New Delhi July 12, 2010: - The Indian telecom services industry that braved the recession of 2008-09 to grow at 20%, bowed to internal competitive forces in the just concluded fiscal 2009-10, slowing to 2.5%, to post revenues of Rs.1,59,510 crore in 2009-10 against previous year’s earnings of Rs. 1,55,683 crore.

This has been revealed in Voice&Data 100, the second part of the recent survey by the leading Telecom industry journal Voice&Data. Telecom services revenue include revenue from cellular, fixed line, National Long Distance (NLD), International Long Distance (ILD), broadband, VSAT and Radio Trunking businesses.

Intense tariff war caused the steep fall and overall slowdown in the performance across segments, including cellular services that have been leading the growth of the telecom services sector over the past several years.

“This is the worst telecom services revenue growth in the last five years. More tariff wars are not sustainable. There is likely to be consolidation ahead which should arrest more tariff wars and revenue attrition. The 3G rollout and rising broadband penetration, including wireless broadband, will also help improve service revenue—but the impact of these will be felt more in fiscal 2011-12 than this year,” Prasanto K Roy, chief editor, CyberMedia India, said.

Despite a near 50% subscriber growth, the mobile services segment grew a meagre 3.6% to Rs. 96,860 crore from Rs. 93,522 crore. The tariff cuts and introduction of one paisa per second calling introduced by the new players forced the leading players also to cut tariff.

The cellular services market that grew at 36.4% just two years ago thus providing momentum to the Indian telecom revolution is now set for exciting times, the Voice&Data study says. Thanks to the mobile telephony revolution one in every two Indians owns a mobile phone.

Three mobile operators—Bharti, Reliance and Vodafone--now boast of a subscriber base of over 100 million each. The subscriber base for fixed line in the country is languishing at 36.96 million.

The Voice&Data study expects the competition to become more intense with 14 active mobile players trying every trick in the trade to stave off negative growth.

Even though most top cities have statistically achieved near 100% mobile penetration Voice&Data estimates that nearly 20% of the mobile subscribers are inactive. The journal from CyberMedia group reveals that in 2009-10 nearly three-fifths of the new additions came from rural areas. Voice&Data expects the new customers in future to come mostly from the rural markets.

Fixed Line Posts Negative growth
Broadband and ILD grow at Healthy rate

Voice&Data Telecom Services Industry (FY 2009-10)
Category	Revenue in Rs. crore		Growth %
	FY ’08-09	FY ’09-10
Fixedline	24,649	18,900	-23.3
Cellular	93,522	96,860	3.6
NLD	14,432	16,400	13.6
ILD	15,000	17,600	17.3
Broadband	7,500	9,000	20
VSAT	540	702	30
Radio Trunking	40	48	20
Total	155,683	159,510	2.5
Source: Voice&Data survey of Indian Telecom Industry 2010

For the fixed line phone business, 2009-10 was another year of negative growth with revenues dropping by nearly a quarter (23.3%) to Rs 18,900 crore. While the top three fixed line players—BSNL, MTNL and Bharti Airtel—reported a revenue decline, others like Reliance Communications, TTSL and TTML posted growth in revenues.
 
The International Long Distance (ILD) segment posted a 17.3% growth to touch revenue of Rs. 17,600 crore, thanks to a booming subscriber base of almost 600 million. While Tata Communications (erstwhile VSNL), grew 12.7%, Reliance Communications and BSNL grew at 4.1% and 4.6% respectively. What was, noteworthy was the 1% dip in Airtel's ILD revenue, substantially due to price drops.
 
The ILD segment grew as Indian telecom operators increased their presence in foreign markets. This brought additional ILD revenue for domestic operators. With falling rates there has been a substantial growth of inbound voice traffic into India.
 
VoIP (Voice over Internet Protocol) based calling added to the revenue challenge as the popularity of formal as well as informal (and illegal) internet telephony operators (for both inbound and outbound internal calls), who bypass the licensed operators, grew during year. Subscribers can today make very cheap or virtually free calls, albeit of poor voice quality, to and from India. The government needs to check the growth of these companies to ensure the growth of ILD operators in India.

The National Long Distance (NLD) market too bore the brunt of the price war as it recorded revenues of Rs.16,400 crore a growth of 13.6% in 2009-10 compared to 48% in 2008-09.
 
According to Voice&Data estimates, the two PSU players—MTNL and BSNL, who have the first mover advantage in the 3G space - seeded the market by adding 1.8 million subscribers. 
 
Broadband, the fifth large segment of the telecom services space, posted revenues of Rs. 9,000 crore recording a growth of 20% over last year. Both BSNL and MTNL saw 57.3% and 92% growth in their broadband revenues respectively.
 
The Indian Government’s target of 20 million broadband connections by 2010 is likely to fall short with the year ending with just 8.75 million subscribers. Here also, the top 30 cities contributed nearly 60% to all the broadband subscribers. The only saving grace appears to be the addition of 149.03 million subscribers for wireless data services on smart hand held devices that recorded a jump of 47.41% in the 12-month period ended December 2009.
 
The popularity of Value added services (VAS), that include the basic SMS, ring-tone downloads, navigation aids and mobile payment features, picked up during 2009-10. The vast potential of the Indian market kept the VAS providers on their toes to build content and services focused on the Indian market. The VAS business, fast growing in terms of number of players, is highly competitive leading to wafer thin margins. And with 3G coming in, this space is likely to get even more competitive and exciting.
 
The Top 10 Service Providers
Bharti Airtel, retained its position for the second consecutive year, by posting a growth of 5%, to end the fiscal with revenues of Rs. 38,800 crore. Vodafone recorded the highest growth of 13.7% and was among the Top 5 players to emerge as the third largest player with revenues of Rs. 23,200 crore, a position earlier held by Reliance Communications. Reporting a negative growth of 3.5% Reliance was at No. 4 with revenues of Rs. 22,130 crore.

The leading public sector giant BSNL saw a drop in its revenues for the second consecutive year to end the year with Rs. 30,240 crore, a drop of 14%, even though the company’s mobile subscriber base grew by a third to touch 70 million. Idea Cellular, Tata Communications and Tata Teleservices retained their slots at No. 5, 6 and 7 with revenues of Rs. 11,390 crore, Rs. 11,000 crore and Rs. 6,900 crore, respectively.
 
Aircel moved up to No. 8 slot by recording the highest growth of 37.2%,--among the Top 10 players, to post revenue of Rs. 4,700 crore. Previous year’s No. 8, MTNL dropped nearly a fifth of its revenues—the biggest drop among the top 10 players--to Rs. 3,650 crore. Three Tata group companies were in the top 10. With, TTML, ranking No. 10 and posting revenues of Rs. 2,300 crore the group crossed the Rs. 20,000 mark in revenues.
 
How will 2010-11 pan out?
The next 12-18 months are likely to be extremely challenging for the service providers. “Competition for market share is likely to grow at a scorching pace leading to shrinkage of margins. Big investments in acquiring 3G and BWA spectrum have already sent operators back to the drawing board. The rollout of 3G services too will need significant investments in equipment,” says Ibrahim Ahmad, group editor of Voice&Data.
 
“To survive, the players will have no option but to come with innovative plans across the board, network rollout and management, customer acquisition, and range and quality of services,” Ibrahim added.
 
The other big hurdle that can come in the way of telecom growth is the current restrictions on telecom operators on purchase of equipment from Chinese vendors. This is affecting network expansion schedules and costs. If it continues, the operators may be forced to buy equipment from European and American vendors, without much head room for price negotiations.

It may be recalled that as per Voice&Data100 survey, the Indian telecom equipment segment maintained its growth momentum clocking a growth of 18.6% in the financial year 2009-10 marginally lower than the 20% growth in the previous year. The overall telecom equipment revenue stood at Rs 136,833 crore (USD $28.8 billion) during the fiscal, as against Rs 115,382 crore in 2008-09.
 
This segment is largely dominated by telecom equipment providers targeting telecom operators as well as mobile handset makers like Nokia that derives bulk of its sales from this segment.

About V&D100
V&D100 is the most comprehensive annual survey of the Indian equipment industries and telecom services. It is the most trusted and widely used survey for those seeking authentic information on Indian communications. It is also the most comprehensive, as it covers a wide range of segments and is the only 'single source' of such diverse information.
 
About CyberMedia
CyberMedia is South Asia's first and largest specialty media house, with fifteen publications (including BioSpectrum, Dare, Dataquest, PCQuest, Voice&Data, Global Services and Technology Review) in the information technology, telecom, consumer electronics, and biotech areas, and is a media value chain including Internet (www.ciol.com), events, and television. The group's media services include market research (IDC India), content management and multimedia.

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