Industrial analysis of telecom & infra sector

Presenters:
Neelutpal Saha (222012)
Mrinmoy Sarkar (222011)
Shan Lal (222021)
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“A 10% increase in mobile and broadband penetration increases the per capita GDP by 0.81% and 1.38% respectively in the developing countries.”
~World Bank
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Introduction to Indian Telecom Industry
•India has faced challenges in liberalizing its telecom industry from a monopoly to a decentralized competitive model. The announcement of the National Telecom Policy (NTP) in 1994 marked the first steps toward the new model. It aimed at making available “telephone on demand,” promoting India’s emergence as a major manufacturing and export base of telecom equipment and availability of basic telecom services to all villages.
•In 1999, Government, recognizing the need to overhaul its policy framework, issued the NTP 1999, which had played a key role in shaping the sector.
•Over the past decade, Indian telecom industry has witnessed many positive developments. India has attained the second largest subscriber network after China with the total number of subscribers scaling up to about 900 million. With an estimated base of 67 million smartphone users in 2013, India also ranks fifth amongst the top countries in this category. With an increasing smartphone penetration in the country, subscribers accessing internet through mobile devices stand at 176.50 million.
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Brief History of Indian Telecom Sector
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National Telecom Policy now and then
•The salient features of NTP 1999 were:
(i) To introduce greater competition in the telecommunications sector
(ii) To provide equal opportunities and level playing field for all players
(iii) And to make available affordable and effective communications for the citizens.
•Some of the objectives set forth by government under NTP 1999 were fulfilled. Targets on overall teledensity, rural teledensity and telecom coverage for villages were achieved. Target on tariff structure were also achieved as India has lowest tariffs in the world and target of providing high speed data links to all towns having population of more than 200,000 was also achieved.
•Few targets such as achieving transparency in spectrum management, providing internet access to all district headquarters and reliable media to all exchanges by year 2000 were missed. Nevertheless, NTP 1999 continues to be the policy matrix guiding telecom sector till date.
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•The National Telecom Policy 2012 (NTP 2012) was conceived, with the vision to transform the country into an empowered and inclusive knowledge-based society, using telecommunications as a platform.
Mission Statements-
•To develop a robust and secure state-of-the-art telecommunication network providing seamless coverage with special focus on rural and remote areas for bridging the digital divide and thereby facilitate socio-economic development.
•To create an inclusive knowledge society through proliferation of affordable and high quality broadband services across the nation.
•To reposition the mobile device as an instrument of socio-economic empowerment of citizens.
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Continued
•To make India a global hub for telecom equipment manufacturing and a centre for converged communication services. promote Research and Development, Design in cutting edge ICTE technologies
•To promote development of new standards to meet national requirements, generation of IPRs and participation in international standardization bodies to contribute in formation of global standards, thereby making India a leading nation in the area of telecom standardization.
•To attract investment, both domestic and foreign
•To promote creation of jobs through all of the above.
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Regulatory Framework
•MICT- The MICT is part of the Indian Government. The MICT formulates policies with respect to telecom, post, telegraph and other means of communication
•DoT- Its key responsibilities include: Policy, licensing and coordination matters relating to telegraphs, telephones, wireless and other like forms of communications. Its is also responsible for international cooperation, promotion of standardization and R&D, promotion of private investment
•Telecom Commission- The Telecom Commission is responsible for policy formulation, licensing, wireless spectrum management, administrative monitoring of public sector undertakings (PSUs), R&D and standardization and validation of equipment, among other matters
•TRAI- TRAI was established as an independent statutory regulatory authority under the TRAI Act in 1997.
•TDSAT- In April 2000, the GoI established the Telecom Dispute Settlement & Appellate Tribunal (TDSAT), as an authority separate from the TRAI to handle disputes in the telecom sector
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Indian Telecom Industry 2014
India’s GSM operators added 2.58 million rural subscribers in April 2014, taking the total to 297.16 million. Also, Cellular Operators Authority of India’s (COAI) data suggests that the overall GSM subscriber base increased by 4.97 million in April 2014 taking the total GSM subscriber base to 726.90 million customers.
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Investments
•Aircel, in a move to expand its retail footprint in India, plans to set up 200 more XPRESS stores in the country, thereby taking the total number of these franchisee-owned, franchisee-operated model XPRESS stores to 500 by the middle of 2015.
•Reliance Jio Infocomm has signed deals with Ascend Telecom Infrastructure and Tower Vision to share their towers. These deals will help the telecom unit of Reliance Industries to roll out its much awaited high speed data and voice services sooner and at a lower cost across India.
•Vodafone India has extended its Project Samridhi to Karnal in rural Haryana, in a bid to boost sales and provide employment opportunity to women in the region. Under the project, Vodafone has appointed 100 women, to sell e-top-ups and prepaid recharges.
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Continued
•Reliance Communications (RCom) has entered into inter-circle roaming partnerships with Aircel and Tata Teleservices Ltd to offer 3G services on a pan- India basis. This agreement will enable RCom’s GSM customers to access 3G services while on roaming even outside its network.
•Tata Communications has entered into strategic partnerships with NEXTDC in Australia, Interxion in Germany and Austria, and Pacific Link Telecom in Malaysia. These partnerships will help the company to scale up data centre footprints in newer geographies.
•Vodafone Business Services (VBS) launched managed video conferencing service for enterprises to offer an experience of world class virtual face-to-face-like interaction with various participants anytime, anywhere.
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Government Initiatives
•The Government of India has planned to establish a nearly 1,200-km direct subsea optic fibre cable link between the Indian mainland and Andaman and Nicobar Islands to improve telecom connectivity in this strategically located archipelago.
•The Ministry of Communication and Information Technology is planning to extend basic mobile coverage, including voice calling, in far-flung areas of eight northeastern states, at an estimated cost of over Rs 5,000 crore.
•The Department of Telecom (DoT) has planned to set up an application development centre with an outlay of Rs 1,000 crore over a three-year period. The move aims to generate income for the Universal Services Obligation (USO) fund in addition to the revenue share received from telecom operators.
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Continued
•The Department of Space (DoS) plans to waive satellite bandwidth charges payable by Bharat Sanchar Nigam Ltd (BSNL) to sustain the state-run telecommunication operations in the Andaman and Nicobar, Lakshadweep archipelagos and strategic border regions across the northeastern states.
•A top-level team from DoT was sent to participate in a global convention in Israel to showcase India as a world-class networks gear manufacturing hub and in a bid to boost bilateral trade.
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Road Ahead
•To propel the Indian economy forward, the government is using the telecom industry as an effective channel to reach and serve its citizens. DoT is promoting a vision of ‘green telecom’ by which it plans to convert 50 per cent of urban and 30 per cent of rural towers to renewable energy. Various policy initiatives by the Indian government have led to a complete transformation of the industry in the last decade. It has achieved a phenomenal growth during the last few years and is poised to grow further. It has also been speculated that this sector will generate about 4.1 million additional jobs by 2020.
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Case Study: PURA: “Providing Urban Amenities in Rural Area”
As articulated by Dr. Abdul Kalam, the word PURA has become widely used in social economic system for sustainable growth. PURA stands for a well-planned drive towards achieving an inclusive and integrated development starting at the village household level.
PURA involves following:
• Physical Connectivity
• Electronic Connectivity
• Knowledge Connectivity
• Economic Connectivity
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Physical Connectivity:
•Physical connectivity would facilitate the movement of goods and people, thereby, enabling enterprises to have a wider access to their inputs, markets or intended beneficiaries
Electronic Connectivity:
•Electronic connectivity is essentially a facilitator to help create knowledge networks, enhance educational initiatives, connect hospital and remote locations, bring in better banking services and open up market access in a faster and more transparent manner
Knowledge Connectivity:
•Some of the important functions performed by knowledge connectivity include: Distance education, E-Health care, Soil and fertilizer management, Agro-processing technologies, Mapping of land, water and other resources, Environment & forest management, Weather management, Any special local or seasonal needs
Economic Connectivity:
•PURA complexes strive to be economically independent and contribute to the economic growth of the nation in a positive manner. Economic connectivity model needs customization in terms of: Quality of human resources, Specialized skills, Special competencies, Connectivity to the markets and cities and within the villages, Support industries etc.
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The National Mission on Education through Information and Communication Technology (NMEICT)
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Indian Infrastructure Industry
“The link between infrastructure and economic development is not a once and for all affair. It is a continuous process; and progress in development has to be preceded, accompanied, and followed by progress in infrastructure, if we are to fulfill our declared objectives of generating a self-accelerating process of economic development.”
~Dr. V. K. R. V. Rao [noted Indian economist, early 1980s]
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Introduction
•The rapid growth of the Indian economy in recent years has placed increasing stress on physical infrastructure i.e. electricity, railways, roads, ports, irrigation, water supply and sanitation, all of which already suffer from deficit in terms of capacities as well as efficiencies. The pattern of inclusive growth averaging at 9 percent per year as conceived under the Twelfth Five Year Plan (2012-17) can be achieved only if this infrastructure deficit is overcome and adequate investment takes place to support higher growth and an improved quality of life for both urban and rural communities.
•Based on projections provided in the Mid-Term Appraisal of the Twelfth Plan, in order to attain a 9 percent real Gross Domestic Product (GDP) growth rate, infrastructure investment should be on average almost 10 percent of GDP during the Twelfth Plan. This translates into INR 41 lakh crore at 2006-07 prices (real terms), as estimated by the Planning Commission of India. At an annual inflation rate of 5%, this translates into an equivalent to INR 65 lakh crore in current prices.
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Railways
•The growth in rail infrastructure has not matched the demand, with many projects running behind schedule, leading to time and cost overruns of more than 100%. The Indian Railways launched “Vision 2020” in 2009, which outlined needs and targets to be achieved by 2020.
•Some of the major issues affecting the sector include insufficient funds, misplaced investment priorities, lack of timely reforms in organizations and inability to attract private investments. Furthermore, the internal revenue surplus is too small to fund investments and private investments only constitute 4% of the total investment in the sector.
•Moreover, most of the PPP projects announced are still at the project development phase. They have been stalled due to various bureaucratic and regulatory issues including land acquisition, approvals from state governments, the absence of model concession agreements, etc.
•In addition, many proposals for introducing reforms in the railways have not been implemented. As a result, its ability to keep pace with users’ needs is increasingly falling short of requirements.
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Ports
•India’s 13 major ports and 60 operational non-major ports handle 95% of the country’s external trade by volume and 70% by value. The main issues faced by ports include the level of containerization, custom procedures and insufficient connectivity to their hinterlands.
•The Maritime Agenda proposes an investment of INR1,280 billion in 424 projects in major ports and INR 1,680 billion in non-major ports by 2020. It is proposed that more than 80% of the investment in major ports will be made by the private sector.
•Some of the key challenges facing PPP projects include environmental clearances, the slow bureaucratic procedures at most major ports in pre-tendering and the post- award stage, e.g., delays in dredging, the lengthy tariff-fixing process and poor connectivity to the hinterland.
•Tariff setting is another major issue, which limits private sector investments in the sector. The Ports Regulatory Authority Bill 2011 has potential to overhaul the regulatory structure of ports and the tariff-setting process but concerns of private sector need to be addressed.
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Roads and Highways
•Road infrastructure is of prime importance for the growth of the economy, since around 60% of freight and 85% of passenger traffic moves by road in India. The National Highways only constitute around 1.7% of the road network, but carry 40% of the total road traffic. Yet only 24% of the country’s national highways are four- lane and meet the required standards.
•The National Highway Development Programme (NHDP) is the largest and foremost infrastructure program being undertaken in country. The program envisages upgrading or strengthening of around 54,000 km of the highways in several phases with an investment of around INR3,000 billion.
•Over the last quarter, the Government has taken various initiatives to boost development of infrastructure in the country. These include setting infrastructure targets for various sectors, putting in place an institutional mechanism to monitor the progress of PPP projects at the Central and state levels and facilitating land transfer between government agencies for PPP projects.
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Roadblocks to achieving infrastructure goals
•Land acquisition is the single largest roadblock for infrastructure development because of multiple reasons. Inadequate compensation and poorly planned rehabilitation packages have led to this issue. To address it, a new Bill, the Land Acquisition and Rehabilitation & Resettlement Bill (LARR), has been proposed. This Bill, in its current form, includes improved provisions for compensation and rehabilitation, and is expected to streamline the land acquisition process and reduce the number of litigations in the country.
•Regulatory approvals and environmental clearances are the major hindrance for successful delivery of projects. Multiple agencies are involved and various approvals required across the different stages of the project cycle. The pre-tendering process can extend for almost a year. Moreover, environmental safeguards and guidelines are continuously evolving and need to be implemented, not only in new projects, but even in under-construction ones, which may need to comply with revised standards midway through their execution stage, causing further delay.
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•Another major roadblock is the approach of the sponsoring agency to project planning or pre-tendering activities. This can be attributed to two factors. First, poor project planning and engineering designs in the tendering phase contribute to delays in implementation of projects. Second, is the sponsoring authority’s understanding of PPP projects, since procurement of PPP contracts are frequently processed in a manner that is similar to that of EPC contracts. Most importantly, the majority of projects offered for bidding are inadequately structured and unsuitable for a PPP model.
•Funding is another major roadblock, with an increased reliance on the private sector to develop and maintain infrastructure projects that are capital-intensive and have a long gestation period. Currently, developers and banks have exhausted their exposure limits to the infrastructure sector, respectively. Equity markets are also not favourable due regulatory requirements, forcing most infrastructure companies to dilute their equity in public markets to whatever extent possible.
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•Another emerging challenge relates to the capacity of the private sector to execute infrastructure projects. The sector has financial and manpower constraints. Most large companies in India are now integrated players that execute projects as developers and EPC contractors. However, the total number of such players is low and they have already secured several projects, which limits their capacity to take up new projects. Lack of skilled manpower and shortage of construction equipment further compounds the problem.
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Overcoming Roadblocks
•Apart from streamlining the land acquisition process through LARR, the Government should also issue clear guidelines for sponsoring agencies on land acquisition, e.g. mandatory acquisition of 90% of the total land or 70% of the contiguous land, before offering projects for bidding. This will help agencies to be more rigorous in their project planning and diligence processes before initiating bidding, and thereby, avoiding delays at a later stage.
•Moreover, the technical capabilities of consultants should be evaluated during the selection process and they should be selected on the basis of their experience and expertise. Sponsoring agencies should also develop strong performance management systems, e.g having independent third party audits conducted for infrastructure projects to ensure transparency in public contracts and compliance with project execution guidelines.
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•Similarly, the dispute resolution process needs to be more effective and expeditious. The Government may consider setting up a single quasi-judicial authority for all infrastructure sectors, which would have statutory powers to resolve disputes between the authorities and private developers.
•An institutional mechanism to monitor and enforce provisions in PPP and/or EPC projects should be established to enable regulatory approvals to be speeded up. A Performance Review Unit (PRU) proposed by the Planning Commission needs to be endowed with the power to gather information from nodal agencies on clearances and incentivize or regulate these.
•The private sector is finding it difficult to raise funds for infrastructure due to the aggressive investment targets set in the Twelfth Plan. Setting up of Infrastructure Debt Funds (IDFs) and the reduction in Withholding Tax is expected to facilitate the flow of long-term debt into infrastructure projects. The Government can also infuse additional capital in major public sector banks to augment funding in short- term.
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Conclusion: Building a sustainable future in India
•Whilst the need for greater infrastructure investment is clear, equally important is the need to sustainably manage such investments. The Indian Government’s success in infrastructure provision will be measured not by the quantum of funds invested, but on how infrastructure contributes to the achievement of India’s economic, social and environmental objectives. Importantly, infrastructure investment should be considered as a means to an end, not an end in itself.
•Challenges in infrastructure provision are not unique to India. Uncertainty, scarcity of available funds for investment, and competing priorities present challenges to all governments in infrastructure planning and delivery. Sustainability requires that future generations are not compromised by the investment decisions of current generations. Sustainably managing infrastructure through the appropriate pricing, funding and prioritization frameworks is important to ensure the benefits that accrue from the significant investment that India is currently making in key social and economic infrastructure are maximized.
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Case Study: Accelerating PPP in India
•A public private partnership (PPP) is an agreement between the government and private sector for the purpose of provisioning of public services or infrastructure. With a common vision in place, the public and private sector bring to the table their own experiences and strengths resulting in accomplishment of mutual objectives.
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Common forms of PPP models in India
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Industrial analysis of telecom & infra sector

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Industrial analysis of telecom & infra sector