TELECOM

INDUSTRY AWARENESS REPORT

SUBMITTED BY

GROUP 1

SECTION D

Bhagya Shree D 2019PGP102 9400980406

Harmin Gandhi 2016IPM041 9109105139

Monika Mandal 2019IPM061 7471112761

Navaneeth S 2019PGP275 8547750994

Rakshita Agarwal 2019PGP329 8527450582

Rohit Roy 2019PGP346 9123723591

Snigdha Sharma 2019PGPH024 9999857552

Tanmaya Jindal 2019PGP490 7471112761

 EXECUTIVE SUMMARY

Indian Telecom Industry has been a high growth industry with India being home to world’s
second largest telecommunication market with a subscriber base of 1.2 billion. After the
liberalization of Telecom industry in 1994, the subscriber base has grown rapidly. Other policy
changes and new technologies have paved way for this growth. The government reforms have
enabled easy market access to telecom and the regulatory framework has been implemented to
ensure fair processes.

This report presents facts about Telecom sector organized into three sections, namely Overview,
Players’ Profile and Macroeconomic profile. In the overview section, current market of telecom
is discussed. An overview of major events, trends, mergers and acquisitions are discussed. The
technologies like Artificial Intelligence, 5G, blockchain, Internet of Things have been driving
innovation in telecom. The technologies paving way to push digital economy, disruptive entry of
Jio, mergers of other Telecoms are studied. The rationale behind mergers and analyst view of the
industry is also mentioned in this report.

Telecom industry is largely an Oligopoly with few key players. The entry barriers are
sufficiently high due to huge infrastructure and spectrum license costs. The major players are
Bharti-Airtel, Vodafone-Idea, Reliance and Bharat Sanchar Nigam Limited (BSNL). In the
section of Player’s profile, market share, production facilities, market cap and financial
performance of key players are provided.

The reforms in telecom sector are fast-tracked by Government of India. National Telecom Policy
2018 is of high importance. In the final section, macroeconomic factors like policy changes,
budget implications and disruptions are discussed. Global aspects like FDI, foreign opportunities
of Indian players are also analyzed.

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 Contents

1. OVERVIEW OF THE INDUSTRY ............................................... 3

1.1 Introduction....................................................................................... 3
1.2 Importance to the economy .............................................................. 4
1.3 Major events and trends.................................................................... 4
1.4 Major Technological Trends in the Industry .................................... 5
1.5 Mergers and Acquisitions ................................................................. 6
1.6 Analyst view ..................................................................................... 8
2. PLAYERS’ PROFILE ..................................................................... 8
2.1 Major Players in Telecom Industry .................................................. 8
2.2 Market Capitalization of major players in India ............................ 14
2. 3 Financial Performance Indicators of Major Players ..................... 14
3. MACROECONOMIC PROFILE ................................................. 15
3.1 Government regulations and policy changes ................................. 15
3.2 Impact of budget: ............................................................................ 16
3.3 Disruptions in Telecom sector ........................................................ 18
3.4 Global aspects of the sector ............................................................ 20

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1. OVERVIEW OF THE INDUSTRY
https://www.ibef.org/industry/telecommunications.aspx

1.1 Introduction
India ranks second in the world in the telecommunications market with a subscriber base of 1.2
billion. The number of internet users in India stands 604.21 million at present, making it world’s
2nd largest market in terms of internet penetration. This number is expected to increase rapidly
over the coming years. About 70% of the Indian population lives in rural areas and this market
has largely remained untapped with the current penetration level at 58.45%. In the financial year
2019-20, the customer base of the Indian telecom industry is expected to grow by 37 million
subscribers with the overall subscriber count reaching 1.22 billion by March 2020. It is believed
that rural sector will be a key growth driver in the sector mainly due to the fact that the availing
telecom services has now become more affordable. This affordability has been achieved because
of the dip in the call and data tariffs witnessed in the recent times and the arrival of JioPhone
(low cost feature phone by Jio) which has piqued the interest of the rural population. According
to a report prepared by GSMA, the contribution of Indian mobile economy towards the GDP of
India will be substantial in the coming years. India has also experienced a growth of 165% in app
downloads in the last two years.

Excerpted from: IBEF Indian Telecommunications Report 2019

http://dot.gov.in/sites/default/files/EnglishPolicy-NDCP.pdf
With initiatives such as Digital India, Indian Government has been focusing on increasing the
internet penetration in the India which will enable the formation of a digital Indian economy. For
this purpose, GoI launched National Digital Communications Policy which aims to ensure that

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the advantages of recent technologies are available to all in an equitable and an affordable way
with proper checks intact to safeguard people against the existing and emerging threats in the
sector. It is expected that this policy will attract investments up to US$ 100 billion and generate
around 4 million jobs in the telecommunications sector.
This sector experienced a fall in revenues in the financial year 2017-18 owing to price wars in
the industry. Now since the prices have stabilized, overall growth rate is expected to be stable in
the upcoming years. With the advent of 5G, maintaining revenues is going to be challenging
because the cost of infrastructure required for the implementation is going to be extremely high.

1.2 Importance to the economy

As indicated by a GSMA report, telecom industry contributes around 6.5% of Indian Gdp and it
is anticipated to reach at 8.2% by 2020.Telecom industry is one of the quickest developing
sectors in India, with a compound yearly development of about 7.3% in the last 10 years. The
competition among the Indian telecom organizations, which started after Jio entered the market,
had a significant impact. The government policies, for example, national telecom policies, ease
of doing business, encouraging foreign investments, Mobile Number Portability (MNP) and so
on likewise helped it on its way. Internationally, mobile technologies underpins about 4.6% of
the Total GDP. In the future, 5G technology is anticipated to produce US$ 2.2 trillion all over, in
the coming 15 years and Indian telecom segment will likewise share a critical piece of it.

1.3 Major events and trends

 There is a term coined 'Green Telecom', which is engaged towards lessening the carbon
impression by the telecom segment by less carbon utilization.
 The legislature is likewise reassuring the utilization of solar, green and sustainable
innovation in portable towers. There are around 60000 towns which the government will
direct with sponsored telephonic facility as a part of provincial expansion strategy.

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  Both Airtel and Vodafone launched Vol TE services in 2018, following the strides of
Relaince Jio. As of now, Jio has also launched its much anticipated JioGigaFiber, an
optical fiber network with an expectation to cover more than 1000 urban areas in India.
 BSNL should dispatch 5G by 2020 and the Indian telecom industry is anticipated to be
the second biggest market (after China) by 2030 .The government is hoping to construct
100 smart ventures with the assistance of IOT.

1.4 Major Technological Trends in the Industry

https://telecom.economictimes.indiatimes.com/slide-shows/top-telecom-trends-to-watch-out-for-in-
2019/67588130
 5G Wireless: As the requirement and applications of the internet are expanding due to
the rising popularity of IoT, there is a higher chance that 4G is bound to become obsolete
soon. Add to this the rising content consumption due to the advent of the OTT services
provided by various players. The consumption of data is only going to rise creating a
greater need for faster services.
 NB-IoT: In India, all the major telecom operators are looking to implement (Narrow
band Internet of Things) NB-IoT. Reliance Jio had last year launched its NB-IoT network
as a pilot project in Mumbai. The other two operators Vodafone Idea and Airtel have also
shown an intent to launch NB-IoT in the coming time.
 The coming of NB IoT technologies could have huge implications for the telcos due to
the increasing focus of the Government on Smart cities of which IoT is an integral part.
 Artificial intelligence: Developments in AI are gathering pace in 2019. With progress in
Machine Learning, AI is coming into the mainstream, driven by an intense interest in
Smart Technologies. For the operators - many opportunities lie in applications, services
and underlying infrastructure that solutions based on AI will require. All Indian telcos
have been adopting the technology to improve customer service and reduce churn. AI has
been helping the major players in the industry to harness the huge amounts of data that
they have collected over the years to optimise their operations and user experiences. With
the user base on the rise the amount of data is only bound to increase and hence the
companies need to use AI and cloud computing to stay competitive and relevant in the
changing times.

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  Blockchain: Telecom sector in India is also looking towards Blockchain technology. A
major application of Blockchain for the telecom industry could be to harness and
monetize the large chunks of data that they have giving them an additional source of
revenue and a way to optimize their operations. Reliance Jio has set up an engineering
team to develop use cases while Vodafone Idea is working with IBM at the proof of
concept (PoC) stage and Bharti Airtel is involved in its initial trials
 Other major technologies: Due to the cut throat competition in the industry the major
driver of innovation in the industry is bound to be the consumer. Hence the technologies
such as cloud computing, augmented reality and virtual reality are also technologies
that could disrupt the sector in the near future. These technologies serve to provide
greater utility to users in terms of greater accessibility to data and enhanced experience
(cloud) and demand exceptional network services such as low latency, greater speeds,
high performance good connections (AR and VR) all of which pose challenges and
opportunities to grow for the industry.
https://www.csgi.com/insights/6-trends-transforming-the-telecom-industry-in-2019/

1.5 Mergers and Acquisitions

Mergers and Acquisitions (M&A) are usually defined as consolidation of two companies where
they come together to create a greater shared value – generating more value as compared to
generating on standalone basis. The basic rationale being 2+2=5. Therefore, aligning with the
objective of profit maximization, companies planning for expansion constantly look for and
evaluate different opportunities via M&A.
In telecom industry, there could be various reasons for M&A where the top identified reasons
are:
 Creation of new value through “pure play” and “converging” alliances.
 Control of technology.
 Increasing Market access.
 Gaining economies of scale or scope. (Grover and Vasvani)

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However, the fairly unique attribute of the telecommunications industry is the size and scale of
the companies involved. Even the smaller companies have a huge scope for contributing value
because of the pervasive and ubiquitous nature of the internet which can travel to the most
distant places as well. Therefore, many M&As are between these smaller firms as well to create
synergies and generate value.
The quick expansion of the industry and continuous improvement in the technology from 2G to
now, 5G, has made the not-so-large companies go out of options and get merged or acquired by
the larger companies, helping them in their further expansion. And, India being a vast and
diverse country, there was a huge opportunity for international firms to grow their business in
India in the initial years of the advent of internet in the mobile phones. The best option for them
was to capture the market directly and quickly through M&As, considering the limited
bandwidth of spectrums. Therefore, the Indian telecommunications industry witnessed many
M&As in the initial years, however, the disruption caused by the introduction of Reliance Jio
became a major problem for the companies to keep their market share intact and allow the
companies to be profitable. Consequently, within the next 2 years, only 3 firms compete with
each other and enjoy the market share of around 88%.
The major M&As in Indian context are as follows:
 Vodafone – Hutch-Essar (2007): In February 2007, Vodafone acquired the controlling
share of 67% held by Li Ka Shing Holdings at US$11.1 bn. This allowed Vodafone to be
second in terms of subscribers globally.
 Idea cellular – Spice Group (2008): Idea Cellular Limited acquired more than 80% in
Spice Communications Limited at a total of Rs. 2700 crore. This allowed Idea to capture
two major areas of Punjab and Karnataka gaining around 4.4 mn subscribers.
 Reliance Industries – Infotel: Reliance Industries owned by Mukesh Ambani bought
Infotel Broadband’s 95% stake in Infotel at a staggering Rs. 4800 crores in June 2010.
 Telenor Group – Unitech Group: Telenor Group and the then Unitech Group entered into
a joint venture of ‘Uninor’ where Telenor would invest Rs. 6135 crores into Unitech
Wireless to take the majority stake of 67.5%. However, their operations were cancelled in
2012 by the Supreme Court of India.
 Vodafone – Idea merger: British telecom major Vodafone and Aditya Birla group-run
Idea Cellular merged together their operation in 2018, creating the largest mobile

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 operator by customer and revenue market share. Vodafone now owns 45.1% in the new
company after transferring 4.9% to the Aditya Birla Group at Rs. 3874 crores. Idea owns
26% shares of the combined entity and the rest is held by the public shareholders. With
204.68 million customers, Vodafone had a market share of 18.16% whereas Idea had
16.9% with 190.51 million customers as of December 2016, according to Trai data. The
combined venture will account for over 25 per cent of the allocated spectrum and will
have to sell about 1 per cent (worth Rs 5,400 crore) to comply with spectrum cap norms.
“The merger pegs implied enterprise valuation of Rs 82,800 crore (USD 12.4 billion) for
Vodafone India and Rs 72,200 crore (USD 10.8 billion) for Idea,” according to an
exchange filing by Idea.

1.6 Analyst view

As mentioned, India is the second largest in terms of subscribers as well as total internet users.
However, considering the convergence of telecom, media and technology, and with rising
internet users, the companies have also started to shift from the traditional telecom business to a
broader digital consumer space such as audio and visual content, and mobile banking solutions.
Despite only 3 major players and a high user base in terms of both subscribers and internet users,
the industry faces intense price competition leading to an overall decline in the profits in the last
couple of years. The aim for expansion and due to high competition, companies have been led to
a high and unsustainable debt levels. The bright side is that there is a lot of scope for expansion
to penetrate in the untapped rural marker along with exploring adjacent business models in an
evolving environment.

2. PLAYERS’ PROFILE

2.1 Major Players in Telecom Industry

2.1.2 Market Share of major companies

The top 10 telecom companies (international) based on total revenues are:

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 Rank Company Revenue(US$ billion) Country

1 AT&T 163.8 United States

2 Verizon Communications 131.8 United States

3 Nippon Telegraph & Tel 109.8 Japan

4 Deutsche Telekom 76.8 Germany

5 Softbank 74.7 Japan

6 Telefonica 74.4 Spain

7 Vodafone 64.5 United Kingdom

8 America Movil 56.3 Mexico

9 China Telecom 52.7 China

10 KDDI 44.6 France

2.1.2 Key products of Indian Telecom companies

The key products of various telecom companies can be broadly divided into 3 categories:

● Telephone communications (Fixed-line and wireless)

● Internet service broadcasting
● Television service broadcasting (DTH)

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In the telephone and internet service broadcasting segment there are 4 dominant players:

● Reliance Jio
● Vodafone-Idea Ltd.
● Bharti Airtel India Ltd.
● BSNL/MTNL

Rank Telecom Market share

companies

1 Vodafone-Idea 33.36%

2 Reliance Jio 27.80%

3 Bharti Airtel 27.58%

4 BSNL/MTNL 10.28%

(As of May 2019) Source:https://www.indiatoday.in/technology/news/story/jio-second-largest-

telecom-operator-in-india-leads-overall-broadband-sector-by-55-percent-market-share-1571504-
2019-07-20

In the television broadcasting segment the major players are:

Rank Operators Subscribers (million)

1 DD Free Dish 35.00

2 Dish TV 28.97
Videocon

3 Tata Sky 18.11

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 4 Airtel Digital 15.93

5 Sun Direct 8.69

In the Fixed-line telephone operator segment, the major players are:

Rank Operator Subscribers(millions) Market share

1 BSNL 10.59 50.05%

2 Airtel 4.29 20.28%

3 MTNL 3.21 15.18%

4 Tata 1.81 8.59%

(As of March 2019)

Source:https://en.wikipedia.org/wiki/List_of_telecom_companies_in_India

2.1.3 Competition in the Telecom industry

After Reliance Jio entered the Indian Telecom space, the competition among the telecom
companies intensified. Jio entered the market in 2016 with aggressive tariff plans, free voice
calls and cheaper data. Jio also had the best 4G spectrum network in the market at that point in
time. The market shifted from a voice-centric one to a data centric one. India now has the second
largest number of wireless subscribers at 119 crore and ranks second in total number of internet
users. Jio offered free data plans till December 2016 which then further shifted to March 2017.
This strategy proved disruptive for the other telecom operators and they were forced to devise
new ways to stay in the market. For the other players decline in profitability resulted from

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decrease in margins. They had to lower their data and voice call rates. Reliance Jio had already
registered an existing consumer base of 125.5 million with its prime-membership programme.

In order to compete with Reliance Jio, Vodafone and Idea Cellular decided to merge forces in
order to create the world’s second largest and India’s largest telecom industry. It managed to
have a combined consumer base of 400 million consumers with 35% revenue share. Even Bharti
Airtel began looking out for new ventures. It bought Tikona Digital Networks and Telenor South
Asia Investment. It thus increased its consumer base to 307 million at that point in time. Thus the
advent of Reliance Jio has forced companies to look out for mergers to be financially flexible
and counter the declining profits. The government feels that having 4 main players (3 private and
1 government) would ensure good competition in the long run.

With the advent of Reliance Jio, most of the telecom companies were forced to roll out data
charges at minimum cost with very minimal prices. It led to a fall in revenue and profits along
with low cash generation for the players. The telecom industry reported an 11% decline in FY18
followed by a reported 7% decline in FY19. However it expects a growth of 6% in the upcoming
FY20. https://www.businesstoday.in/sectors/telecom/telecom-companies-revenue-to-decline-for-
3rd-consecutive-year-report/story/330887.html

Talking about company-wise profits, Reliance Jio’s profit increased by 54.7% to Rs 840 crore in
4th quarter of 2018-2019. The operating revenues rose by 55.8% to 11,160 crore.
https://www.business-standard.com/article/pti-stories/reliance-jio-q4-net-profit-jumps-64-to-rs-
840-crore-119041801060_1.html.

Bharti-Airtel reported a 29% jump in its net profit to Rs 107.2 crore in the 4th quarter of 2018-
2019. The operating revenues stand at Rs 10,632 crore, up by
4.3%.https://economictimes.indiatimes.com/markets/stocks/earnings/bharti-airtel-q4-profit-
jumps-30-yoy-to-rs-107-crore/articleshow/69206166.cms.Vodafone- Idea’s net loss narrowed
down to Rs 4873.9 crore in the June FY20 quarter. Revenues fell by 4.3% to 11,269.9 crore in
FY20 Q1. https://www.livemint.com/companies/company-results/vodafone-idea-q1-loss-
narrows-marginally-to-rs-4-873-9-crore-1564141153431.html
2.1.4 Production facilities

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Airtel India has its headquarters in New Delhi and it has around 14,818 employees. Now, Airtel
manufactures set-top boxes in India in Pune under the Prime Minister’s ‘Make In India’
programme. https://www.indiatoday.in/technology/news/story/bharti-airtel-to-manufacture-set-
top-boxes-in-india-260208-2015-06-29. A Chinese company by the name of East Compeance
supplies the largest number of sim cards to India. Reliance Jio has its headquarters in Mumbai,
Maharashtra. Jio has around 15000-20000 employees in its payroll. Vodafone-Idea has its
headquarters in Gandhinagar and it has a total of around 22,000 employees after the merger.

Major mergers and acquisitions in Indian telecom industry:

● ·On 31st August 2018, Vodafone and Idea merged to create India’s largest (in 2018) and
world’s second largest telecom company
● Airtel had acquired Telenor India in 2018 and the subscriber base of both the companies
were combined
● Department of Telecom is working to merge BSNL and MTNL to help in the revival of
the two ailing PSUs
● Reliance Communications merged with MTS India on November, 2017
● Reliance Jio has brought the tower assets, wireless spectrum, optical fibre network of
Reliance Communications
● On November 2016, Videocon d2h merged with Dish TV and the merged entity came to
be known as Dish TV Videocon Limited

Source: https://en.m.wikipedia.org/wiki/Telecommunications_in_India

2.1.5 Major mergers and acquisitions in foreign telecom industry:

 Vodafone Group has acquired Hutchinson Essar and the merged entity is now known as
Vodafone Essar Limited
 China Communications Services Corporation Ltd. has taken over China International
Telecommunications Construction Corporation
 In 2006, AT&T Inc. acquired Bellsouth for approximately 86 million

Source: https://www.economywatch.com/mergers-acquisitions/international/telecom-sector.html

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2.2 Market Capitalization of major players in India
As on 13-Sep-2019

Rank Operator 52 week high 52 week low Market Cap (in

Cr)

1 Airtel 378.75 254.29 175879.99

2 Vodafone Idea 30 4.3 15459.64

3 Tata 5.27 2.34 606.03

Teleservice

4 MTNL 19.40 4.49 410.13

5 Reliance Comm 18.60 0.73 237.84

Source: https://www.moneycontrol.com/stocks/marketinfo/marketcap/bse/telecommunication-
service-provider.html

2. 3 Financial Performance Indicators of Major Players

As of March 2019, All values in Rs. Cr

Company Total Assets EBITDA PAT

Airtel 222685.50 -8008.60 -1829

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 Vodafone Idea 172028.10 -12851 -3997

Reliance Comm 52419.00 6682 2847

Tata Teleservices 1727.24 1069.08 -667.60

MTNL 9357.59 -703.32 -3390.20

Source: https://www.equitymaster.com/research-it/annual-results-analysis/IDEA/VODAFONE-
IDEA-2017-18-Annual-Report-Analysis/406
https://www.moneycontrol.com/financials/bhartiairtel/profit-lossVI/BA08#BA08
https://www.business-standard.com/company/tata-tele-mah-21214/financials-profit-loss
https://m.moneycontrol.com/stock/mahanagartelephonenigam/MTN/financials/profit-loss

3. MACROECONOMIC PROFILE

3.1 Government regulations and policy changes

The Indian telecom has witnessed many policy level changes over the years. It has come up as
one of the leading potential markets globally too. In 1994 the sector was liberalized with
introduction of National Telecommunications Policy(NTP).The telecom sector is regulated by
the Telecom Regulatory Authority of India(TRAI) which was set up in 1997. TRAI works
independently and aims to work with reduced interference of Indian Government in Telecom
sector operations.
National Telecommunications Policy 1994 has shown significant impacts on the sector. There
were benefits beyond just the growth of the sector. There was a huge fall in tariffs, which lead to
increase in tele density, which is the number of landline users for every 100 individuals in an
area. The policy had norms like making on demand telephone connection available by 1997.
TRAI was set up in 1997 which had functions like regulating effective interconnection and
technical compatibility between service providers and operator and monitoring the quality
service standards. The functions related to licensing, standard setting and spectrum allocation
are in fact not handled by TRAI and they come under the purview of the Government of India.

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TRAI's mission is to create and nurture conditions for growth of telecommunications in the
country in a manner and at a pace which will enable India to play a leading role in emerging
global information society.(TRAI website, https://main.trai.gov.in/about-us/history)

The New Telecom policy in 1999 (NTP99) set specific targets like availability of affordable
and effective communication facilities for citizens and it aimed to provide a balance between the
provision of services to rural and urban population.NTP99 enabled private administrators to
move from a fixed permit system to an income sharing system which made it monetarily
reasonable for such administrators to work in the market. The NTP99 coordinated the
detachment of the strategy and authorizing elements of DoT in October 2000 and named it as
Bharat Sanchar Nigam Limited (BSNL). From there on in 2000, the imposing business model of
VSNL likewise arrived at an end. The govt was not able to satisfy the interest for phone
associations in light of the fact that there was a long sitting tight list for phones in India. For that
government welcomed private segment in telecom. After that the govt presented the Cellular
Mobile Telephone Service (CMTS) authorized and Basic Telecom Service permit enabling
private players to give telecom benefits in India.

National Telecom Policy, 2018 was formulated in the face of technological implications of 5G,
IoT etc. It is a customer focused and application driven policy that aims to provide broadband for
all, create four million additional jobs, enhance telecom to contribute 8% to GDP from the
existing 6% and increase India’s contribution to Global Value Chains. The policy aims to
achieve these targets by 2022.

3.2 Impact of budget:

 Customs duty - Technological evolution in the telecom industry is highly dependent on
Broadband speed in amalgamation with 4G technology. Programs like Digital India and
Smart Cities further explain the need for higher speeds and hence, the infrastructure
supporting it. The 2G and 4G telecom network equipment is already exempted from
customs duty which helped in reducing costs for the customer. Of late, these exemptions

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 have been withdrawn to promote the local manufacturing of telecom equipment. Despite
continuous efforts to innovate, the scale and quality of equipment needed by sector has
not been available in the country and hence telecom companies have to pay higher import
duties.
 GST Rates – The current GST rates are 18% which is too high as per the industry
experts. Since telecom is an essential good/service, telecom companies are pressing the
finance ministry to lower the GST rates on an essential service like telecom to 12% on all
sorts of mobile phones, including top end 4G smartphones to ensure policy consistency.
 Tax withholding on distributors - Distributors play an important role in the telecom
business as prepaid vouchers and SIM cards are transferred by telecom companies to
independent distributors at a discount, who further sell it to retailers or subscribers. This
payment to distributors is not provided by telecom companies so there is no point of tax
being deducted on the same. However, there is a contrary practice of tax withholding to
distributors in place which impacts their profits.
 Infrastructure taxes – Infrastructure plays a huge role in telecom, especially land,
building, towers etc. Telcom companies pay a fixed tariff to agencies like municipal
corporation for the use of such infrastructure. But the pressure from the Central
government to levy taxes on such property (to the property owners) is making it difficult
for telecom companies to expand their infrastructure as these agencies have started asking
telecom companies to pay a certain amount for the Tax as well.

Latest Budget Trends:

 The government is expecting a 28% increase in non auction revenue for the fiscal year
2019-20
 The government has planned to withhold spectrum sales for 4G and 5G this year which
might impact the revenues of telecom companies as there has been huge spending and
budget allocation to the new technology since quite some time now and it was expected
to bring about a boom in the declining sector.

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  On the positive side, telecom ministry has been lately looking ta rationalizing the tax
structure, reviewing the USOF(Universal Services Obligation Fund) and SUC and look at
ways to facilitate ease of doing business for telecom companies.
 There has been no government intervention in the rapidly declining prices for telecom
services which should have been looked at, or some budgetary allocation towards the
hurting sector could have been made which seems to have been missed out in the latest
budget.

3.3 Disruptions in Telecom sector

1. Entry of Reliance Jio
The Indian Telecom sector has been severely disrupted by the entry of the conglomerate,
Reliance Jio. After it made entry on September 5, 2016 , it stands today with 340 M subscribers
being the fastest growing telecom operator in the world. Reliance Jio made an entry by offering
free voice services and low price for data. This lead to competitors to follow similar pricing
strategy and eventually leading to the merger of two of the main competitors Vodafone and Idea.
Jio also offered mobile handsets as part of their bundled services.
India’s Internet penetration growth is attributed to Jio in the Mary Meeker Internet trends
report[2] The low pricing strategy has helped Jio to expand its base and this had lead to India
being the home to the second largest number of Internet users after China. China has 21% of the
global internet users and India has about 12% global internet users.

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Image sources: Bloomberg
https://www.livemint.com/industry/telecom/due-to-jio-india-is-home-to-world-s-2nd-largest-
internet-user-base-report-1560344314812.html

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2- https://www.bgr.in/news/mary-meeker-internet-trends-report-2019-india-remains-the-second-
largest-internet-market-in-the-world/
Jio image sources https://indianexpress.com/article/business/four-charts-that-show-how-reliance-
jio-has-shaken-up-indias-telecom-industry-5405954/

2. Disruptive technologies
Telecom sector is severely affected by technological trends. The growth from 2G to 4G networks
and ongoing progress to 5G has been fast. Disruptive technologies help telecom companies to
realize gains and leverage the customer demands served by these technologies. Technologies
with maximum disruption are Internet of Things (IoT), Devices and wearables(D&A) and Digital
payments and currencies (KPMG,2016)
The proposed spectrum sharing provides critical benefits for 5G. Access to shared and
unlicensed spectrum will extend 5G in multiple dimensions such as providing more capacity,
higher spectrum utilization, and new deployment scenarios. It will benefit mobile operators with
licensed spectrum. It will also help the operators who do not have license of a spectrum to
leverage many opportunities (Qualcomm, 2019)

3.4 Global aspects of the sector

3.4.1 Competition from foreign firms:
Following the incumbent consolidation and price war scenario in the telecom sector, it is obvious
that foreign competition would further elevate the distress in the sector. It is a point of concern
and hence it is demanded that telecom be declared a critical and strategic infrastructure sector
disallowing foreign firms to enter. One of the close competitors in the foreign market is China,
which has been trying to make its full fledged entry into the Indian markets since a long time.
China controls a huge section of India’s telecom networks, including telecom equipment for
radio, core and transport networks. ZTE and Huawei are one of the big players having a major
presence in all the big telecom comapnies networks. It is been a matter of discussion that 5G
should be made indigenous and the cloud component of 5G should be located in India.
Other firms also impact the domestic markets with their presence in the radio and core networks.

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3.4.2 FDI
There has been a fivefold jump in the FDI inflows in the Telecom sector – from US$ 1.3 bn to
US$ 6.1 bn in 2017 – 18. Also, historically liberalization in the telecom sector has been a major
factor contributing to attract more FDI into the sector.

3.4.3 Opportunities in overseas markets

Big Indian firms like Airtel, VIL, and Jio have huge overseas markets covering various domains,
viz., cable capacity, satellite capacity, and radio and core networks. Airtel’s market in Africa
being a major contributor to its revenues and customer base. Also, these firms have been
increasingly laying focus on global expansion through mergers, acquisitions and foreign
investments. There are various domains into which telecom companies can expand their services
like colocation, cloud management, etc. as shown by the following figure.

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REFERENCES
1. https://en.wikipedia.org/wiki/Telecommunications_industry

2. https://en.wikipedia.org/wiki/Telecommunications_in_India

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