithin the telecom manuacturingsector. In 2010-11, India producedtelecom equipment worth INR 535billion as compared to INR 144 billionin 2002-03, implying a CAGR o 17.8percent.7

There is a growing emphasis on theexport o telecom equipment. Withmultinationals setting up bases in India,India is emerging as a manuacturinghub and aims at enhancing its telecomexports each year. In 2002-03, India

exported equipment worth INR 4 billion.The exports have increased to INR 150billion in 2010-11, implying a CAGR o57.3 percent.7




7 TEPC, Policy recommendations to increase

domestic telecom growth and export o telecom

equipment and services, Accessed in July 2011

Table 3: Demand or telecom equipment (2009-2020F)

Type o equipment (INR billion) 2009-10 2015-16F 2019-20F

Wireline equipment 11.69 4.96 4.48

Wireless equipment (excl. handsets) 141.46 264.44 444.28

IP and packet switching equipment 40.57 146.89 202.31

Broadband equipment 72.01 77.61 298.15

Backhaul and transmission equipment 43.72 78.38 109.60

Other (miscellaneous products) 0.61 124.67 28.99

Mobile handsets 237.60 384.02 613.10

Total 547.65 1,080.96 1,700.91

Source: Ovum




Telecom equipment production (2002-11)

Telecom equipment exports (2002-11)

Source:TEPC

Source:TEPC



India emerging as a global telecommanuacturing hubIndia is ast developing as a hub orglobal telecom manuacturing. Theproduction and exports o telecomequipment have been on a steadyrise in the last ew years. The TelecomEquipment and Services ExportPromotion Council (TEPC) has set theollowing milestones to achieve by the

year 2014:• Exports to grow at 25 percent CAGR

to reach over INR 450 billion

• Domestic telecom products to growat a CAGR o 18 percent

• Employment generation (direct andin-direct) o more than 20 million

• To meet at least 70 percent odomestic telecom demand romproducts manuactured by Indiancompanies

• To have at least a ew IPR-driven,billion-dollar Indian productcompanies8

The drat NTP – 2011 proposes toactively incentivize export o telecomequipment and services. To ensure thecompetitiveness o the equipments,it emphasises on developing nationalstandards and participating in evolvinginternational standards.9

Government and TRAI initiativesThe long-term goal o the government

is not only to become a global telecommanuacturing hub but also to aidinclusive growth by ocusing on areas,such as employment generation andnancial inclusion.

Manuacturing units in rural areaswould help provide employment andincome generation opportunities,thereby, reducing the dependence onagriculture. This would help the ruralpopulation to access better educationand health acilities, and in turn,

improve the country’s literacy rates andemployability.

In April 2011, TRAI releasedrecommendations on ‘TelecomEquipment Manuacturing Policy’,

proposing new regulations to boost

manuacturing by domestic rms andlimit oreign rms’ market share inIndia’s booming telecom equipmentmanuacturing market.

Through the drat NTP – 2011,the government plans to providepreerential market access ordomestically manuactured productswith special emphasis on Indianproducts or which IPRs reside in Indiato adequately address the strategic andsecurity needs o the country consistent

with international commitments.9


8 TEPC, Policy recommendation to increase

domestic telecom growth in exports o telecom

equipment and services



October 2011



CHAPTER 11

Telecom Researchand Development





Telecom Centres oExcellenceThe unparalleled growth in innovativeservices and technologies in thetelecom sector has given birth to theneed or comprehensive in-houseresearch and talent development. Withocus on enhancing the talent pool

and technological innovation, securinginormation inrastructure, and bridgingthe digital divide, Telecom Centres oExcellence (COEs) have been set up.Each one o the eight COEs (sevenoperational and one proposed) ocuseson a niche area o activity.

The telecom sector in India has witnessed tremendous growth over the lastdecade; however in R&D India’s role has been restricted to being a technologysolution provider. The government aims at developing technology or massesand strengthening security inrastructure or telecom network.1 It is promotingmodern technologies through pilot projects on existing and emerging technologies,including WiMax and 3G. Also, the emphasis is on technologies with a potential toimprove rural connectivity.1

The government is also ocusing on the production o telecom equipment and isin the avour o promoting the manuacture o equipment domestically by oeringincentives to service providers or using domestic products and creating unds orencouraging R&D. In line with this, MCIT through drat NTP – 2011 has proposedorming a und to promote indigenous R&D, IPR creation, entrepreneurship,manuacturing, commercialising and deployment o telecom products andservices.2 The new drat also proposes to oer nancial resources on avourableterms and scal incentives to indigenous manuacturers o telecom products andR&D institutions.2

Also, Centre or Development o Telematics (C-DOT) initiated research ondeveloping the advanced version o 4G wireless technology and is competing withglobal vendors. Moreover, a Chinese equipment manuacturer is planning to investUSD 120-150 million to set up a R&D centre ocused on developing handsets inBangalore and employing about 3,500 to 4,000 people. With the aim o improvingR&D inrastructure, service providers, top academic institutes, and the GoI havecollaborated to set up the Telecom Centres o Excellence (TCOEs).

Table 4:TCOE ocus areas

Associate institute Principal sponsor Areas o ocus

IIT Kharagpur Vodaone EssarNext-Generation Network (NGN) andnetwork technology

IIT Delhi Bharti AirtelTelecom technology andmanagement

IISc Bangalore AircelInormation security and disaster

management o inrastructure

IIT Kanpur BSNLTechnology integration, multimediaand computational mathematics

IIT ChennaiRelianceCommunications

Telecom inrastructure and energy

IIT Mumbai Tata Teleservices Rural Applications

IIM Ahmedabad Idea CellularPolicy, regulation, governance,customer care and marketing

WPC, ChennaiGovt with industryconsortium

Spectrum management (proposed)

Source: COAI

1 Department o Telecom, Indian Telecom Sector

Targets, Accessed in August 2011



October 2011




With ocus on niche areas, the COEsundertake application developmentto suit the behavioural pattern oIndian subscribers and customiseglobal best practices or the Indiansetting. The COEs are also engaged inplanning the macro inrastructure orgrowth in a cost-eective manner andthe development o the talent pool.Moreover, the COEs ocus on promotinginnovation in the top academic instituteso India to enable absorption o the

current technology and also to developindigenous capability.

Centre o Excellencein WirelessTechnology (CEWIT)CEWIT was established by the DoT inpartnership with the Indian telecomsector to develop next-generationwireless technologies and products and

to provide inputs or the standardisationo emerging and uture wirelesstechnologies. The CEWIT is currentlyocusing on the 3GPP Rel-9 and theIEEE 802.16m standards. Its researchis also ocussed on end-to-end Qualityo Service in heterogeneous wirelessnetworks and ecient encodingschemes or SMS or Indian languages.

Broadband Wireless

Consortium o India(BWCI)Broadband Wireless Consortium oIndia is a non-prot organisation thataddresses various aspects o BWA,including technology development,standardisation, trials, deploymentand regulation. The BWCI aims atcreating an industry-wide consensus ontechnological and regulatory issues andoster industry-academia collaboration.

Contract R&DIn the 1980s and 1990s, many MNCsopened research labs in India toserve local manuacturing operationsand to customise products to matchdomestic needs. However, the lastdecade witnessed some MNCssetting up operations in India to caterto international markets and this led toR&D being outsourced to India.

The Indian telecom sector alsowitnessed R&D moving out o theheadquarters o Telecom EquipmentManuacturers (TEMs) or cost-eective,aster and innovative models o productdevelopment. India came out as aavourable R&D destination as indicatedby the global survey conducted by theEconomist Intelligence Unit (EIU) inSeptember 2004. As per the survey,about 28 percent o the respondentscited India as an R&D hotspot: a placewhere companies can tap into existing

networks o scientic expertise, aplace that has good links to academicresearch acilities, and a place thatprovides an environment whereinnovation is supported and easy tocommercialise.3

Within the technology sector,VLSI design is an area or whichmultinationals have looked at Indiaor some time now, and it remainsa growth area or R&D outsourcing.

Many large semiconductor companies,including Texas Instruments, NationalSemiconductors, Intel, Freescale,ST Microelectronics, Cadence andMotorola, have established R&Dacilities in India.

Reverse innovationThe unprecedented growth in thetelecom market, evolving telecombusiness models, and challenging

environmental conditions, make Indiaideal or innovation. Also, the idea o

‘reverse innovation’ has started romIndia. Especially, innovative mobileservices have mostly been emergingrom India.

Indian telecom vendors have been ableto increase scalability and add newerunctionalities on existing platorms,lowering the total cost o the solution.For example, chip packaging or criticalcomponents has been upgraded toindustrial grade to sustain a wider range

o temperature levels ranging rom -5Cto 80C degrees. Hence, the reliabilityand fexibility that these solutions bringwill help increase a vendor’s successaround the globe, oering serviceproviders the same benets o scale andadaptability dictated by the India market.

R&D utureIndia’s telecom companies areconsidered to be lagging behind their

global counterparts in R&D spend.However, the Indian telecom sector isexpected to get new investments worthUSD 1.5 billion or telecom R&D by2012.4 In 2009, global players across thetelecom value chain spent about USD38 billion on R&D, o which one-ourthwas oshored to low-cost countries.4 India’s share o the total oshoredR&D expenditure was around USD 3billion, which received a urther boostin 2010 due to 3G, 4G/WiMax and LTEdeployments globally.4

Telecom R&D in India will get anotherboost i the suggestion relating tosourcing inrastructure equipmentmade by TRAI is implemented. TRAIis in avour o mandating 80 percento the network equipment and otherrelated inrastructure to be sourcedrom domestic manuacturers by2020. In this regard, TRAI, in April 2011,proposed recommendations on TelecomEquipment Manuacturing Policy to

cater to the growing requirement o thetelecom R&D.

3 Knowledge Wharton, Contract Research or

Global Firms Creates Hotspots or IT, Telecom &

Biotech, November 2005

4 Knowledaber, In-depth Analysis o Telecom R&D

in India: An MNC and Vendor Perspective, May

2010



CHAPTER 12

InvestmentOpportunities in the

Indian Telecom

Sector





Capital expenditureTelecom markets in the developedcountries are highly saturated andercely competitive. Attracted by theavourable investment climate and

encouraging market potential, manyglobal telecom service providers orayedinto the Indian telecom market in thelast decade. The entry o new playersstimulated investments in the sector,with capex by service providers growing

at a CAGR o 20.6 percent during 2005-2010, to reach USD 7.3 billion.4

However, at a time when the countryrequires maximum capital inusion to

expand networks and to meet roll-outchallenges, capital expenditure hasstarted to decline with service providersputting their expansion plans on theback burner. The sector has alreadywitnessed service providers ailing

to meet roll-out obligations in manycircles. Along with it, there has been asignicant decline in FDI – a 47 percentdecline during April-December 2010 as

compared to April-December 2009.5

One o the new entrants in India’stelecom sector has already lowered theinvestment outlook to INR 8.1 billionrom its earlier guidance o INR 12.2billion.6

The rapid growth o the Indian telecom sector has attracted the attention oinvestors worldwide. India witnessed a signicant infow o oreign capital romprivate equity and hedge und investors over the past decade. In the ten yearsrom April 2000 and March 2011, the Indian telecom sector has received FDI infowamounting to INR 482.2 billion, accounting or an average o about 8.3 percent othe total FDI received by the country.1 With the presence o almost all the majortelecom companies o the world, the telecom sector in India is the third-largestrecipient o all FDI fow in the country. 2

A series o progressive policy initiatives by the government – such as plannedinvestment o INR 6.5 trillion in the 12th Five Year Plan3 and promotion o domestictelecom equipment manuacturing – are expected to boost the telecom sector’sattractiveness as an investment destination. Market-driven actors such as theplanned expansion o networks, development and deployment o 3G inrastructureand widening o BWA network by players will also drive investments. TheDrat National Telecom Policy – 2011 endeavours to create an investor riendlyenvironment or attracting additional investment in the Telecom Sector.

1 Telecom Tiger, Indian telecom sector received

Rs.48,220 crore FDI, October 2011

2 M2 Presswire, Indian Mobile Phone Industry

Foreign Players vs. Indian Players, October 2011

3 Asia Pulse, India’s telco dept plans or us$143 bln

investment in next plan, August 2011

4 Ovum, Service provider revenue and capex

orecast – global, October 2010

5 Department o Industria l Policy and Promotion,

FDI Statistics, April 2011

6 DNA, Telenor pares capex outlook or India, July

2011

FDI infow the Indian telecom sector (2006-11)

Source: Department o Industrial Policy & Promotion

Note: Telecom sector includes radio paging, mobile services and basic

telephone services and Data is or the period 1st April-31st March




The domestic investment situation,however, is more positive. Many homegrown mobile handset manuacturershave emerged in the recent past,boosting investments in the sector.Their success has translated intoaggressive expansion plans that wouldpositively impact investments. Thedrat NTP – 2011 suggests attractiveincentives to local manuacturersand this too would spur domesticinvestments. For instance, a domestic

handset manuacturer plans to investINR 1.5 billion in this scal on productdevelopment, ater-sales servicecentres and marketing.7

Most o the leading handsetmanuacturers worldwide areplanning to expand their productionbases in India. A leading equipmentmanuacturer has planned aninvestment o USD 75 million thatwill make the Indian centre one oits biggest manuacturing acilities inAsia.8 Another leading mobile handsetmanuacturer has announced a USD 70million investment plan to expand itsexisting capacity by 24 million units per

annum.9

7 Telecom Paper, Karbonn to invest INR 1.5 bln in

product development, October 2011

8 The Statesman, Chinese handset rm plans unit in

India, September 2011

9 Indian Business Insight, Samsung invests $70

million to expand noida mobile phone actory,

September 2011

Capex by service providers in the Indian telecom sector (2005-10)

Source: Ovum




Areas o opportunitiesTelecom equipmentmanuacturing

The Indian telecom sector haswitnessed a tremendous growthover the last decade, creating a hugedemand or telecom equipmentsincluding towers, mobile handsets andCustomer Premises Equipment (CPE).In 2009-10, the demand or telecom

equipment in India stood at INR 547.7billion, accounting or 5.5 percento the global demand.10 However,the domestic telecom equipmentmanuacturing sector has not kept paceand contributed only 12-13 percent othe domestic demand in 2009-10.10 Thus, the equipment or expansion othe network is currently imported romother countries.

Demand or telecom equipmentin India is projected to grow to INR

1,080.9 billion and INR 1.7 trillion by2015 and 2020, respectively.10 Withthe government ocusing on domesticproduction o telecom equipment, thegap in domestic demand and supplypresents a huge opportunity to betapped by domestic and internationalplayers alike.

Technology and R&D

In India, only 0.8 percent o the GDPis spent on R&D, while most o the

developed countries spend around 2percent o their GDP on R&D.11 R&D in

the telecom sector too has been limited.The increasing demand or telecomequipment, coupled with limiteddomestic innovation, has orced serviceproviders to import a signicant part otheir equipment needs.

Strong R&D inrastructure, in additionto creating a large number o jobs,also increases competitiveness and

creates intellectual property leading tosel reliance in strategic sectors. Thegovernment, with the aim o promotingR&D in the country, has set up theTelecom Equipment and ServicesExport Promotion Council (TEPC)and the Telecom Testing and SecurityCertication Centre (TETC). A ew majortelecom equipment manuacturershave already set up their R&D centresin the country and a ew others are alsocontemplating the idea.

The TEPC has recommended thatthe government should provide longterm credit at attractive rates to Indiantelecom companies and creation o aund, specically or R&D and productdevelopment in telecom sector, withinitial corpus o INR 1 billion romUSOF. It has also recommended orthe Minimum Alternate Tax (MAT) to bewaived o or 5 years or Indian R&Dor product development companies.Also, the limit o deduction rom

taxable income is recommended to beincreased rom the current 125 percentto 300 percent.12

Green telecom

An ever increasing demand or telecomservices has led to a signicant increasein energy consumption. Since demandor energy is largely met using non-renewable resources, posing thechallenge o larger carbon emissionsrom the telecom sector. Also, theexpenditure on energy accounts or a

signicant part o the operational cost othese networks.

To ensure that carbon emissions romtelecom remain stable over the comingyears, TRAI issued a consultation paperon green telecom in February 2011.More than 1,400 projects, as part o theClean Development Mechanism (CDM),have been approved by the Indiangovernment that could attract aroundINR 280 billion into the country by 2012through sale o Certied Emission

Reduction (CER) certicates.13

Withmore than 310,000 cell phone towersin India consuming about 2 billion litreso diesel per year, the shit rom dieselto alternate sources o energy willreduce CO2 emissions by 5 million tons,generating millions o carbon credits.The move is also expected to result insavings o USD 1.4 billion in operatingexpenses.13

10 TRAI, Recommendations on Telecom Equipment

Manuacturing Policy, April 2011

11 Communications Today, Telecom sector attracting

large oreign direct investment, February 2011

12 TEPC, Policy recommendations to increase

domestic telecom growth and exports o telecom

equipment & services, Accessed in October 2011

13 TRAI, Consultation paper on green

telecommunications, February 2011




MVAS

VAS in India has signicant potential.The government’s agenda o nancialand social inclusion through the mobilephone will be driven by innovativecontent and applications targeted atthe masses. This will require signicantinvestment in this sector.

TRAI, in 2009, recommended serviceproviders to provide air access totelecom inrastructure to contentproviders.13 TRAI has also proposed tolicense the VAS providers and structurethe revenue sharing agreementswith the telecom service providers topromote transparent distribution orevenues.14

The potential o the MVAS market is alsoattracting PE interest. Good MVAS canlead to high levels o customer loyaltyand this promise o a steady revenuestream is causing PE rms to showinterest in MVAS companies.

14 The Financial Express, Trai set to bring R12,000-cr

VAS market under regulation, July 2011

Table 5: Some recent investment activity

Date Partner 1 Partner 2 Rationale

August 2011

Spice Digital

(MVAS provider,India)

MediaTek (mobile ICsolutions provider, Taiwan)

MediaTek invested USD 20 million in Spice Digital todevelop MVAS services based on mobile Internet

January 2011 Bharti Airtel State Bank o India (SBI)Bharti Airtel and SBI agreed to invest INR 1 billionto orm a joint venture to oer banking and nancialservices through mobile phones.

January 2011 Vodaone ICICI

Vodaone and ICICI have agreed to collaborate on the

development o m-commerce applications.

Source: KPMG research

Table 6: Some recent Private Equity deals

Date Company Application Area Investor

July 2011 Astrid Utility applications Nexus Ventures

May 2011 Sourcebits Application development Sequoia

July 2010 GENWI Smartphone and I-Padapplications

Inventus Capital

February 2011 JiGrahak Mobility m-Commerce Helion

Source:Venture Intelligence




The telecom investment climate in IndiaEconomic actors

The Reserve Bank o India (RBI)continues to adopt a tight monetarypolicy to contain infation. This eort tocontrol infation by increasing interestrates has increased the cost o capital.With increasing rates, interest rates inthe country, the dierential betweenrates in India and Euro markets

widened, making external commercialborrowing (ECB) an attractive option.During April and August 2011, Indiancompanies raised USD 16 billionthrough ECB route.15 However, a sharpdepreciation o the rupee since Augusthas lowered the attractiveness o theECB route. Moreover, due to the shortterm nature o oreign borrowings16,this depreciation in rupee has increasedrepayment pressure on external debtheld by the players.

Consequently, service providers andother players have either deerred theexpansion plans or have curtailed theinvestments. The monetary policy withrelatively stable interest rates over timewould promote business condence.Moreover, market orces with clarityabout costs and expected return oninvestment are more likely to invest inthe sector.

Government initiatives

The GoI has always played a crucialrole by assisting telecommunicationsector take a leap orward and becomea key driver or development. SinceIndia is still a laggard in equipmentmanuacturing and telecom R&D,the role o government in promotinginvestments in manuacturing and R&Din the eld o telecom has become vital.

• The drat o NTP – 11 hasrecommended recognizing thetelecom sector as an inrastructuresector that will enable players to availtax benets.17

• NTP – 11 also recommendspromotion o domestic productiono telecom equipment to meet 80percent o demand through domestic

manuacturing with a value addition o65 percent by 2020.17

• TRAI, through recommendations ontelecom equipment manuacturingpolicy, advocates giving preerentialmarket access to domesticallymanuactured products. Moreover,TRAI has proposed domesticmanuactured product manuacturerswith annual turnover o less than INR10 billion to get subsidy or equitycapital and working capital or a

period o 5 years at 6 percent or IPmanuacturers and 3 percent or IMPmanuacturers.18

• The recommendations on telecomequipment manuacturing policyalso propose setting up o a TelecomManuacturing Fund (TMF) with aninitial amount o INR 30 billion, orproviding venture capital to IndianProduct manuacturers in the orm oequity and sot-loans.18

• In the area o telecom equipment

manuacturing and provision o IT-enabled services, 100 percent FDI ispermitted.19

• The Reserve Bank o India hasliberalised investment norms orIndian telecom companies by allowingthem to invest in internationalsubmarine cable consortia throughthe automatic route.20

• MCIT is contemplating liberalisingmerger and acquisition norms thatmay lead to increased transactionactivity in the sector.

• A group within DoT estimates aninvestment o INR 6.5 trillion (USD143 billion) during the twelth veyear plan (2012-17). This investmentwill help in supporting the growth in

subscriber base, which is expected totouch 1,200 million subscribers by theend o the twelth ve year Plan.21

• DoT envisages an investment oINR 200 billion in the rst phase othe proposed National Optical FibreNetwork scheme22. The plan aims atproviding broadband connectivity invillages across the country, whichwill give a signicant boost to theBharat Nirman II programme. Thegovernment, under the Bharat

Nirman II programme plans to providebroadband coverage to 250,000 grampanchayats by 201223 and intendsto provide 888,832 broadbandconnections in rural areas by 201424.

• In the eleventh ve year plan, thegovernment had allocated a corpus oINR 99.31 billion to set up a NationalTelemedicine Grid.25This helped inexpanding the telemedicine networkto various regions. For instance,Gujarat has so ar expanded the reach

o telemedicine services rom 53villages in 2008 to 453 in early 2011.26

15 Business Standard, High interest rates, slowdown

hit unding in Apr-Sep, October 2011

16 CRISIL, Economy Insights, September 2011



October 2011

18 TRAI, Recommendations on Telecom Equipment

Manuacturing Policy, April 2011

19 DoT, Indian Telecom Sector, Accessed in August

2011

20 Voice and Data, Submarine cables

promise seamless mobile connectivity, May 2010

21 Asia Pulse, India’s telco dept plans or

US$143 bln investment in next plan, August 2011

22 India Investment News, India’s village

broadband expansion project’s 1st phase

investment seen at Rs 200 bln: Minister, July 2011

23 India Brand Equity Foundation (IBEF),

Telecommunications sector overview, Accessed in

June 2011

24 DoT, Annual Report, 2010-2011

25 Planning Commission, Eleventh Five Year

Plan, 2007-2012

26 Business Standard, Gujarat to soon dial

104 or telemedicine, January 2011



CHAPTER 13

Regulatory andPolicy Environment





Telecom regulatory bodies2

The key bodies that constitute the policy and regulatoryramework or telecom in India are the ollowing:

The telecom sector has witnessed rapid growth over the last decade and has

become the second-largest contributor to the GDP o India, accounting or 2.8percent o the nation’s GDP in 2009-10.1The positive regulatory ramework hasdriven the rapid growth in the sector in the last decade and will continue to drivegrowth in the uture. Transparency, ocus on subscriber interests and a consultativeapproach in issue resolution are the principal eatures o the Indian telecomregulatory regime. The laws governing the telecom sector include the IndianTelegraph Act, 1885, the Indian Wireless Telegraphy Act, 1933, and the TelecomRegulatory Authority o India Act, 1997.

1 India budget, Services sector, Accessed in July

2011

2 Paul Budde Report, India – Telecommunications

regulatory overview, July 2010

Table 7:Telecom regulatory bodies in India

Regulatory bodies Functions

The Ministry o Communications &Inormation Technology (MICT)

The MICT ormulates policies with respect to telecom, post, telegraph and othermeans o communication. The key departments under MICT include the Departmento Telecommunications (DoT), the Department o Inormation Technology (DIP) andthe Department o Posts (DoP).

The Department oTelecommunications (DoT)

The DoT is the central governing body o the telecom industry. It is entrusted with thetask o ormulating policies or the development o the sector and awarding telecomlicenses. It is also accountable or spectrum management.

The Telecom CommissionThe Telecom Commission, an exclusive policy-making unction, is part o the DoT. It isresponsible or licensing, wireless spectrum management, administrative monitoringo public sector undertakings (PSU) and R&D, among others.

The Telecom Regulatory Authorityo India (TRAI)

TRAI is the regulator o the sector and has both mandatory and recommendatorypowers. It mandates in areas related to taris, interconnection and standards orquality o service and recommends in areas related to timing, terms and conditionsand revocation o licenses, competition and acilitation.

The Telecom Disputes Settlementand Appellate Tribunal (TDSAT)

The TDSAT has been set up to resolve all disputes between a licensor and a licensee,

two or more service providers, and between a service provider and a group oconsumers.

Wireless Planning Commission(WPC)

The WPC is assigned with the task o spectrum management.

Group on Telecom and IT (GoT-IT) The GoT-IT takes care o ad-hoc issues.

Telecom Sector Ombudsman(TSO)

The TSO was set up in 2007 as a orum where subscribers can directly raise theircomplaints. The decisions taken are binding on service providers.

Source: DoT, Paul Budde




Regulatory evolutionThe Indian telecom sector has undergone three district phases o regulatoryevolution since independence.

Till 1984, the Indian telecom sector was entirely under government ownership. Theactual evolution started in 1985, when the DoT was established. Between 1984-2000, the industry witnessed gradual de-regulation but ater 2000, the actual phaseo globalization and competition started taking eect.

In 2002, the Universal Service Support Policy came into eect and providedstatutory status to the USOF. The und was introduced to provide access totelegraph services to people in rural and remote areas at aordable prices. In May2003, the Calling Party Pays (CPP) regime was introduced, making all incoming callsree o charge. During the same year, GoI introduced the Unied Access Service(UAS) licensing regime, which permitted an access service provider to oer wirelineor wireless or both under the same license, using any technology.3

3 DoT, Regulations, Accessed in July 2011

Source: DoT, KPMG Analysis




In February 2004, the DoT issuedguidelines or intra-circle merger ocellular mobile telephone service(CMTS)/UAS licenses. The GoI alsointroduced the Broadband Policy in2004. In November 2005, new UASLguidelines were issued. The licenseswere to be issued on continuous basiswithout any restriction on the numbero entrants in a circle and applicationswere to be processed within 30 days osubmission. In early 2005, the FDI limit

in the telecom sector was increasedrom 49 percent to 74 percent. InFebruary 2008, the DoT approved thesharing o inrastructure among wirelessservice providers. In March 2008, TRAIabolished the Access Decit Charge(ADC), which covered the levy paidby wireless service providers to thestate-run service provider, BSNL, orsustaining its rural wireline network.In July 2010, telecom towers wereaccorded Inrastructure Status by the

RBI.4

Licensing ramework

For the purpose o licensing, the nationhas been divided into our metros –Delhi, Mumbai, Kolkata and Chennai– and 18 telecom circles, which areroughly aligned with the states o India.At present, the license ee, excludingspectrum charges, is 10 percent oadjusted gross revenue (AGR) or metroservice areas and Category A circles, 8

percent o AGR or category B circlesand 6 percent o AGR or Category Ccircles.5

National Telecom Policies

National Telecom Policy (NTP), 1994

The NTP was instituted in 1994 toinitiate and sustain aggressive growtho the telecom sector and ensureon-demand access to a telephone orevery Indian. The key objective wasto establish telecom inrastructureacross all remote locations o thecountry. It also encouraged privatisationo the telecom equipment industry

to help India emerge as a telecommanuacturing hub.

The NTP, 1994, yielded mixed results.The goal o 7.5 million phone lines wasexceeded in a ew years, however,rural areas lagged behind in gettingaccess to telecom services. Privatesector investment also ell short oexpectations.5

NTP, 1999

A resh round o reorms wasintroduced by the government in 1999,when it enorced the New TelecomPolicy. The NTP, 1999, aimed at makingIndia competitive in the global telecommarket through growth in exports, FDIand domestic investment.6 The keyobjectives o the policy were as ollows:

• To make available aordable telecomservices to all

• Ensure coverage o all areas oruniversal services

• Set up a modern integratedinrastructure that would enablethe convergence o IT, media, andtelecom and consumer electronics

• Build world-class telecom acilities inIndia by encouraging privatisation andoering a level playing eld

• Saeguard the national security o thecountry

The policy included specic targets,which are as ollows:

• Make available telephone on demandby 2002 and sustain it to achieve apenetration o 7 percent by 2005 and15 percent by 2010

• Encourage the development otelecom in rural areas

• Increase rural penetration rom 0.4percent to 4 percent by 2010, andprovide reliable transmission media inall rural areas

• Achieve telecom coverage o allvillages and provide reliable media toall exchanges by 2002

• Provide Internet access to all district

headquarters by 2000• Provide high-speed data and

multimedia capability to all cities witha population greater than 200,000 by2002.

4 RBI, RBI circulars, Accessed in July 2011

5 DoT, Access and services, Accessed in July 2011

6 TRAI, Government Policy and Guidelines – New

Telecom Policy 1999, Accessed in August 2011




Addendum to NTP, 1999

A urther addendum to NTP, 1999, wasmade in November 2003. The UniversalAccess Service License (UASL) wasintroduced, permitting an accessservice provider to oer either wirelessor wireline services or both using anytechnology in a dened service area.The unied license or telecom servicespermitted the e to provide all telecomservices covering various geographicalareas using any technology.7

Drat NTP – 2011

The drat NTP – 2011 was released inOctober, 2011 and was an indicatoro uture growth shaping the Indiantelecom sector. Although details onkey issues, such as license renewal,spectrum pricing, spectrum re-armingand consolidation guidelines, are stillawaited in the nal version o the policy;the policy ramework demonstrates

a directionally mature and optimisticapproach. The key objectives o the dratpolicy were as ollows:

• Adopt ‘One nation-one license’across the nation

• Provide inrastructure sector status tothe telecom sector

• De-link license issuance romspectrum allocation

• Proposed uture spectrum allocationsat market valuations

• Allocated spectrum in 300 MHz bandor IMT services by 2017 and in 500MHz band by 2020

• Permit the trading, sharing andpooling o spectrum

• Recognize the ‘Right to Broadband’as a basic right

• Promote convergence o voice, data,video, Internet and value addedservices.

The government’s ocus on makingthe mobile phone a preerred platormor promoting socio-economicdevelopment in the country has clearlyemerged rom the drat. The nal policydocument, expected to be releasedin the near uture, will provide morevisibility on what lies ahead.

7 Paul Budde report, India – Telecommunications

regulatory overview, July 2010




National Broadband Policy

The National Broadband Policyenunciated in 2004, recognised thepotential o broadband services andtheir contribution toward m-governance,m-commerce, m-education andm-health, among others. The BroadbandPolicy, 2004, envisioned the creationo a ramework through various accesstechnologies, such as optical bre,Digital Subscriber Lines (DSL) on copperloop, cable television networks, satellitemedia, terrestrial wireless and uturetechnologies.

National FrequencyAllocation Plan (NFAP)

The NFAP is the guiding policy or allspectrum allocation in India.8 At the timeo the ormulation o NFAP in 2000, itwas recognised that the NFAP will berenewed every two years in line with theRadio Regulations o the InternationalTelecommunication Union (ITU) to caterto newly emerging technologies as wellas to ensure equitable and optimum

utilisation o spectrum.

FDI Policy

India is the astest growing telecommarket across the globe. This makesthe Indian telecom sector one o themost attractive investment destinationsor global players. India has witnesseda considerable rise in FDI during thepast decade. The telecom sector isamong the leading sectors attractingFDI, accounting or 8.2 percent o thecumulative FDI equity infows worthUSD 129.8 billion, rom March 2000 toMarch 2011.9

The well-dened regulatory policy hasbeen the undamental reason or theinfow o huge international investmentsinto the Indian telecom sector.

Table 8:Telecom FDI guidelines in India

Segment FDI cap/equity Entry route Other conditions

Basic and cellular, Unied AccessServices, National/International LongDistance, VSAT, Public Mobile RadioTrunked Services (PMRTS) GlobalMobile Personal CommunicationsServices (GMPCS) and other value-added telecom services.

74 percent (includingFDI, FII, NRI, FCCBs,ADRs, GDRs, Convertiblepreerence shares, andproportionate oreignequity in Indian promoters/ Investing company)

Automatic upto 49 percent,FIPB beyond49 percent

Subject to guidelines set out in theDIPP policy

ISP with gateways, radio-paging, end-to-end bandwidth.

74 percent


Subject to licensing and securityrequirements as notied by theDoT

a) ISP without gateway;

b) Inrastructure provider providingdark bre, right o way, duct space,tower (Category 1);

c) Electronic mail and voice mail

100 percent


Subject to the condition that suchcompanies shall divest 26 percento their equity in avour o theIndian public within ve years, ithese companies are listed in otherparts o the world. The governmentrevised its guidelines or ISPs inAugust 2007; the new guidelinesprovided or ISP licenses with 74percent FDI only

Manuacture o telecom equipment 100 percent AutomaticSubject to sector-specicrequirements as set out by the DoT

Source: FDI Policy, DoT

8 DoT, Regulations, Accessed in July 2011

9 Department o Industria l Policy and Promotion,

FDI statistics, March 2011




New and upcoming regulations

Voice over Internet Protocol(VoIP)

The growing telecom industry hasnecessitated the demand or low-costdomestic and international calls. VOIPallows exchange o Voice over InternetProtocol packet switches and requireshigh bandwidth. This technology canbe used to eectively communicate

between two personal computers, apersonal computer and a conventionalphone as well as between twoconventional phones.

Until late 2008, the provision o VoIPservices in India was restricted, withonly international VoIP services beingpermitted. For instance, serviceproviders such as MTNL are oeringinternational VoIP services since late2007. TRAI permitted ISPs to oerunrestricted IP telephony services in

August 2008. As a result, NLD serviceproviders were allowed to connect topublic Internet services and provideunrestricted IP telephony.10

IPTV

In August 2008, the governmentapproved a new policy ramework orthe IPTV sector, including guidelines orthe down-linking o TV channels. Earlier,only broadcasters were authorised totransmit channels through analogueand DTH platorms, but IPTV providerscan also use content rom broadcasters

under the new policy.11

Next-Generation Networks(NGN)

In January 2009, TRAI initiated theconsultation process or the migration oservices to NGNs. TRAI has emphasisedon robust regulatory ramework inorder to assist service providers in thetransition to newer inrastructure, whileminimising some o the risks involved.12

10 BMI International, India Telecommunications

Report Q3 2011, September 2011

11 TRAI, Recommendation on provision o IPTV

services, August 2008

12 TRAI, Next generation network: Implementation

and implications, January 2011



CHAPTER 14

International bestpractices in creating

successulm-Powerment

services





There are several examples o successul m-powering services around the world –both in the developing and developed nations. The ollowing are some examples:

Table 9: Some successul m-Powerment services rom around the world

m-Services,Region

Type o service(delivery medium)

Key Success Indicators Key Success Factors

CellBazaar,Bangladesh

Commerce

(SMS, WAP, IVR)

• 1.5 million users

• 90,000 hits a day (avg)

• A registered seller base o

more than 50,000

• Provides alternate access to virtualmarketplaces (inadequate access toe-marketplaces due to low Internetpenetration)

• Accessible through the most basic mobilephones

• Standard SMS, WAP and voice rates. Nopremium charges

• Strong partnership with the largest and mosttrusted mobile network operator

Wizzit, SouthArica, 2004

Banking

(USSD)

• Over 50,000 customerswithin 2 years o launch

• Started expanding ininternational markets

(Rwanda, Zambia, Tanzaniaand Romania)

• Provides banking services to the unbankedpopulation

• Open model – any operator, any bank

• Pay-per-use

• Available in all 11 ocial languages• No bank account needed (unlike other

competing services such as FNB)

• Wide network o banking agents

Osaiu-Ketai,Japan

Payments

(NFC)

• 10 million users in less than 2years, 20 million users within3 years, and 30 million userswithin 4 years o launch

• Provides quick and convenient purchases

• Broad range o oerings

• Operator-led, yet win-win ecosystem

• Usable in a large number o conveniencestores and Tokyo’s large taxi feet

• Promise o security – 24X7 contact centre toaddress security incidents such as thet

Text2Teach, thePhilippines

Education

(SMS)

• Reaches 900,000 studentsand 1,400 teachers

• Available in 9 provinces

• Includes over 400educational multimedia les

• Delivers educational inrastructure support

• Strong partnership between ecosystemparticipants

• Innovative content delivery media such asvideos and graphics

• Based on the hugely popular SMS service

• Generates better learning outcome

Source: KPMG Research




m-Services,Region

Type o service(delivery medium)

Key Success Indicators Key Success Factors

m-parking,Estonia

Payments

(SMS)

• 90 percent penetrationwithin ten years o launch

• Oers convenient payment option or cityparking

• Strong partnership between ecosystem

participants• Cost savings or parking operators,

convenience or drivers, ARPU or mobileoperators

• Interoperable between telecom operators

• Ease o use – SMS to park, no registration, nospecial account needed

TXT CSC, thePhilippines

Governance

(SMS)

• Despite very little promotion,it receives an average o1,000 to 1,500 messages

• Oers citizens a convenient way tocommunicate with the government

• Based on the hugely popular SMS service

• Low cost - A single TXT CSC SMS cost only P.1 (USD 0.02) compared to P 2.50 (USD 0.05)charged by the Bureau o Internal Revenue toparticipate in m-Government services

Text4baby, the US Healthcare

(SMS)

• More than 190,000 userswithin 1.5 years o launch

• More than 2.3 millionmessages delivered in 1.5years

• Provides vital know-how in ante natal care

• Free to use

• Truly scalable private-public ecosysteminvolving a network nancial sponsors, mobileservice providers, government entities, andimplementation partners in all 50 states

Dialog tradenet,Sri Lanka

Agriculture • WSA-mobile Winner in thecategory m-Inclusion &Empowerment, 2010

• Provides critical link between cultivation andsales

• No new sotware installations or high-endhandsets required

• Available in English, Sinhalese and Tamil

• Only call and SMS charges apply

• Win-win ecosystem

Source: KPMG Research

Analysis o the key success actors o these services reveals a ew common themes.




A strong and well coordinated ecosystemAll over the world, successul MVAShave been driven by a well establishedecosystem. Not only are theseecosystems extended to include a largenumber o participants, each bringingsome value to the oering, but they arealso created in a manner that providessome clear incentives to each stake-holder. Even in the cases where onestakeholder enjoys more control o the

ecosystem than the others, the revenuesharing is not unduly skewed in avouro the dominant stake-holder.

CellBazaar in Bangladesh

• Networkoperator:Increased SMS,WAP and voice usage; share orevenue rom transactions

• Serviceprovider: Multiple revenuestreams (share rom operator rangingbetween 5-50 percent depending onplatorm), advertising revenue1

• Consumers:A convenient, aordablemobile marketplace.

Osaiu-Ketai in Japan

• Networkoperator:Increased ARPU,

reduced churn• Merchants:Increased consumer

spending stemming rom ease ouse, reduced billqueue times, accessto data on purchasing behaviour ocustomers leading to more eectiveloyalty programs

• Consumers: Convenient payments

Wizzit in South Arica

• Networkoperators: Increased ARPU,reduced churn

• Financialinstitutions: Increasedrevenue rom transactions, intereston deposits, and commission romthird party service providers

• Fieldagents: Employmentopportunities

• Consumers: Banking services whichwere not available earlier (Wizzit wasthe rst m-banking service targetedat the unbanked population in SouthArica).

1 LIRNEasia, 2009




MVAS designed tomeet a compellingsocial needSuccessul MVAS in developingcountries are oten driven by acompelling social need which is mostlyexclusively met by these services. Forexample:

• Text2teach in the Philippines

addressed the sub-optimaleducational inrastructure in thecountry

• Text4baby attempts to address thehigh inant mortality rates in the US

• Dialog tradenet attempts to bridgethe inormation asymmetry aectingthe agricultural population in Sri Lanka

• Wizzit addressed the need or basicbanking services in South Arica

• m-PESA addressed the need ormobile micro-remittance in Kenya

• TXT CSC addressed the high costo delivering mass communicationchannels with the government in thePhilippines

MVAS designed onthe most popularVAS mediumThe act that most o the successulservices listed above are deliveredthrough SMS is a major actorcontributing to their success. SMS isby ar the most popular VAS platorm inthe world – especially in the developingcountries. Designing MVAS based on

the most popular MVAS medium takesaway some o the adoption risk. Sinceusers are already comortable using theplatorm, it is relatively easier to driveusage o a service designed on thatplatorm. Similarly, many o the mostsuccessul MVAS in Japan are basedon the NFC technology, which is highlyadvanced in Japan.

Strong brandingIt is good practice to associate MVASwith a strong brand – a brand thatconsumers already know and trust.This is especially true or servicesaimed at nancial inclusion, wherethe trust actor plays a huge role inadoption. Example: m-PESA in Kenyais associated with the Saracombrand, the most valued brand in Kenya.Similarly, mobile payments services in

Japan are mostly associated with thebrand o the incumbent operator andare backed by strong technology brandssuch as Sony – another well trustedbrand in Japan.

Low cost o usage

It is imperative to keep the cost o usagevery low. This is especially true in thecase o m-powering applications meant

or the rural regions or those aimed atthe relatively less afuent segment othe society. I the oering is compellingenough, users are ready to pay orairtime and basic SMS or IVR charges.However, the service or applicationper se needs to be made available orree. Although this aects the businessmodel, successul MVAS operatorshave tried to overcome this challenge byoering a tiered pricing structure (suchas m-PESA).



Conclusion





The Indian telecom market has traversed a

long journey o growth and opportunities.Every 75 out o 100 people in India are now

connected. Like in most other countries,

in India too, use o the mobile phone as a

communication medium has bypassed that o

the landline. Mobile penetration in the urban

areas has reached a high level and a little more

than a third o India’s rural population comprise

mobile phone users. Thereore, there exists

signicant opportunity or the government and

the industry to bridge the rural-urban digital

divide and oster nancial and social inclusion

through the mobile phone.

MVAS can become a potent channel to deliver

services to subscribers that lead to personal

growth and empowerment. In urban areas,

innovative MVAS modelled on entertainment,

location-based services and advanced

m-commerce will contribute to enhancingthe quality o lie. In the rural areas, targeted

and customized MVAS will help in providing

access to various empowering services –

healthcare, education, agriculture, banking,

etc. – through inexpensive and easy to use

interaces. On the whole, an empowerment-

driven MVAS strategy will bring together

consumers’ needs with signicant business

opportunities.

Examples o successul MVAS in oreign

markets – both developing and developed

– indicate several key success actors.

Best practices include an equitable and

collaborative ecosystem, innovative services

designed to meet users’ needs, and ease

o use, to name a ew. To tap the next big

opportunity in the India telecom market

ater voice, India will need to explore and

implement these industry best practices.



About KPMG in India

KPMG is a global network o proessional rms providingAudit, Tax and Advisory services. We operate in 150 countries

and have 138,000 people working in member rms around theworld. The independent member rms o the KPMG networkare aliated with KPMG International Cooperative (“KPMGInternational”), a Swiss entity. Each KPMG rm is a legallydistinct and separate entity and describes itsel as such.

Our Audit practice endeavors to provide robust and riskbased audit services that address our rms’ clients’ strategicpriorities and business processes.

KPMG’s Tax services are designed to refect the unique needsand objectives o each client, whether we are dealing withthe tax aspects o a cross-border acquisition or developing

and helping to implement a global transer pricing strategy.In practical terms that means, KPMG rms’ work with theirclients to assist them in achieving eective tax complianceand managing tax risks, while helping to control costs.

KPMG Advisory proessionals provide advice and assistanceto enable companies, intermediaries and public sector bodiesto mitigate risk, improve perormance, and create value.KPMG rms provide a wide range o Risk Consulting andManagement Consulting that can help clients respond toimmediate needs as well as put in place the strategies or thelonger term.

KPMG in India, a proessional services rm, is the Indianmember rm o KPMG International and was established

in September 1993. Our proessionals leverage the globalnetwork o rms, providing detailed knowledge o local laws,regulations, markets and competition. KPMG in India provideservices to over 5,000 international and national clients, inIndia. KPMG has oces across India in Delhi, Chandigarh,Ahmedabad, Mumbai, Pune, Chennai, Bangalore, Kochi,Hyderabad and Kolkata. The rms in India have access tomore than 5,000 Indian and expatriate proessionals, many owhom are internationally trained. We strive to provide rapid,perormance-based, industry-ocused and technology-enabledservices, which refect a shared knowledge o global andlocal industries and our experience o the Indian businessenvironment.




About Department oTelecommunications (DoT)

The Department o Telecommunications o the Government o India isresponsible or telecom policy ormulation, telecom licensing, wireless spectrummanagement, universal service obligation, promotion o International co-operationin telecommunications, promotion o private investments in telecom sector,standardization and research in the eld o telecommunications and administrationo:

•IndianTelegraphAct,1885

•IndianWirelessTelegraphyAct,1933

•TelecomRegulatoryAuthorityofIndiaAct,1997

About Federation o Indian Chamberso Commerce and Industry (FICCI)

FICCI, set up in 1927 is the largest and oldest apex business organization o Indianbusiness. With a nationwide membership o over 1500 corporates and over 500chambers o commerce, FICCI espouses Indian businesses and speaks directly andindirectly or over 2,50,000 business units. FICCI maintains the lead as the proactivebusiness solutions provider through research, interactions at the highest political

level and global networking.

FICCI organizes a large number o exhibitions, conerences, seminars and businessmeets or promoting business.




91

Contact Us

Department of Telecommunications

Ashok Nakra

Director (T)

Room No.501, Sanchar Bhawan

Ashoka Road, New Delhi -110 001

Tel: 91-11-23372575, 23036544

E-mail: [email protected]

Website: www.dot.gov.in

Telecommunication EngineeringCentre

Gate No. 5

Khurshid Lal Bhavan, Janpath

New Delhi – 110 001 India

Tel: 91-11-2371 7138

Website: www.tec.gov.in

Federation of Indian Chambers of Commerce and Industry

Sarika Gulyani

Deputy Director

Industry’s Voice for Policy Change

Federation House, Tansen Marg,

New Delhi -110 001

Tel: 91-11-23738760-70, 91-11-23736190

E-mail: [email protected]

Website: www.ficci.com

The Telecom RegulatoryAuthority of India

Mahanagar Doorsanchar Bhawan

Jawaharlal Nehru Marg

New Delhi: 110 002 India

Tel: 91-11-2321 1934, 2323 3466,

2322 0534, 2321 3223

Fax: 91-11-2321 3294

Website: www.trai.gov.in

Centre for Development of Telematics (C-DOT)

C-DOT Campus

Mandi Road, Mehrauli

New Delhi-110 030 India

Tel: 91-11-2680 2856

Fax: 91-11-2680 3338

Website: www.cdot.com

KPMG

Sean Collins

Global Chair - Communications and Media

[email protected]

Tel: 65-6213 7302

Romal Shetty

Partner and Head - Telecom

[email protected]

Tel: 91-80-3065 4100

Jaideep Ghosh

Partner - Management Consulting

[email protected]

Tel: 91-124-307 4152

Telecom Disputes Settlement& Appellate Tribunal

Room No.482 & Room No.478, Hotel Samrat

Chanakyapuri, Kautilya Marg

New Delhi - 110 021 India

Tel: 91-11-2687 6882, 2687 3411, 2410 2563

Fax: 91-11-2410 5171, 2687 6882

Website: www.tdsat.nic.in

© 2011 KPMG, an Indian Partnership and a member rm o the KPMG network o independent member rms aliated with KPMG International

Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The inormation contained herein is o a general nature and is not intended to address the circumstances o any particular individual or entity. Although we

endeavor to provide accurate and timely inormation, there can be no guarantee that such inormation is accurate as o the date it is received or that it will

continue to be accurate in the uture. No one should act on such inormation without appropriate proessional advice ater a thorough examination o the

particular situation.



92

Acknowledgement

KPMG report development team:

Sutithi Chakraborty, Garima Kapoor, Gautam Jain and Ankit Gupta.

This knowledge document has been developed by KPMG in India and FICCI or providing an overview o the Indian telecommunications

sector. It is meant to be used or the l imited purpose o ‘India Telecom 2011’ only. It may not be considered, in any orm, as a policy/legal

document o the government, directly or indirectly.

mpowering india 2011

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