With the telecom sector at a critical juncture, the vision of increased average revenue per user and broadband for masses is anticipated to be solely met by proper implementation of progressive and supportive policies provided by the government and the regulator, which in turn is expected to reduce the cost burden on the industry and provide impetus to free flow of investment, ideas, and technology to facilitate growth and evolution of this sector.

Under the existing circumstances, while there has been pressing need for swift and bold policy initiatives from the government to restore investor confidence, business sustainability, and public interest, the industry was taken aback by arbitrary, regressive, and inconsistent regulatory interventions. The current ecosystem necessitates logical and affirmative government interference in order to meet the critical objectives of accessibility, affordability, and sustainability laid out in the National Telecom Policy.

The Indian telecommunication sector has been one of the fastest growing sectors since the last decade and is likely to continue to be on the growth path in the coming years. It spells opportunities for both telecom operators and regulators to capitalize on the truly transformational potential of the telecom sector.

The Indian telecom equipment market estimated at Rs. 55,000 crore, likely to touch Rs. 220,000 crore by the year 2020, is too attractive to resort to all means to retain their 100 percent hold on it. It is expected to use telecom equipment worth Rs. 250,000 crore during 12th Five Year Plan (2012-17). Launch of 4G and LTE-TDD services coupled with expansion of 2G and 3G as well as increased penetration of broadband Internet in the country would be driving the demand for telecom equipment. This would translate into large-scale business opportunity for telecom equipment vendors such as Ericsson, Huawei, NSN, Alcatel-Lucent, and ZTE.

The financial year 2012 saw the continuance of growth for the Indian telecom market, which witnessed a 12.41 percent YoY increase in its subscriber base during the 12-month period. At the end of March 2012, the country's total telecom subscriber base (fixed plus mobile) stood at about 951 million. The teledensity level stood at about 78.66 percent by the end of FY12. Various favorable initiatives from the government, such as the introduction of mobile number portability and 3G, have contributed to this growth. With low penetration levels, especially in the rural areas, the Indian telecom market presents significant opportunities of growth.

However, a continuous decline in tariffs and minutes of usage (MoU) per subscriber pose a strong challenge to market growth.

The government has also taken few steps to promote R&D in manufacturing and to meet the demand for quality telecom and electronic equipment domestically.

• 100 percent FDI is permitted under automatic route for telecom equipment manufacturing
• No industrial license is required for the manufacture of telecom equipment. Simple IEM has to be filed with Secretariat for Industrial Assistance (SIA)
• Payment of any technical know-how fee and royalty for technology transfer is under automatic route
• Department of Telecommunications has set up seven Telecom Centers of Excellence (TCOE) in PPP mode in seven premier academic institutes of the country
• The government has approved National Telecom Policy-2012 (NTP-2012) to address various issues related to the telecom sector including telecom equipment manufacturing.

The communications industry has been growing at an annual average growth rate of 31.07 percent over the period 2009-12 with the total number of telephone subscribers having increased from 846.32 million in 2010-11 to 951.34 million in 2011-12. This reflects year-on-year (Y-o-Y) growth of 12.41 percent over the same period last year.

The wireless segment recorded a subscriber base of 919.17 million at the end of March 2012. In 2011-12, it grew by 13.25 percent, over 2010-11, contributing 96 percent to the total subscriber base. Over the year, the share of urban subscribers has decreased to 64.83 percent in March 2012 from 66.30 percent in March 2011, with rural subscribers share having increased from 33.70 percent in March 2011 to 35.17 percent in March 2012. Rural telecom penetration offers tremendous growth potential in terms of both customers and usage.

The wireline subscriber base declined from 34.73 million in March 2011 to 32.17 million in March 2012. Over the year, the share of urban subscribers has increased from 74.97 percent in March 2011 to 76.54 percent in March 2012, with rural subscribers share having declined from 25.03 percent in March 2011 to 23.46 percent in March 2012.

The GSM segment recorded a subscriber base of 814.06 million at the end of March 2012 as against 698.37 million in March 2011, with share of CDMA subscribers having decreased from 113.22 million in March 2011 to 105.11 million in March 2012.

The broadband subscriber base stood at 13.79 million in 2011-12, showing a yearly growth of 15.98 percent over 2010-11. The ongoing effort of the Indian government to rollout wireless broadband using LTE-TDD technology coupled with 3G is likely to provide an impetus to the broadband penetration.

Average Revenue per User

While the mobile subscriber base witnessed growth of around 20 percent annually coming into 2012, average revenue per user (ARPU) has been steadily declining as operators offered competitive tariffs; at the same time, usage levels have remained reasonably high, thus slowing the decline in revenues.

There has been a major push over the last couple of years to take mobile services into the poorer and rural areas of the country; this has also weighed heavily on ARPUs. But countering this trend, the long-awaited 3G licensing has seen networks across the country delivering mobile data services to customers. Although still struggling with coverage issues, 3G is finally starting to boost revenue. In 2012, there were signs that the decline in ARPU was bottoming out and some operators were reporting increased ARPUs.

Minutes of Usage

Minutes of usage per subscriber per month for GSM services remained almost at the same level as in the previous quarter, i.e. 346. The outgoing MoUs (167) increased by 0.04 percent whereas incoming MoUs (178) declined by 0.19 percent. The total MoU for CDMA per subscriber per month declined by 0.31 percent from 229.3 in QE March 2012 to 228.6 QE June 2012. The outgoing MoUs (115) declined by 1.57 percent whereas incoming MoUs (114) increased by one percent.

Mobile Number Portability

The government has continued to open the market up to more and more competition. The launch of mobile number portability (MNP) in 2011 added yet another dimension to the intensely competitive market. In July 2012, about 4.98 million subscribers submitted MNP requests, which is about 0.55 percent of total mobile subscriber base in India.

The overall negative growth in telecom subscription failed to dampen the MNP service in the country. While telecom companies lost subscribers during July to September quarter this fiscal, MNP perked up during the same time, with the month of July witnessing record 4.98 million subscribers submitted MNP requests, which is about 0.55 percent of total mobile subscriber base in India.

As of September 2012, 68.60 million subscribers have made a request for changing their operators since the facility was launched in January 2011. About 55.80 million port-out requests were granted. Nearly two years after the launch of MNP, the number presents a mixed trend, with the gainers being Vodafone, Idea, and Bharti Airtel. Operators including Aircel, Reliance, and Tata Teleservices lost subscribers to rivals.

Among the operators, Airtel received 19.73 million porting-in requests, compared with 15.27 million porting-out requests. The subscribers interested in moving over to Vodafone network were 19 million, higher by 5.12 million than 13.88 million porting-out requests.

Reliance for its GSM services has received 5.19 million porting-out requests, compared with 2.3 million porting-in requests. The company has received as many as 2.36 million porting-out requests on its CDMA networks, compared with 293,348 porting-in requests.

On its CDMA network, Tata Teleservices got 1.75 million porting-out requests, much more than the 156,671 porting-in requests. For its GSM network, the operator has received 5.8 million porting-out requests, as against 5.16 million porting-in requests. Aircel has received 4.2 million porting-out requests, compared with 3.52 million porting-in requests as on September 2012.

Mergers and Acquisitions

Mergers and acquisitions in India's telecom sector with the government announcing new norms for the industry would lead to a more efficient use of spectrum and help customers get better services at an affordable price. Mergers up to 35 percent market share of the resultant entity will be allowed through a simple, quick procedure for the sector that is set to enter a consolidation phase after the Supreme Court ordered cancellation of 122 2G licenses issued in 2008 without auction.

All players are expected to comply with the prescribed limit on spectrum and that mergers beyond 35 percent would be allowed only in cases where it did not violate this limit and other conditions will be detailed later.

Post-merger, if the spectrum held by the combined entity was beyond the prescribed limit, the excess spectrum must be surrendered within one year of the merger being permitted. Market share, based on both number of subscribers with the players and revenue, shall be considered while granting permission for the merger.

Tech Mahindra, in September 2012, has acquired 51 percent stake in mobile value-added services providers Comviva, in which Bharti Group has a major stake for Rs. 260 crore. Post-acquisition, which is subject to regulatory approval, the new entity will be called Mahindra Comviva. As a part of the deal, Tech Mahindra will make an upfront payment of Rs. 125 crore, while the balance Rs. 135 crore will be paid out over a period of five years based on Gurgaon-based Comviva achieving the mutually agreed performance target.

Consolidation

A strong sign of the impending consolidation has been witnessed in the closure of operations by few telecom service providers. Batelco became the first foreign operator to exit the Indian market in the wake of the 2G scam. Out of the eight telecom operators whose licenses were canceled by the Apex Court, Etisalat, Loop, and S-Tel decided to stop their operations in India (except in Mumbai), which marks the exit of 3 out of 14 telecom operators. Only Telenor (under the new name Telewings), Videocon, and Idea decided to participate in the recent auction, while Tata Teleservices and Sistema refrained.

Incumbents including Bharti Airtel, BSNL, and MTNL have lost revenue market share to new entrants over the last 12 quarters, i.e., since January 2010. The exit of operators with low revenue market share is likely to remove the pressure on pricing, driving an improvement in the same.

Limited participation and modest spends by the operators are good for the industry, which is yet to recover from the debt burdens of 3G and BWA auction outgo. Except one circle, there was no over-bidding over and above the reserve price. Selective participation by the new entrants might lead to the highly awaited consolidation in some of the circles reducing the price war that eroded the profitability of the telecom industry. The prospect of a high cash outflow in 3G and BWA auctions is likely to catalyze M&A activity.

As aptly stated by Nripendra Misra, ex-chairman, TRAI and currently director of Public Interest Foundation, we must recognize that the telecom sector is the most potent conveyor belt for taking growth to the aam aadmi. The lasting achievement of the November 12, 2012 auction is the recognition that spectrum allocation should be based on market determination of price and the license and spectrum should not be coupled, as was the case with the Unified Access Service License of 2001. The NTP-2012 has already confirmed the separation of licenses from spectrum. This auction laid the foundations for the implementation of NTP-2012. Once the regulatory uncertainties are resolved through a consultative mechanism, the telecom sector will be put back on the rails to feed growth and meet the expectations of 100 percent density for both voice and data.

The way forward is to make a fresh reference to the TRAI, which would ensure legal compliance. TRAI must take measures to restore confidence in the sector. The key incumbents have reported growing debt to equity, decline in minutes of usage, and significant fall in ARPU. The telecom companies are jittery in terms of the financial burden if the DoT's policy is enforced on refarming one-time payment beyond 6.4 MHz and payment for spectrum usage at the time of license renewal. There is a strong case that these issues are best settled in consultation with the stakeholders.

It appears that the flop claims for the auction are in the context of revenue contributions to the national exchequer. Those who are terming the auction a flop are also in the front row of those claiming that the telecom sector should not be seen as a revenue multiplier. This view has also been confirmed by the apex court.

It is interesting that the operators have largely opted for those circles that have been reasonably priced but account for a growing market and healthy share of the telecom revenue - Vodafone has picked up spectrum in around 14 circles, which account for 44.67 percent of the total telecom revenue; Telenor has bid for circles, which constitute 37.17 percent of the total telecom revenue but whose share in the total base price is 28.5 percent; Idea Cellular too has just stuck to the circle, which it had lost due to the SC order. The government has even agreed to adjust the money operators paid for the canceled licenses.

The DoT is all set to sell unsold spectrum to meet its target of Rs. 40,000 crore with its second round of 2G spectrum auctions. The auction will be limited to only four circles - Delhi, Mumbai, Karnataka, and Rajasthan, which did not receive any bids in the recently concluded auctions. The government might look at reducing the bid price of these four circles. A lower-priced second auction in these areas could substantially reduce future charges for telecom operators.

As the plan for a second round of auction is under way, there are many issues that need to be addressed. One such complication could arise if the government re-auctions the spectrum at a lower reserve price. This could lead to strong resistance from existing spectrum winner who has already paid a higher price for the same bandwidth.

Prohibiting Intra-Circle 3G Roaming

The long-awaited 3G licensing has seen networks across the country delivering mobile data services to customers and help operators to boost revenue. After spending hefty amounts on buying spectrum a year ago to launch 3G services, telcos including Bharti Airtel, Idea Cellular, and Vodafone had been asked to cancel all their 3G roaming agreements in states and circles where they did not own the underlying spectrum, i.e., outside their respective licensed zones. Loss of revenue to the exchequer, cartelization, rollout obligations, quality of service, and national security are some of the reasons accounted by DoT for this decision.

This action by the government prevents private operators from offering 3G services to all their customers. It also restricts the possibility of a pan-India 3G offering by any operator. In case operators are faced with a scenario where they have to stop roaming immediately, they may ask affected subscribers to port out to another 3G operator. In such a scenario, the subscriber loss will be somewhat quelled due to more or less equal re-distribution of 3G subscribers among the top three operators.

The impact of zero roaming charges on these operators is estimated to be four to five percent of revenues. Taken together with the ban on intra-circle 3G roaming, it would curtail the reach of roaming agreements and make them less profitable. Given that the data traffic generated by 3G services has increased by 78 percent while that of 2G services has increased by 47 percent during the period, this new regulation is expected to negatively affect operators' revenue in the long run.

4G - The Road Ahead

Time-division long-term evolution (TD-LTE) or 4G mobile market in India is at a nascent stage and expected to pick up in the next couple of years. TD-LTE subscribers in India are likely to reach 5 million in 2013, with the focus on mobile broadband. With LTE gaining momentum, India can look ahead to leapfrogging to 4G directly.

At the sector level, the emergence of 4G will accelerate widespread mobile business model innovation across a number of vertical industries including healthcare and life sciences, which are already adopting wireless technologies.

Reliance Industries is the only company to have 4G spectrum in all the 22 telecom zones. Bharti Airtel has launched 4G services in Bangalore and Kolkata earlier this year and is planning additional launches. The company has access to 4G radio spectrum in eight Indian markets.

The TRAI has identified at least six blocks of 20 MHz spectrum each, which can be auctioned to telecom companies for offering 4G services. The spectrum identified includes the 700 MHz band as well as the 2.5-2.6 GHz band. This means the government will be able to offer 4G spectrum to eight companies, leading to tough competition.

The 4G road map, which TRAI is working on, envisages allowing voice-over-Internet (VoIP) telephony between mobile and landline networks. Permitting VoIP calls will open a new market for companies, which have bought a pan-India BWA license but cannot offer voice calls until they tie up with a 2G operator.

It has been recommended by TRAI that the reserve price of 4G spectrum should be in line with the reserve price set for BWA auctions. While reserve price sets a minimum value for the auction, the actual value of the 4G spectrum would depend on a large measure on whether voice would be allowed on 4G. With 4G technologies being IP-centric, voice on 4G would require VoIP to be implemented on LTE networks. As a result, a clear policy on VoIP regulations is desirable. A minimum block size of 2x20 MHz per operator should be auctioned to achieve better efficiencies and throughputs.

Regulatory Scenario

The Telecom Regulatory made several important recommendations in the year.

Recommendations for unified licenses/class licenses and migration of existing licenses. Three levels of unified licenses have been proposed - national, service area, and district. TRAI opines that the slow growth of broadband in the country is primarily due to inadequate infrastructure for providing broadband both in rural and urban areas. In order to ensure that only serious players apply for license, it has been recommended that the applicant company should have a minimum of prescribed networth by itself. In case of unified license, only the networth of the applicant company should be considered. For national and district level unified licenses, the entry fee would be Rs. 15 crore and Rs. 10 lakh, respectively.

Recommendations on exit policy for telecom licenses. TRAI has recommended that presently there is no need for a separate Exit Policy for all types of Iicenses. The entry fee paid by the licensees will continue to be non-refundable as per their license terms and conditions, whereby the licensee can surrender his license by giving a notice of at least 60 calendar days (30 calendar days in case of ISP license).

Recommendations on spectrum auctions. TRAI has recommended that all future licenses will be unified licenses and allocation of spectrum will be de-linked from the license. Spectrum, if required, will have to be obtained separately. The prescribed limit on spectrum assigned to a service provider will be 2?ó8 MHz/2?ó5 MHz for GSM/CDMA technologies for all service areas other than in Delhi and Mumbai where it will be 2?ó10/2?ó6.25 MHz.

The excess spectrum of 2?ó2.4 MHz should be immediately taken back from MTNL and all spectrums to be assigned through the auction process in future shall be liberalized, i.e., spectrum in any band can be used for deploying any services in any technology.

The auction of 900 MHz spectrum may be carried out in the first half of 2013.

It has been recommended that the Department of Telecommunication should immediately arrange to allocate spectrum in the 1900 MHz band for refarming the spectrum in the 800 MHz band. The auction of spectrum in 700 MHz band may be carried out at a later date, preferably in 2014 as and when the ecosystem for LTE in the 700 MHz is reasonably developed, so as to be able to realize the full market value of the spectrum.

The limit for acquisition of spectrum shall be 50 percent of the spectrum assigned in each band in the respective service area and 25 percent of the total spectrum assigned in all bands put together in each service area. After conducting the auction for spectrum in the 1800 MHz band, and reserving the spectrum required for refarming, out of the remaining spectrum if any, one block of 2x1.25 MHz of spectrum may be allocated to those licensees having 4.4 MHz of spectrum in the service area, at the auction discovered price for that service area.

The recommendations allow the auctioning of 800 and 1800 MHz spectrum through two separate auction processes and in quick sequences.

For the purpose of calculation of the license fee as well as standard unit charge (SUC), there shall be a minimum adjusted gross revenue (AGR), which shall not be less than five percent of the bid amount. The calculation will be on the basis of minimum AGR or the actual AGR, whichever is higher.

Recommendations on application of services. Currently, various application services (AS) are also being provided through telecommunications network, while services like SMS, MMS on mobile phones, and data access and call-related services both on wireline and wireless were usually considered value-added services (VAS). But in recent years, SMS, MMS, call related services, and data access have become more of standard services, and VAS therefore has started to exclude those services.

The mobile VAS market in India is rapidly growing and has great revenue potential. The revenue from application services including SMS, MMS, and data access on mobile phones is expected to reach 31 percent of the mobile telecom service providers' revenue by 2015. With the ongoing rollout of 3G/BWA services, it is expected that higher data transfer rates would facilitate more data intensive applications and services. TRAI recommends that it will be better to represent VAS as application services and provide a definition of application services such that it is able to accommodate various applications to be provided now and in future through telecom networks. It is recommended that such licensee shall be permitted to offer Voice Mail Service, Audiotex, Videotex, Unified Messaging Service, and other value added services within its license area using the network of Unified Licensee on mutually agreed terms and conditions. The application service providers (ASPs) should be covered under licensing through authorization.

The licensee may provide application services and additional facilities in case of any value addition or upgradation that the technology permits subject to intimation to the licensor and TRAI about provision of any application services or additional facility along with details of provision made for lawful interception and monitoring of these services or facilities at least 15 days in advance before the introduction of these services or additional facilities; the licensee cannot provide any other application service, which otherwise requires a separate license; for allocation of short codes to telecom service providers/licensees and licensed application service providers/content providers, a Short Code Council (SCC) will be set up by TRAI.

It has been recommended that for spreading awareness regarding utility application services in rural and remote areas, awareness campaign for NeGP initiated by Department of Information Technology (DIT) should be utilized. Development of application services in Indian regional languages should be encouraged through suitable incentives.

Support for rural wireline connections installed before April 1, 2002. TRAI has recommended that Bharat Sanchar Nigam Ltd. (BSNL) should be provided support for sustenance of fixed rural wirelines installed before April 1, 2002. This amount should be Rs. 2000 crore per year for a period of three years effective from April 1, 2008. BSNL should furnish a certificate for funds having been utilized toward operation and maintenance of rural wireline connections provided prior to April 1, 2002, before the release of next quarterly installment.

It has been recommended that a subsidy of Rs. 600 crore purely as an ad hoc measure may be given to BSNL. Besides, keeping in view the fact that at this stage it may not be easy for the government to obtain any additional funds for this purpose through the normal budgetary process, TRAI recommends that the subsidy grant of Rs. 600 crore may be made from the Universal Service Obligation Fund (USOF). It is further stated that both the amount of Rs. 600 crore and the source, i.e., the USOF are purely ad hoc arrangement and that final recommendations in this regard will be made by TRAI after due consultation process.

It is proposed that support to BSNL may be continued for two years for sustenance of rural wire-line connections, installed before April 1, 2002. The amount of support may be Rs. 1500 crore for the first year and Rs. 1250 crore for the second year.

Continuation of support of rural wireline connections installed before April 1, 2002 from USOF. TRAI recommends that the support to BSNL should be continued for two years for sustenance of rural wireline connections, installed before April 1, 2002, w.e.f. July 18, 2011.

The amount of support may be Rs. 1500 crore for the first year and Rs. 1250 crore for the second year. BSNL should make each rural wireline connection, installed before April 1, 2002 broadband enabled by December 31, 2012. BSNL should furnish a certificate indicating the number of broadband-enabled rural wireline connections, installed before April 1, 2002 before the release of next quarterly installment. In case, some rural wireline connections are left to be made broadband enabled on January 1, 2013, the subsidy provided for the subsequent quarters may be reduced on pro-rata basis.

Recommendations on Spectrum for Cordless Technologies. TRAI recommends that 1880-1900 MHz band should be de-licensed for low power operations of cordless telephony system (CTS) for private and indoor use. Outdoor, non-localized, 
or inter-building operation of cordless systems is subject to the permission of the Department of Telecommunication's Wireless Planning and Communication Wing (DoT/WPC).

DoT/WPC may grant permission for inter-building operation of cordless systems if they are located within the same premise. Various etiquettes have been recommended for the CTS devices operating in the un-licensed spectrum band of 1880-1900 MHz band.

Recommendations on ISP license agreement for use of BWA spectrum. TRAI recommends that broadband wireless access (BWA) spectrum assigned to the licensee shall not be counted for determining the slab of the spectrum applicable to the licensee for levy of spectrum usage charges.

Over and above the radio spectrum charge payable by the licensee, the licensee shall also pay one percent of AGR from the services using BWA spectrum as annual BWA spectrum usage charges payable quarterly in advance. Applicable AGR from the services using BWA spectrum shall be computed in accordance with certain provisions of UAS license. For BWA spectrum, no annual BWA spectrum usage charges shall be payable in the first year from the effective date.

The licensee shall pay spectrum charges in addition to the license fees on revenue share basis as notified separately from time to time by the WPC wing. BWA spectrum assigned to the licensee shall not be counted for determining the slab of the spectrum applicable to the licensee for levy of spectrum usage charges. While calculating AGR for limited purpose of levying spectrum charges for spectrum other than BWA spectrum, based on revenue share, revenue from services using BWA spectrum shall not be taken into account.

Unless otherwise notified by the licensor in due course, if two or more licensees holding BWA spectrum blocks in a service area merge, then they shall be allowed to retain only one BWA spectrum block and surrender the remaining BWA spectrum blocks in that service area.

NTP-2012

The much-awaited NTP-2012 was announced in June 2012. However, the detailed framework and implementation is still awaited.

NTP-2012 has the vision Broadband on Demand and envisages leveraging telecom infrastructure to enable all citizens and businesses, both in rural and urban areas, to participate in the Internet and web economy thereby ensuring equitable and inclusive development across the nation. It envisages support to platform neutral services in e-governance and m-governance in key social sectors including health, education, and agriculture that are at present limited to a few organizations in isolated pockets. The mission is to provide reliable and affordable broadband access to rural and remote areas by appropriate combination of optical fiber, wireless, VSAT, and other technologies.

The NTP 2012 aims to increase rural teledensity from the current level of 40 percent to 70 percent by 2017, and 100 percent by 2020.  It seeks to provide 175 million broadband connections by 2017 and 600 million by 2020 at a minimum 2 Mbps download speed.  Higher download speeds of 100 Mbps would be made available on demand.  Broadband access to all village panchayats would be made available by 2014 and to all villages by 2020.  The policy aims to recognize telecom, including broadband connectivity, as a basic necessity like education and health, and work toward the Right to Broadband.

The policy incorporates framework for increasing the availability of spectrum for telecom services including triple-play services (voice, video and data) for which broadband is the key driver. It recognizes futuristic roles of Internet Protocol Version 6 (IPv6) and its applications in different sectors of Indian economy.

As of now spectrum bands are reserved on the basis of technology that may be used to exploit them.  For instance, the 900 and 1800 bands are reserved for GSM technology and 800 for use of CDMA technology.  The new spectrum framework attempts to make 300 MHz of additional spectrum available for mobile telecom services by the year 2017 and another 200 MHz by 2020. A roadmap would be prepared for availability of additional spectrum every five years. Periodic audits of spectrum usage would be conducted to ensure efficient utilization of spectrum. 

The policy envisions creating a corpus to promote indigenous R&D, IPR creation, entrepreneurship, manufacturing, commercialization and deployment of state-of-the-art telecom products and services during the 12th five-year plan period.

One of the objectives of the NTP 2012 is to meet Indian telecom sector demand for equipment to the extent of 60 percent and 80 percent with a minimum value addition of 45 percent and 65 percent by 2017 and 2020, respectively.

The government is likely to notify specific guidelines for preference according to domestically manufactured telecommunication equipment and products and facilitate provision of appropriate fiscal incentives through a Modified Special Incentive Package Scheme (M-SIPS) in telecom equipment manufacturing.

The efforts would be made to move toward Unified License regime in order to exploit the attendant benefits of convergence and spectrum liberalization and facilitate de-linking of the licensing of networks from the delivery of services to the end-users in order to enable operators to optimally and efficiently utilize their networks and spectrum by sharing active and passive infrastructure. The aim is to de-link spectrum in respect of all future licenses and provide flexibility to operators to operate any or all segment of services of the total basket of services provided in the scope of license.

For ensuring compliance of the prescribed performance standards and Quality of Service (QoS) parameters by the telecom service providers, the government is likely to formulate a Code of Practice for sales and marketing communications to improve transparency as well as address security issues relating to customer acquisition.

The public sector units under the DoT would be encouraged to identify and exploit strategic and operational synergies so that they play a significant role in service provision, infrastructure creation, and manufacturing.

National Policy on Electronics

The year also saw the approval of the National Policy on Electronics 2012 by the Union Cabinet. The policy aims to address the huge gap between locally produced electronics and the domestic demand for electronics in India, which will be in the region of Rs. 2,200,000 crore by 2020. India will account for three percent of the global market by 2020 (Rs. 92,800 crore).

NPE is also expected to bring in investments of around Rs. 5500 crore in the mobile phone segment during the next three years to either start new production facilities or to expand existing plants on implementation of the proposed NPE. The demand for mobile handsets in the country is expected to grow at 10-12 percent per annum, which can be met by producing handsets locally.

Fiscal initiatives are key for accelerated development. Currently, the lack of a local cluster imposes an effective three percent higher end cost on account of freight; the government may wish to consider a time bound (five years) incentive to overcome this and kick start the coalescence of a cluster in India.

India has set aside Rs. 30,000 crore worth of incentives and subsidies to encourage firms to set up electronics manufacturing units in the country. Startups interested in creation of apps for mobile phones, tablets, and other electronic hardware will also benefit, as a package of Rs. 10,000 crore is in the offing for them.

The policy will also have far reaching impact on growing the domestic electronics system design and manufacturing (ESDM) ecosystem, with the potential to make India a global hub of excellence for design and manufacturing of the latest innovations in electronics. It envisages to increase the export in the ESDM sector from Rs. 30,000 crore to Rs. 435,000 crore by 2020.

The proposal to provide a special incentive package to promote large-scale manufacturing in the ESDM sector has also been approved by the Union Cabinet. The scheme is called the Modified Special Incentive Package Scheme (M-SIPS). The scheme provides subsidy for investments in capital expenditure - 20 percent for investments in SEZs and 25 percent in non-SEZs. It also provides for reimbursement of CVD/excise for capital equipment for the non-SEZ units for high technology and high capital investment units, like fabs, reimbursement of central taxes, and duties. The incentives are available for 29 categories of ESDM products including telecom.

Mobile Value Added Services

As the telecom industry sees a rapid decline in voice tariffs, mobile VAS are expected to propel it to the next level of growth. Market size of MVAS increased to Rs. 21,400 crore by the end of year 2012 from Rs. 12,200 crore at the end of 2010. With mobile penetration expected to go up to nearly 100 percent by 2015, and the advent of 3G, MVAS revenues are expected to grow to approximately Rs. 48,200 crore. Therefore, a large part of the revenue for telecom service providers will be from provision of MVAS.

At present, non-voice revenues in India account for about 10 percent of an operator's revenues, the global average for leading MVAS countries is far higher, pegged at approximately 23 percent. The focus of the industry, so far, has been infotainment MVAS, but there is much discussion around other services, which have a greater growth potential, and currently may not even exist. Some of these services are those in the Utility MVAS category: MVAS, which seek to digitally empower citizens by providing efficient access to essential information and services and foster inclusive growth. The key drivers for Utility MVAS include government mandate for inclusive growth, increasing mobile phone and network penetration, need for differentiation among telecom operators and device manufacturers, increasing consumer demand and awareness, even in non-urban areas, business need of service providers such as hospitals and banks, and automation due to Information and Communications Technology (ICT).

Rural Penetration

Rural market will be the next growth driver for operators with the near saturation of urban markets. To capitalize on the growing population and disposable income of rural India, telecom operators will have to explore and expand into hitherto uncovered geographies. In 2012, rural base accounts for nearly half the total subscribers who have access to communication services. The government can capitalize on rural telecom growth to boost economic development across rural India, which could also help the growth of the country's gross domestic product. The next engine of telecom growth is clearly rural India and there will need to be strong partnership between the government and the private operators as well as an effective and optimum utilization of investment from of the USO fund to ensure that India surpasses 55 percent to 60 percent penetration by 2012.

VENDORS

Ericsson India Private Limited

Ericsson India achieved a turnover of Rs. 6997 crore in CY 2011. While revenue from the company's networks division and global services touched Rs. 4335 crore and Rs. 2213 crore respectively, the multimedia business generated sales worth Rs. 357 crore. The vendor entered into new contracts with Bharti Airtel, and continued its contracts with Idea Cellular, Vodafone, and BSNL.

Idea Cellular. In February 2012, Idea Cellular signed an agreement with Ericsson for managed services in five circles - Mumbai, Jammu & Kashmir, Himachal Pradesh, North East, and Assam. Ericsson's first managed services contract with Idea was signed in 2007 and the partnership between the two companies has now been extended from one circle to five circles. Under the three-year agreement, Ericsson is responsible for managing network and field operations, operation and maintenance activities for 2G and 3G sites, network design and planning, network performance improvement, and program management for infrastructure.

Bharti Airtel. In November 2011, the operator had expanded its managed services agreement with Ericsson for its India operations. Under the ongoing five-year multi-vendor, and multi-technology-managed services agreement, Ericsson was contracted to operate, maintain, and provide services across 70 percent of Airtel's network in India. In addition to the standard portfolio of managed services, Ericsson is also responsible for the intelligent network that manages Bharti Airtel's prepaid customer base.

Airtel will expand and extend the contract across 15 circles for five years. The telecom circles under the scope of the partnership include Delhi, Jammu & Kashmir, Haryana, Punjab, Himachal Pradesh, Uttar Pradesh (W), Uttar Pradesh (E), Rajasthan, North Eastern states, Assam, Karnataka, Andhra Pradesh, Tamil Nadu, Chennai, and Kerala. Ericsson will also ensure effective management of operational expenditure and maximize efficiencies of scale while improving the overall quality of the network in these circles.

Sistema Shyam Teleservices (SSTL). In August 2011, SSTL had inked a three-year managed services deal with networking gear maker Ericsson for four circles. These circles include Uttar Pradesh (East), Uttar Pradesh (West), Gujarat, and Rajasthan. Under the ongoing three-year agreement, Ericsson will be responsible for network optimization; operations and maintenance including field operations and 24/7 network service assurance; and fulfillment network service provisioning, customer problem management, and spare parts management.

Huawei Telecommunications

In CY 2011, Huawei achieved a sales turnover of Rs. 6120 crore from its network business in India. Huawei's network business in the country was driven by operators' 3G deployments and network expansion. The company achieved a revenue of Rs. 1530 crore (USD 300 million) from its devices business including handsets, dongles, and set-top boxes in 2011. Strengthening its position in India, Huawei plans to invest Rs. 10,200 crore (USD 2 billion) in the country over the next five years. The company has established its global R&D center in Bangalore, which is set to become operational by June 2013. For CY 2012, Huawei has outlined a pipe strategy and is poised to move forward on this approach to ensure more effective growth and greater efficiency to drive continued improvements in operating performance.

Bharti Airtel Limited. In May 2012, Bharti Airtel appointed Huawei for planning, designing, supplying, and later on managing Bharti's 4G network in Karnataka.

Bharat Sanchar Nigam Limited. In February 2012, Bharat Sanchar Nigam Limited (BSNL) finally completed the process of selecting vendors for the procurement of GSM lines. In July 2011, BSNL had floated a tender for planning, financing, engineering, supply, installation, testing, commissioning, and annual maintenance of 14.37 million lines on its GSM/UMTS/LTE-based cellular mobile network in the country's north, east, and south zones. Huawei was selected by BSNL to supply equipment to the east zone.

Aircel. In August 2011, Aircel and Huawei jointly conducted the world's first GSM/UMTS/LTE-TDD trial on Aircel's existing GSM/UMTS network in India using devices that are based on Qualcomm's MDM9600 multimode chipset. The success of this trial is a key milestone for the development of LTE-TDD ecosystem. During this trial, Huawei and Qualcomm jointly executed Inter-RAT-(Inter-Radio Access Technology) related cases covering multiple live handover scenarios across GSM/UMTS/LTE technologies.

Nokia Siemens Networks

NSN attained a turnover of Rs. 5800 crore in FY 2011-12. The year saw unveiling of a new strategy by NSN, focused on mobile broadband and restructuring, aimed at improving the company's competitiveness and productivity. NSN also aimed at reducing operating expenses and production overheads in FY 2012. Keeping in view the broadband focus, the company acquired the majority of wireless network infrastructure assets of Motorola Solutions in April 2011 and expanded its operations by adding new products and services.

Indian Railways. In May 2012, Indian Railways selected NSN as its partner for equipping the Kolkata metro line with Global System for Mobile Communications-Railway (GSM-R) infrastructure. This will further improve the safety and reliability of the Kolkata metro line while lowering operational costs for Indian Railways. NSN already supports Indian Railways' extensive rail network through five zonal contracts, spanning 3500 km across four zones. As part of its GSM-R deployments, NSN is providing its compact, energy-efficient flexi base stations and flexi base station controllers that offer vastly improved capacity.

NSN has bagged nearly Rs. 200 crore of contracts to supply network gear to the Railways. The vendor has landed these contracts at a time when the Railways is investing in robust signaling and roaming solutions to ensure safer travel amid surging traffic density.

Bharti Airtel Limited. In February 2012, Bharti Airtel appointed NSN for planning, designing, supplying and later on managing Bharti's TD-LTE (4G network) in Maharashtra.

In January 2012, Bharti Airtel also selected NSN as its managed services partner in eight circles of the country - Bihar and Jharkhand; Kolkata; Gujarat; Maharashtra and Goa; Madhya Pradesh and Chhattisgarh; Mumbai; Orissa and West Bengal. Under this five-year managed services contract, NSN manages and maintains Bharti Airtel's 3G and GSM networks as well as iWAN (internet Wireless Access Network), the operator's enterprise broadband service.

The operator has chosen NSN to provide and deploy its customer experience management (CEM) platform and services across India. The CEM platform maintains and stores real-time experience metrics for every subscriber in the network enabling Bharti Airtel to proactively cater to customer needs.

Vodafone. In October 2010, Vodafone Essar had selected NSN to supply, implement, and manage its 3G network, for three years, in six circles - Tamil Nadu, Gujarat, Maharashtra, Uttar Pradesh (East), rest of West Bengal, and Haryana. Under the ongoing contract, NSN has been operating the 3G network under managed services to enable simplified operations, improved network efficiency and consistent service delivery.

This year, NSN has implemented its data charging system to support Vodafone India subscribers. This will help Vodafone India boost its data subscriber take-up, capture new revenue streams, and reduce operating costs through simplified operations. Unified charging and billing will also allow data subscribers to enjoy greater transparency of their usage and spending patterns with real-time notifications to their handsets.

NSN will build and operate its data charging system, integrating prepaid systems and other elements in a multi-vendor environment. It will also provide its NetAct network management system to help Vodafone efficiently monitor, manage, and optimize its network.

Aircel. In 2010, Aircel had selected NSN to supply, deploy, and manage its HSPA+ enabled 3G network, in 2010, in three circles - Punjab, Kolkata, and rest of West Bengal. NSN will operate and manage Aircel's 3G network for four years under an ongoing managed services contract. Using its global service delivery model, it will also deliver network implementation, optimization, network management, operations and maintenance services remotely from its Global Network Solutions Center (GNSC). This year, Aircel had reported plans to renew its USD 100 million outsourcing contract with NSN to manage its 2G and 3G mobile networks in seven circles.

Tata Teleservices (TTL). In 2008, TTL had partnered with NSN for its pan-India GSM network rollout. Under the ongoing contract, NSN is managing the operations of the networks it deployed over a period of five years. These managed services form just one portion of the vast scope of the deal. The complete services outlay includes local supplies, network planning, project management, network rollout, and systems integration activities across the national network.

Idea Cellular. The operator has commissioned NSN to supply equipment, and build and manage its HSPA networks in four circles - Uttar Pradesh (East), Uttar Pradesh (West), Kerala, and Haryana. NSN is currently a major GSM vendor for the operator and the deal will strengthen this relationship with a smooth overlay of 3G on the existing GSM network.

ZTE Corporation

In CY 2011, ZTE achieved a sales turnover of Rs. 5610 crore in India. The company executed some key contracts in 2011 with customers including BSNL, PGCIL, Vodafone, Aircel, and Bharti Airtel. The vendor developed an advanced value-added service platform for Vodafone India. ZTE also partnered with SSTL for upgradation of operators' CDMA and EVDO networks in 10 circles, including the CDMA EVDO Rev. B Phase 2 rollout. The company completed the deployment of a 3G network for Aircel in Uttar Pradesh (East) in 2011.

Bharti Airtel. In April 2012, Bharti Airtel selected ZTE to plan, design, supply, and deploy its TD-LTE (4G network) in Kolkata, which will allow its subscribers to experience high-speed wireless Internet access.

Bharat Sanchar Nigam Ltd. In February 2012, ZTE bagged a GSM line contract from BSNL. ZTE will support 10.15 million lines on its GSM/UMTS/LTE-based cellular mobile network, and thereby help increase its subscriber base. ZTE will be involved in planning, engineering, supply, installation and testing, commissioning and annual maintenance of the GSM lines. The procurement of these lines for expansion of 2G and 3G services will cover all BSNL telecom circles in the northern and southern zones.

Power Grid Corporation of India Ltd. In September 2011, PGCIL has partnered with ZTE to provide fixed-network transmission services across the country. ZTE is deploying more than 358 DWDMs, 1025 SDHs, and 105 CWDM to enhance PGCIL's network coverage and service quality.

Alcatel-Lucent India

Alcatel-Lucent India registered a 41 percent decrease in 2011 revenue, over 2010, primarily because of uncertainties regarding telecom investment in the country. The company's revenue from the Indian region was Rs. 2304 crore for CY 2011 wherein the vendor continued business with Reliance Communications, Bharti Airtel, and TTL. The company has consolidated all research operations in Chennai into a new location, which were spread across facilities in the city.

Bharti Airtel. In May 2012, Airtel had selected Alcatel-Lucent to create Internet protocol (IP) access network - based on Carrier Ethernet (CEN) technology. This IP network allows Bharti Airtel to meet the surging bandwidth requirements of customers while accessing data, video, and Internet services on an array of devices, such as smartphones, tablets, and laptops. CEN-based IP access network offers various services such as videostreaming, high-speed data, social network-based applications, online gaming, video conferencing, and online collaboration. Additionally, this network also caters to the DSL broadband as well as 2G/3G/4G voice and data traffic making it a true converged network.

Alcatel-Lucent and Bharti Airtel have an on-going joint venture focused on the transformation of Bharti Airtel's broadband and telephone networks across India. This managed services partnership, formed in May 2009, included all end-to-end activities - services rollout, installation and fault repair, service continuity, and transformation. It supports Bharti Airtel's transformation to next-generation networks, offering advanced services like high-speed Internet, triple play, media-rich VAS, MPLS, VPN for both retail and business customers. Bharti is paying the company about Rs. 2750 crore over a five-year period for managing its landline and broadband business in about 100 cities for the next five years.

BSNL. Alcatel-Lucent partnered with BSNL for 3G network equipment in December 2011. BSNL has awarded part of an order for supply, installation, and commissioning of 3.22 million lines along with eMS of ADSL2 plus DSLAM equipment to Alcatel. In July 2012, Alcatel-Lucent emerged as the L-1 vendor to supply Intelligent Network (IN) solutions for BSNL's expansion project for 10.37 million lines.

MTNL. Alcatel-Lucent, since December 2011, is a partner with MTNL for 3G network equipment. This is for the operator's first IP-based mobile next-generation network (NGN) to offer enhanced services to residential and enterprise customers in Mumbai. The mobile NGN solution, provided by Alcatel-Lucent, is 3G and IMS-ready and will provide MTNL with substantial operator benefits in network optimization, bandwidth savings, and reduced space and power requirements.

Reliance Communications. Alcatel-Lucent had formed a joint venture with Reliance Communications, in July 2008, for managing its pan-India (23 circles) CDMA and GSM network, for the period 2008-13. This joint venture is one of the largest multi-vendor managed services deals in the world and the first multi-technology managed services venture in India.

Leasors

RailTel Corporation of India Ltd.

RailTel Corporation, a Mini Ratna (Category-I) PSU is one of the largest neutral telecom infrastructure providers in the country owning a Pan-India optic fiber network on exclusive Right of Way (RoW) along railway track.

The OFC network presently reaches to over 4500 towns and cities of the country including several rural areas covering 70 percent of India's population.

Despite pessimist outlook in the Indian telecom industry, FY 2011-12 has been an excellent year for RailTel. For the first time since inception, RailTel's total revenues have crossed Rs. 400 crore reflecting a healthy double-digit growth over the previous year with a healthy net profit margin. In August 2012, RailTel shifted to its new corporate office in Gurgaon. The expectations from RailTel are very optimistic and the target is to make it a Rs. 1000 crore organization in near future.

RailTel offers a wide gamut of managed telecom services to Indian telecom market. The service includes managed lease lines, tower co-location, MPLS-based IP-VPN, Internet and NGN-based voice carriage services to telecom operators, Internet service providers, MSOs, enterprises, banks, government, tnstitutions/department, educational institutions/universities.

RailTel was selected as one of the leading partners for the deployment of the National Knowledge Network in the country, which is targeted for the benefit of the education fraternity. Presently, RailTel has deployed over 26 core links on 10G/2.5G capacity and 248 Access links of 1G/100 Mbps capacity. Deployment of additional access and distribution links is under progress and is likely to be connected.

Under the USOF scheme of the DoT, RailTel has also been selected to roll out the fiber optic network in Northeast states of the country connecting each of the District HQs to their respective Sub-District (Block) HQs with 2.5 Gbps ring based fiber network. The scope involves laying of over 18,000 km of fiber network connecting 600 nodes under the project within two years.

RailTel has also been selected as lead partner for implementation of National Optical Fiber Network, which envisages connecting all 2.5 lakh gram panchayats in the country on a fiber based broadband network. RailTel has been given the responsibility for laying incremental fiber and providing broadband network for connecting over 36,000 gram panchayats in eight states and three union territories, which include Arunachal Pradesh, Tripura, Meghalaya, Nagaland, Manipur, and Mizoram in Northeast, Tamil Nadu along with Puducherry in South, Gujarat along with Daman & Diu, and Dadra & Nagar Haveli in West. The project shall enable socio-economic development at grass root levels thereby eliminating the digital divide. As a pilot project, RailTel has already connected 14 panchayats in Panisagar block of the North Tripura district in the state of Tripura.

RailTel is also progressively entering into the enterprise solutions segment with special focus on government departments and PSUs and educational institutions. Under the initiative, RailTel is creating data centers at Secunderabad and Gurgaon initially to provide data center and disaster recovery services to these customers. In addition, RailTel shall also launch various VAS in the field of tele-presence, CDN, and a host of other network services for its enterprise customers. RailTel is also playing a major role in upgrading and supplementing the Indian Railways ICT infrastructure. RailTel is already supporting railways in providing network support for various Train control, administration, and commercial operations such as Railnet, PRS, UTS, FOIS, CUG, DSLAM-based ADSL broadband network, and integrated NGN-IP-based Voice platform among others.

RailTel is also upgrading its network infrastructure to provide high bandwidth capacities on 100 G level. This infrastructure shall support various BWA and 3G/4G service providers to provide broadband and telecom services across the country including rural areas. RailTel has also ventured into international ICT projects on the strength of its expertise in the national market. Initially, such projects are being targeted in the SAARC countries. Further to supplement the R&D activity in the ICT space, RailTel is under process to start a Telecom Center of Excellence (TCOE) at IIT/Roorkee.

Power Grid Corporation of India Limited

At present, POWERGRID is operating about 96,216 Ckt km of transmission lines along with 158 sub-stations with a transformation capacity of 151,303 MVA. With the use of state-of-the-art preventive maintenance techniques, average availability of transmission system during the year 2011-12 was maintained at 99.95 percent.

POWERGRID's OFC network is spread across 206 cities and towns and it has a total length of about 25,000 km. Of this, optical ground wire (OPGW) comprises about 16,500 km and underground OFC links of about 8500 km. The company has an intra-city OFC network in 68 cities. It has regional telecom centers at Delhi, Mumbai, Kolkata, and Bengaluru and a National NOC at New Delhi. Its network covers remote and far-flung areas including the Northeast and Jammu & Kashmir. POWERGRID has transmission lines connecting to Bhutan, which has OPGW laid on it. POWERGRID is offering domestic leg on these transmission lines to ILD operators for establishing connectivity to Bhutan on a reliable link. The company is also in the process of establishing transmission lines to other neighboring countries like Bangladesh, Nepal, and Sri Lanka, which will have OPGW and thus will help extend telecom connectivity as well in next two to three years time.

POWERGRID is replacing ground wire with OPGW in some of the existing transmission lines. Main advantage of OPGW is inbuilt RoW, sturdy, secure, and reliable connectivity. Since there is no requirement for forest clearances, and OPGW installation is done live line without taking shut down on power transmission lines, faster rollouts are possible. Moreover, the availability of telecom networks over a transmission system is higher (over 99.97 percent) as compared to underground optical fibers which are more prone to cuts.

Currently, POWERGRID is in the process of laying OPGW on various transmission lines under its load dispatch and communication schemes. Spare fibers on this network will also be available to expand its telecom network depending on demand from customers and can cover new cities and towns.

POWERGRID is also playing a key role in setting up the National Knowledge Network (NKN) and National Optical Fiber Network (NOFN) projects of Government of India as an executing agency. As part of the NKN, POWERGRID will provide core/distribution links of 10 Gbps/2.5 Gbps capacity and edge links of 1 Gbps/100 Mbps.

POWERGRID has been nominated as one of the implementing agencies for implementation of the NOFN project of Government of India, which is to connect Gram Panchayats (GPs) in the country to form a seamless optical fiber network, utilizing the existing optical fiber network of state utilities. POWERGRID has successfully completed the implementation of the pilot project of connecting 15 GPs in Parvada Block at Vizag Dist of Andhra Pradesh and have already been integrated with block head quarters. POWERGRID also received an allotment letter from BBNL for development of NOFN network in four states, viz. Andhra Pradesh, Himachal Pradesh, Jharkhand, and Orissa, covering about 36,000 GPs. The work is to be carried out in about 89 districts covering 1769 blocks across these four states.

POWERGRID's telecom network has multi-vendor equipment and is already upgrading capacity on its existing telecom network from 40 Gbps to 100 Gbps on major routes. POWERGRID is further expanding its telecom network, including the addition of VAS like MPLS-VPN.

Service Providers

Bharti Airtel

Bharti Airtel put up a healthy performance in the financial year 2011-12. The operator has significant presence in 20 countries including India, Bangladesh, Sri Lanka, and 17 countries in Africa, offers 2G, 3G, and 4G services, fixed line, high speed broadband through DSL, IPTV, DTH, enterprise services including national and international long distance services to carriers in the rest of the geographies. It also offers Digital TV and IPTV services. All these services are rendered under a unified brand Airtel. The company also deploys, owns, and manages tower infrastructure pertaining to telecom operations through its subsidiary and its joint venture entity.

The company has a nationwide presence with operations in all 22 telecommunications circles in India, with Bharti Infratel's and Indus' operations overlapping in four telecommunications circles. As of September 30, 2012, Bharti Infratel owned and operated 34,220 towers in 11 telecommunications circles while Indus operated 110,561 towers in 15 telecommunications circles. With Bharti Infratel's towers and its 42 percent interest in Indus, it has an economic interest in the equivalent of 80,656 towers in India as of September 30, 2012.

As on March 31, 2012, the company had an aggregate of 251.6 million customers consisting of 241.1 million mobile, 3.3 million telemedia, and 7.2 million Digital TV customers. Its total customer base as on March 31, 2012 increased by 14 percent compared to the customer base as on March 31, 2011.

During FY12, the company recorded revenues of Rs. 71,451 crore, a growth of 20 percent compared to the previous financial year 2010-11. The company had an earnings before interest, taxes, depreciation, and amortization (EBITDA) of Rs. 23,712 crore witnessing a growth of 18 percent Y-o-Y. The EBITDA margin for the financial year-ended March 31, 2012 was 33.2 percent.

The company reported a net income of Rs. 4259.4 crore for the full year ended March 31, 2012, with a Y-o-Y decline of 30 percent due to increase in net interest outgo (Rs. 1637.3 crore), increase in amortization of the India 3G spectrum cost (Rs. 592.5 crore) and tax provisions (Rs. 481.2 crore).

As on September 30, 2012, the company had an aggregate of 262.6 million customers consisting of 251.8 million mobile, 3.3 million telemedia, and 7.5 million Digital TV customers. The company recorded revenues of Rs. 20,273.2 crore in the quarter-ended September 30, 2012, a growth of 17 percent compared to the quarter ended September 30, 2011, with non-voice revenue contributing to approximately 27.2 percent of the total revenues for the quarter. The company had an EBITDA of Rs. 6350.8 crore, a growth of nine percent compared to the quarter ended September 30, 2011. The reported EBITDA margin for the quarter was 31.3 percent.

Major Agreement and Alliances

The company has signed the following key agreements/alliances in 2011-12:

• With NSN, Huawei, and ZTE for TD-LTE (4G) networks in the telecom circles of Maharashtra, Karnataka, and Kolkata respectively. This would also enable a seamless data network cover between existing and this new technology. Airtel has signed an LTE-TDD network rollout and services agreement with Huawei Technologies, which will provide 4G network infrastructure and associated managed services to mobile operators in the southwest circle of Karnataka. Bharti has awarded similar LTE-TDD contracts to NSN for the Maharashtra circle, and ZTE Corporation for the Kolkata circle.
• With NSN, Huawei, and Cisco for unified packet core in India. This high capacity packet core is access agnostic and caters to 2G, 3G, LTE (4G) customers across the country.
• With Ericsson and NSN for the unified managed services contract. This has been awarded to Ericsson in 15 circles and for a part of Bangladesh and NSN in eight telecom circles. This will ensure seamless operations and maintenance of the mobile networks.
• With NSN for mobile Internet browsing solution (MIBS) and multi-media messaging solutions (MMSC) across all countries in Africa.
• With Alcatel-Lucent, Huawei, and ZTE for carrier Ethernet (CEN-Version 2) with capability to handle IP and E1/STM backhaul in India; with Alcatel-Lucent for IP-MPLS core across all countries in Africa. CEN-based IP access network will allow the operator to meet the surging bandwidth requirements of customers while accessing data, video, and Internet services on an array of devices, such as smartphones, tablets, and laptops. The key elements of the Bharti Airtel mobile backhaul network are Alcatel-Lucent's 7750 service router, 7705 service aggregation router (SAR), and 5620 service aware manager.

Bharti Airtel has launched its cloud enablement platform (CLEP) based on the HP aggregation platform for SaaS (AP4SaaS). The company will offer hosted SaaS and IaaS applications to small and large enterprises on a pay as you go model helping them meet the ever evolving business demands.

With the acquisition of 49 percent stake in Qualcomm Inc.'s broadband wireless access (BWA) business in India for an initial investment of Rs. 907 crore (USD 165 million), Airtel has become a key player in the 4G-LTE market, with a presence in 8 of the 22 circles in the country. The acquisition of Qualcomm's license will give Bharti an entry into four key circles, viz., Delhi, Mumbai, Haryana, and Kerala. Under the agreement, Bharti will acquire the 13 percent each held by Global Holding Corporation Pvt. Ltd. (part of the GTL Group) and Tulip Telecom Ltd. to whom it is paying around Rs. 140 crore each. Bharti Airtel announced the launch of Airtel postpaid 4G services in Pune - thus becoming the first in Maharashtra to bring the 4G experience for its customers. Bharti has plans of rolling out India's first multi-mode LTE-TDD smartphone in India along with partners Qualcomm and Huawei - thus making voice telephony a reality for 4G users in India in the near future.

Bharti Airtel announced its partnership with Microsoft to deliver Microsoft's cloud based Office 365 business productivity solutions to small and medium businesses (SMB) by provisioning the service through its cloud platform.

New Products/Initiatives

During the year, the company launched various new and innovative products and services, directly and through its subsidiaries. Some of the key launches of the year included:

• 3G footprint expanded to over 1100 cities in India at end of March 2012 including seven service areas with ICR arrangements.
• 4G services in Kolkata, based on TD-LTE technology, making India one of the first countries in the world to commercially deploy this cutting-edge technology.

Segment-Wise Performance

In 2011-12, the company restructured the organization creating two distinct customer business units (CBU) with clear focus on the B2C (business to customer) and B2B (business to business) segments.

Mobile Services (India and South Asia). The company offers mobile services using GSM technology in Southeast Asia across India, Sri Lanka, and Bangladesh, serving a total of 193 million customers in these geographies.

In India, the company had 185.9 million mobile customers as on September 30, 2012, which makes it one of the largest wireless operators in the country both in terms of customers and revenues. It offers postpaid, pre-paid, roaming, Internet, m-Commerce, and other VAS through its extensive sales and distribution network. Its national long distance infrastructure comprises 162,457 route km of optical fiber, thereby providing a pan-India reach.

Revenues from mobile services - India and South Asia for the financial year ended March 31, 2012 were Rs. 40,309.1 crore and represented a Y-o-Y growth of 11 percent. The growth in revenues was driven by the growing minutes consumption supported with the increase in the base line tariffs despite stiff competition. Growing operating expenses on account of increase in network expenses and selling and distribution expenses along with the amortization of 3G spectrum cost resulted in the decline in EBIT on a Y-o-Y basis.

Telemedia services. The company provides broadband (DSL), data, and telephone services (fixed line) in 87 cities with growing focus on various data solutions for the SMB segment. It has 3.3 million customers of which 1.4 million have subscribed to broadband/Internet services, as on September 30, 2012.

Revenues from telemedia services - India and South Asia for the financial year ended March 31, 2012 were Rs. 3727.1 crore and represented a Y-o-Y growth of three percent. In 2011-12, the company migrated to an integrated business support stack - Fx (single window interface for accessing end-to-end customer information) system.

Tower infrastructure services. Bharti Airtel provides tower infrastructure services through its subsidiary, Bharti Infratel and Indus Towers, a joint venture in which Bharti Infratel, Vodafone India, and Aditya Birla Telecom hold equity interests of 42 percent, 42 percent, and 16 percent, respectively.

On a consolidated basis, Bharti Infratel is one of the largest tower infrastructure providers in India, based on the number of towers that Bharti Infratel owns and operates and the number of towers owned or operated by Indus that are represented by Bharti Infratel's 42 percent equity interest in Indus. The business of Bharti Infratel and Indus is to acquire, build, own, and operate tower and related infrastructure. Bharti Infratel and Indus currently provide access to their towers primarily to wireless telecommunications service providers on a shared basis, under long-term contracts.

Revenues for passive infrastructure for the financial year ended March 31, 2012 were Rs. 9510.9 crore and represented a Y-o-Y growth of 11 percent supported with increase in number of towers and growing tenancies. EBIT grew by 25 percent year on year to Rs. 1464.1 crore for the year-ended March 31, 2012.

Vodafone

Vodafone India continues to show a healthy growth with a strong financial performance resulting in remarkable margin improvement in H1 2012. Despite the pressure owing to a challenging economic environment and regulation, the operator remains focused on enhancing its profitability and long-term commitment to differentiate with a strong brand, best quality network, unique distribution, and great customer service. The operator brings together voice and data, wireless, and wireline services to harness the power of total communications solutions.

The company's service revenue grew by 19.5 percent (organic growth), driven by an 11.8 percent increase in the customer base, strong growth in incoming and outgoing voice minutes, and 51.3 percent growth in data revenue. 3G services were available to Vodafone customers in 860 towns and cities across 20 circles at March 31, 2012. Growth also benefited from mobile operators starting to charge for SMS termination during the second quarter of the FY12. The company's revenue rose to Rs. 32,184 crore during the reporting period up from Rs. 26,937 crore posted during the same period a year ago.

EBITDA was at Rs. 8549 crore, up 21.6 percent from the Rs. 7030 crore in the previous fiscal. EBITDA grew by 22.9 percent driven by the increase in revenue and economies of scale, partially offset by higher customer acquisition costs, and increased interconnection costs. Full year EBITDA margin increased 0.8 percentage points to 26.3 percent, driven by cost efficiencies and scale benefits.

Since then, Vodafone India's revenue has grown 13.3 percent to Rs. 17,580 crore for the six months ended September 30, 2012. Vodafone India revenues, which includes standalone, its subsidiaries, and proportionate consolidation of Indus Towers (42 percent), stood at Rs. 15,510 crore in the same period last year. Service revenue grew by 13.5 percent driven by a 5.3 percent increase in the closing customer base, strong growth in incoming and outgoing mobile voice minutes and two percent growth in the effective outgoing rate per minute. Growth in Q2 was 5.2 percentage points lower than the previous quarter. Customer growth in Q2 slowed as customer acquisition costs were reduced, lowering the level of multiple SIM activation, which had a positive effect on margin. At the same time, the anniversary of the introduction of SMS termination fees in Q2 of the prior financial year has also impacted second quarter growth.

For H1 FY13 as a whole, growth was impacted by the introduction of new regulations on the charging of access fees, and the marketing of integrated tariffs and value-added services. There was also a lower rate of growth at Indus Towers following a slow down in tenancies from new entrants and a change in the pricing structure for some existing customers. Data revenue growth of 12.4 percent was suppressed by the regulatory impact on marketing integrated tariffs and value-added services. At September 30, 2012, active data customers totaled 32 million including approximately 2.1 million 3G data customers.

EBITDA grew by 27.2 percent, with a 3.0 percentage point increase in EBITDA margin, driven by the increase in revenue, increased operating cost efficiency, and the impact of lower customer acquisition costs, partially offset by increased interconnection costs.

At March 31, 2012, the customer base had increased to 150.5 million, with data customers totaling 35.4 million, a Y-o-Y increase of 81.5 percent. This was driven by an increase in data enabled handsets and the impact of successful marketing campaigns. While the market remains highly competitive, the effective rate per minute remained broadly stable during the year, with promotional offers offsetting headline price increases. The operator is servicing a base of over 153 million customers through a network of over 112,900 sites, as on September 30, 2012. It has increased penetration in rural areas, with 73 million rural subscribers. It witnessed the highest incremental revenue market share of 30.3 percent in the first quarter of financial year 2013 on a Y-o-Y basis.

Vodafone is interested in providing 4G services after obtaining spectrum in India. Globally, Vodafone is providing 4G services, which were recently launched in Europe. Vodafone announced the introduction of their new tariffs for 3G data plans for its customers this year.

Piramal Healthcare acquired approximately 11 percent shareholding in Vodafone India Limited (VIL) from Essar during the 2012 financial year. The agreements contemplate various exit mechanisms for Piramal including participating in an initial public offering by VIL or, if such initial public offering has not completed by August 18, 2013 or February, 8 2014 respectively or Piramal chooses not to participate in such initial public offering, Piramal selling its shareholding to the Vodafone Group in two tranches of 5.485 percent for an aggregate price of between approximately Rs. 7000 crore and Rs. 8300 crore.

Vodafone India has been awarded spectrum licenses in 14 telecom circles in the 1800 MHz spectrum auction held in November 2012, enabling the company to provide customers with enhanced mobile services across the country, including in rural areas. Vodafone India bid successfully for 2.5 MHz of spectrum in Madhya Pradesh, Uttar Pradesh (West), Haryana, Orissa, North East, Bihar, Jammu & Kashmir, Assam, and West Bengal and 1.25 MHz in Punjab, Himachal Pradesh, Uttar Pradesh (East), Maharashtra, and Kerala. Vodafone's total bid in the auction was Rs. 1128 crore. The spectrum secured is available for use immediately.

Vodafone's decision to participate in the 2G auction was to secure additional spectrum in circles where it has not received new 2G spectrum since 2008. Since then, Vodafone's customer base in India has grown from 60 million to over 150 million today. The additional spectrum and continued network investments will enable Vodafone India to build on its success in delivering superior mobile services to its customers throughout India.

2012-2013

Vodafone has partnered with Nokia to bring integrated billing solution for Nokia Music Store in India. With the new partnership in place, Nokia Music Store has become the first independent music store in the country to offer an integrated operator billing along with billing via credit cards and vouchers.

Vodafone has partnered with ICICI Bank to launch a unique mobile money transfer and payment service called M-Pesa. ICICI Bank and Vodafone India through its 100 percent subsidiary, Mobile Commerce Solutions Ltd. (MCSL) have finalized plans to launch mobile payment services, under the brand name M-Pesa.

Reliance Communications

Reliance Communications (RCom), together with its subsidiaries operates on a pan-India basis and offers the full value chain of wireless (CDMA and GSM including 3G services), wireline, national long distance, international, voice, data, video, direct-to-home (DTH), and Internet based communications services under various business units organized into strategic customer facing business segments - wireless, global, and broadband.

The operator owns and operates an extensive NGN-IP-enabled connectivity infrastructure, comprising over 277,000 km of optic fiber cable systems. RCom has a fiber-based backhaul, which supports high bandwidth and provides one of the lowest latencies in the industry. All its 3G sites are connected through IP backhaul to provide maximum download speeds. RCom has rolled out 3G services in all the 13 circles where the company has won 3G spectrum.

The financial year 2012 witnessed highly competitive environment in the telecom industry resulting in substantial decrease in tariff rates. RCom achieved a steady growth during FY 2012 accumulating total revenues of Rs. 20,382 crore (USD 4006 million) and net profit after tax of Rs. 988 crore (USD 194 million).

RCom reported a 60 percent drop in its consolidated net profit at Rs. 102 crore for the second quarter ended September 30, 2012. The company had posted a net profit of Rs. 252 crore in the corresponding period last fiscal. The profit after tax of the company is mainly down due to interest outgo on money the firm had borrowed to buy 3G spectrum two years ago. The total income from operations increased by 4.98 percent at Rs. 5031 crore for the July-September 2012 quarter compared to Rs. 4792 crore it registered during the corresponding period a year ago. During the quarter, RCom raised pre-paid tariffs by 25 percent across GSM and CDMA platforms.

RCom's subscriber base reached 13.48 crore at the end of September 2012. RCom's 3G customer based increased to 4.8 million and company now has over 26 million customers using data (Internet) services. The total consolidated revenue decreased to Rs. 5202 crore in Q2FY13 as compared to Rs. 5319 crore in Q1FY13. The EBITDA is Rs. 1638 crore for the financial year ended on September 30, 2012.

Agreements and Alliances

RCom has exclusively tied up with Google for two years to market Android (Google's mobile operating system) in India over its 3G network. The company will be co-promoting the Android brand, which is youth centric, innovative, technology driven, and inspirational.

Private equity firms, Blackstone and Carlyle Group, have signed a term sheet to buy up to 95 percent stake in Reliance Infratel. RCom, which controls Infratel, owns nearly 50,000 towers across the country and the valuation of the deal has been pegged at Rs. 15,000-20,000 crore, based on a mutually acceptable formula. Based on this value, RCom will get Rs. 3,100,000-4,100,000 per tower, substantially less than the nearly Rs. 1.2 crore per tower the company received by selling five percent stake to sundry investors in 2007. Then, RCom had 23,000 towers and sold the five percent stake at Rs. 1400 crore.

RCom has bagged contracts from central and state government agencies to build and manage data centers, disaster recovery sites, and provide MPLS-VPN services. All these information and communication technology (ICT) projects are worth Rs. 150 crore. RCom has signed long-term ICT contracts with The Department of Post, Municipal Corporation of Greater Mumbai (BMC), Madhya Pradesh Border Checkpost Development Company, and the Karnataka and Chattisgarh power distribution companies (DISCOMs).

Contract with DoP. RCom has signed a contract with the Department of Post, to host their servers over a 3000 sq. ft. space at Dhirubhai Ambani Knowledge City in Navi Mumbai. RCom will also build a custom disaster recovery site over 2000 sq. ft of space in Mysore.

Contract with Municipal Corporation of Greater Mumbai. RCom also signed a facility management contract for a period of three years with the Municipal Corporation of Greater Mumbai (BMC) to outsource its IT infrastructure covering its data centre located in Worli along with 24 ward offices across Mumbai.

Contract with Madhya Pradesh border Checkpost Development Company Limited. RCom has signed an agreement with the Madhya Pradesh border Checkpost Development Company Limited, for a period of 13 year for all its locations.

Contract with Karnataka DISCOM. RCom has signed an agreement with Karnataka DISCOM for five years for rolling out MPLS (multiprotocol label switching) service across 850 locations and wireless data connectivity across 60,000 data acquisition points.

Contract with Chattisgarh DISCOM. It has also signed an agreement with the Chattisgarh DISCOM for a period of six years to roll out MPLS service across 250 locations.

Idea Cellular

Idea Cellular provides mobile services in all 22 service areas of India. The mobile business of Idea Cellular is segregated as 13 established service areas and 9 new service areas.

The operator has a 3G network presence run on IP radio technology and by the end of 2012, the company will have a minimum of 25 Mbps backhaul capacity in at least 10 cities. The operator has deployed a dense wavelength division multiplexing (DWDM) product portfolio in its network.

Idea won 3G spectrum in 11 important service areas, which cover over 74 percent of its existing revenue and account for around half of national mobility revenue. Idea currently offers 3G services in 20 service areas (excludes Orissa and Punjab), through a combination of home network and roaming arrangements. At the end of FY12, Idea 3G services are available in more than 3000 towns and 10,000 villages, in 20 service areas.

The operator has extended its managed services agreement with Ericsson India from one circle to five circles, namely Mumbai, Jammu and Kashmir, Himachal Pradesh, the Northeast, and Assam.

Long Distance Services and ISP. Idea holds licenses for NLD, ILD, ISP, and IP-1 services. Idea currently has over 70,000 km fiber cable transmission network to tap the future potential of wireless broadband. Idea is also expanding OFC PoPs and presently has over 1870 PoPs in 128 cities and linked highways. The fiber network of the company optimally serves its 2G, 3G, NLD, ILD, ISP, and wireless broadband needs. Idea NLD currently carries around 95 percent of its captive NLD minutes. ILD handles over 98 percent of captive ILD outgoing minutes, besides bringing large volume of incoming minutes from top international carriers across the globe. In FY12 Idea launched its ISP services to cater its captive requirement for its mobile business and offer alternative choice to small ISPs and enterprises. Idea ISP currently handles 72 percent of captive requirements.

Telecom infrastructure. As on March 31, 2012, the company has a network of 83,190 2G sites of which 9522 2G cell sites have been added during the year. Further, the company has expanded its 3G network to 12,825 cell sites. The company and its subsidiaries own 9240 towers with a tenancy of over 1.55 and additionally 11,094 towers are under IRU arrangement with Indus.

Idea Cellular is the third largest wireless operator in India with a revenue market share (RMS) of 14.9 percent (Q1FY13). In the 13 established service areas, its RMS stands at a strong level of 19.3 percent (Q1FY13). The company carries around 1.37 billion minutes on a daily basis and is among the top 10 global operators, in terms of voice minutes usage.

Idea continues its four year track record of being one of the fastest growing Indian mobile operators; with consolidated gross revenue growth of 15.02 percent from Rs. 4620 crore in Q2FY12 to Rs. 5314 crore in Q2FY13. The overall wireless telecom business outlook for the Q2FY13 remained muted due to headwinds emerging from uncertain regulatory interventions, weak seasonal demand, and continued grim battle for market supremacy, resulting slide in Idea's sequential quarterly revenues by 3.4 percent, to Rs. 5348.1 crore against Rs. 5538.2 crore in Q1FY13. The company was quick to spot the external challenges and in-spite of fall in demand, reported an improvement of EBITDA margin by 0.3 percent, to 23.6 percent, primarily through optimization of subscriber acquisition and servicing and advertisement and business promotion expenditure. Idea continued to invest in long-term value creators - launched 3023 new sites (2G+3G) and expanded new business streams - ILD, ISP, and devices. The absolute EBITDA in Q2FY13 has improved by 20.9 percent (Y-o-Y) when compared with EBITDA of Q2FY12. However, the company's EBITDA decreased to Rs. 1422.5 crore in Q2FY13 from Rs. 1435.5 crore in Q1FY13. Idea Cellular's PAT increased 126.84 percent to Rs. 240 crore in the second quarter of fiscal 2013 from Rs. 105.8 crore in the same period last year.

At the quarter ending September, 2012, the company's subscriber base stands at 115.5 million as compared to 101.81 million last year, an increase of 13.45 percent. Idea has always been stringent in monitoring the quality of its subscriber base. As of August 31, 2012, Idea has around 94.1 percent of reported subscribers as VLR subscribers, which is highest in the industry. Idea's VLR EoP subscriber market share is 15.5 percent in August, 2012.

The average realization per minute (ARPM) was flat at 41.3p against previous quarter ARPM of 41.2p, in a falling voice ARPM market, supported by increasing mobile data contribution. The company has managed to increase non-voice revenue contribution to 15.6 percent; an improvement from 14.5 percent in Q1FY13, while fully complying with TRAI's latest stiff and consumer friendly VAS regulations.

In the 1800 MHz spectrum auctions held in November 2012, Idea Cellular won the biddings in the service Areas of Tamil Nadu, Orissa, Assam, North East, Jammu & Kashmir, West Bengal, and Kolkata. This effectively ensures the continuity of service to its over 8 million subscribers in these seven new circles and protects the investments made in these circles. It also secured an additional slot of 1.25 MHz for the circle of Bihar, allowing it to effectively cater to the growing needs of the subscribers of Bihar and Jharkhand.

Agreements and Alliances

Idea Cellular and Nokia have entered into a strategic partnership, wherein the operator will provide subscribers using a Nokia handset access to the Nokia Store and the Nokia Music service. The Nokia Store currently offers over 120,000 pieces of content on Nokia handsets. This includes applications, games, videos, podcasts, productivity tools, web, and location-based services, among others.

The operator has signed an agreement for Ericsson to provide it with managed services in five circles - Mumbai, Jammu & Kashmir, Himachal Pradesh, Northeast, and Assam. Under this three-year agreement, Ericsson will be responsible for managing network and field operations, operation and maintenance activities for 2G and 3G sites, network design and planning, network performance improvement, and program management for infrastructure.

Idea has a 3G network presence run on IP radio technology and by the end of 2012, the company will have a minimum of 25 Mbps backhaul capacity in at least 10 cities. The operator has deployed a dense wavelength division multiplexing (DWDM) product portfolio in its network.

CommScope's smoothwall RF feeder coaxial cable product has been selected by Idea Cellular to replace most use of traditional corrugated copper cabling in its network. Idea will now employ the company's Heliax FXL smoothwall coaxial cable in its cellular base station sites in India.

BSNL

BSNL has one of the largest backhaul networks in the country with a 50,430 route km microwave network and over 600,000 km of optic fiber. This low-cost backhaul fiber network provides BSNL an edge over its competitors, particularly in rural areas. The company is aware of the inherent TDM limitations with respect to NGN technologies and has been transforming its networks to packet-based category. The company is focusing on procuring equipment that can manage voice, data, and video traffic across a single core and backhaul infrastructure for current and future mobile network expansion.

BSNL indicates that its revenues for the year-ended March 2013 would be around Rs. 25,384 crore, down nine percent as against Rs. 27,944 crore during 2011-12. For the year-ended March 2012, BSNL had recorded losses to the tune of Rs. 8851 crore.

The company had taken a slew of steps to increase revenues including hiving off its towers into a separate company, a move that BSNL estimates will bring in Rs. 1600 crore over the next five years, as well as leasing its CDMA network, and rolling out WiFi networks or hotspots across the country, which it estimates will being in about Rs. 500 crore in the first year and double this from the second year onward. All these will begin from next year. Wireless revenue, enterprise sales, broadband sales, and outgoing minutes of usage (OGMoU) as of October 2012 have increased by 6.65 percent, 26.8 percent, 8.3 percent, and 4.14 percent respectively compared to the earlier year. Visitor's location register (VLR) numbers, that indicate the number of active users on a network, has grown 4.33 percent during the period under review. Mobile revenue for the year-ended March 2013 is projected at Rs. 5931.7 crore, up 5.32 percent against Rs. 5632.3 crore during 2011-12. Annual revenue from new businesses is also projected to increase by marginally to Rs. 110.4 crore from Rs. 103.6 crore in 2011-12. BSNL's landline revenue for FY13 is expected to be Rs. 6907.5 crore, a dip of 9.16 percent.

BSNL has urged the government to endorse sector regulator TRAI's proposal to provide it with Rs. 2750 crore subsidy for sustaining its loss-making rural landline operations. This is since money from the Universal Service Obligation Fund (USOF) stopped coming to BSNL, post-July 2011, as the DoT had provisioned to release the Rs. 2000 crore annual subsidy only for three years, starting 2008. The USOF has, however, dismissed TRAI's proposal to provide the subsidy for BSNL's rural landline operation, claiming that such a move would result in duplication of subsidy payout. The USOF claims it already has a running pact to provide Rs. 1500 crore subsidy to BSNL for supporting its rural landline operations.

The telco has also reiterated its demand for Rs. 6724.5 crore refund for its surrendered broadband wireless airwaves in six regions. The telecom department believes BSNL's demand is justified as it had shelled out a higher price for wireless broadband frequencies in the 2.5 GHz band, which were linked to the auction-discovered price of more expensive spectrum in the 2.3 GHz band.

In the need to provide better broadband penetration for the common masses, BSNL has tied-up with Shyam Networks Limited, a next generation communication solutions provider with reverse bundling arrangement for WINKNET 14.4 Mbps 3G pocket router in India to increase BSNL's acquisition share among 3G data users.

BSNL had invited a tender for planning, financing, engineering, supply, installation, testing, commissioning, and annual maintenance of Phase-VII expansion of GSM, UMTS, LTE based cellular mobile network in north, east, and south zones for 14.37 million lines. All the five companies - Huawei, ZTE, Alcatel-Lucent, NSN, and Ericsson - bid for the tender. ZTE emerged as the lowest bidder in Package 1, and Huawei as the second lowest bidder. For Package 2, Alcatel -Lucent emerged the lowest bidder, and ZTE as the second lowest bidder.

Aircel

Aircel leverages its rich pedigree of best-in-class solutions, partnerships, and domain expertise to address service providers, enterprises, and consumers. Aircel with a pan India footprint offers voice and data services ranging from postpaid and prepaid plans, 2G and 3G services, broadband wireless access (BWA), long term evolution (LTE) to value-added-services (VAS). In addition to providing premium Internet access solutions to facilitate data intensive live streaming applications, the company has also paved the way to be amongst the first to offer 3G and 4G LTE services to customers. Its range of services includes office/locations connectivity solutions, Internet leased lines, managed hosting, data centers, managed services, collaboration services, software as a service (SaaS), and enterprise mobility solutions.

Aircel successfully bid for 3G licenses/spectrum in 13 states, (Andhra Pradesh, Karnataka, Tamil Nadu, Kolkata, Kerala, Punjab, Uttar Pradesh (East), West Bengal, Jammu & Kashmir, Bihar, Orissa, Assam, and Northeast), with BWA licenses/spectrum also obtained in eight of these states. Aircel's 3G rollout has been the fastest rollout ever in the Indian telecom space. Aircel is optimistic about the data bundling in its key markets. Tamil Nadu, being the strongest circle with spectrum in 900 MHz, 3G, and BWA and in incumbent circles where the company is strong in voice, will start adding data bundles.

2012-13

Aircel and NEC India announced their strategic partnership for SaaS, where NEC will provide the cloud aggregation platform along with a portfolio of cloud offerings to Aircel, which has a large customer base. Aircel will be responsible for managing the end-to-end customer relationships, including presales and sales engagements, delivery and support, and billing and contractual relationships.

Tata Teleservices Limited

Tata Teleservices Limited, along with Tata Teleservices (Maharashtra) Limited, serves over 85 million customers in more than 450,000 towns and villages across the country, with a bouquet of telephony services encompassing the GSM, CDMA, and 3G platforms, offering mobile services, wireless desktop phones, public booth telephony, and wireline data services across one unified and integrated brand ¬?¬?- Tata DOCOMO.

Tata Teleservices (Maharashtra) Limited showed a five percent growth in Y-o-Y revenues at Rs. 652 crore for the quarter ended September 30, 2012, compared to Rs. 620 crore in the corresponding quarter of the previous year. TTML's EBIDTA stood at Rs. 109 crore for the quarter in review. The first half year of the ongoing year saw the company registering a revenue growth of eight percent, at 1313 crore, compared to Rs. 1212 crore in corresponding half year of the previous year.

Tata DOCOMO and Dell have partnered to launch a unique bundled broadband offering for customers in India. Under this alliance, customers buying Dell laptops will get a Tata Photon Plus post-paid connection at a special price, ensuring faster and seamless connectivity across India while using the laptop.

The operator has partnered with CommScope in switching to Heliax FXL. The operator will utilize the high-performing coaxial cable at the new rollouts of its base station sites in India. In response to the discontinuation of Heliax VXL, CommScope has made significant investments to localize FXL cable production at its manufacturing center in Goa.

It has been expanding its network for both coverage and capacity in mobility and enterprise business segments. Since this requires backhaul for both TDM and IP traffic, TTSL has deployed NEC's iPASOLINK platform to upgrade its backhaul mobile transport network. The platform is designed to support the transition from hybrid TDM and Ethernet backhaul to full IP transport.

Tata DOCOMO has introduced Let's Play on Android for its Android mobile phones users powered by Gametanium application, which gives access to some of the premium games on Android platform.

The Tata Communications portfolio includes transmission, IP, converged voice, mobility, managed network connectivity, hosted data center, communications solutions and business transformation services to global and Indian enterprises, and service providers as well as, broadband and content services to Indian consumers.

Sistema Shyam Teleservices Limited (SSTL)

SSTL provides telecom services under the brand MTS to over 16 million wireless subscribers including more than 1.7 million high speed mobile broadband customers in over 420 towns across the country. The company has already invested over Rs. 17,600 crore (USD 3.2 billion) in expanding its telecom network across the country. SSTL has been focused on creating a strong portfolio of devices catering to customers across various segments. The company has launched MTS Pulse, an Android powered smartphone that the users can get for free with no upfront payment.

For the quarter ended September 2012, the consolidated revenues have decreased by 3.3 percent Q-o-Q to Rs. 404 crore (USD 73 million). Total wireless (voice and data) subscriber base for the quarter grew by 0.2 percent to 16.6 million. Non-voice revenues from both data and mobile VAS for the quarter remained flat Q-o-Q at Rs. 148.2 crore (USD 27 million), which now contributes 36.7 percent of total revenue. The contribution of non-voice revenues to the total revenues is among the highest in the industry.

The company's blended mobile ARPU for the quarter declined by six percent Q-o-Q to Rs. 78. SSTL's data card subscriber base for the quarter has increased by 5.9 percent to 1.83 million subscribers. SSTL added 0.10 million data card subscribers during the quarter. By the end of Q3 2012, its HSD services is likely to cover more than 450 towns in India.

Telewings

In its roll-out, Telewings has made use of the availability of infrastructure sharing. This has helped reduce network roll-out costs and capital expenditure per subscriber. As on March 31, 2012, the operator had installed network equipment on, and activated, approximately 27,863 towers. The operator also entered into a transmission agreement with Tata Teleservices, which caters for the majority of its requirements. The tower sharing and transmission agreements each have 20 year terms with options to extend the contracts for a subsequent five year period. Telenor Group, however, is entered into the agreement for a significantly shorter period than the vendors.

In December 2011, the Managed Services Next Level project was completed, to improve efficiency further and reduce structural cost. The two key elements of the Managed Services Next Level project were to make the whole supply chain vendor and technology agnostic (to remove process inefficiencies) and to start a transformational partnership journey based on gain sharing. Alcatel-Lucent and Ericsson were selected as pan-India managed service partners for end-to-end operation maintenance responsibility in the vendor and technology agnostic environment.

The telecom operator has launched its NLD services in January 2012, which helped reduce the NLD carriage cost. In April 2012, transmission RFQ was finalized including re-negotiation on NLD rates where significant reduction in such rates has been achieved.

Uttar Pradesh (East) has become its first circle to achieve break-even. The company's operations in Uttar Pradesh (East) are now profitable, with revenues being higher than operating costs (EBITDA break-even).

In the six circles where fresh spectrum has been secured, Uninor serves over 30 million subscribers. At the time of achieving break-even, Uninor in Uttar Pradesh (East) serves over 7.2 million customers. The company incurs a cost of 18 paisa per minute, the lowest among all operators in the circle. Its spectrum usage efficiency is 40 percent higher than all others.

Telenor Group has secured 5 MHz spectrum Uttar Pradesh (East), Uttar Pradesh (West), Bihar, Andhra Pradesh, Gujarat, and Maharashtra in November 2012 auctions. This allows Uninor operations to continue seamlessly in the new company for a period of 20 years. Together, these six circles account for over 50 percent of India's population. With a mobile penetration as low as 40 percent, these circles represent the markets where the real future growth is happening. There are 95 mid-size cities in these six circles that have grown an average 37 percent over the past decade. Telenor Group expects its remaining circles to begin achieving the break-even targets in the months to come.

The company expects to reach break-even in the country a year ahead of schedule by the end of 2013.

Mahanagar Telephone Nigam Limited

MTNL being the principal provider of fixed-line telecommunication service in the two metropolitan cities of Delhi and Mumbai offers mobile services in Delhi including four peripheral towns - Noida, Gurgaon, Faridabad, and Gaziabad - and the Mumbai city along with the areas falling under the Mumbai Municipal Corporation, New Mumbai Corporation, and Thane Municipal Corporation. MTNL, through its joint ventures and subsidiaries, is providing telecommunications beyond boundaries.

MTNL's operational revenue has increased to Rs. 842.05 crore in September 2012 from Rs. 833 crore of previous quarter ended June 2012. It has decreased as compared to Rs. 860.65 crore in the corresponding quarter of the last year. Administrative and operative expenditure for September 2012 increased to Rs. 200.21 crore from Rs. 172.21 crore of previous quarter ended June 2012 and from Rs. 177.1 crore in the corresponding quarter of the previous year. This partly reflects increased expenditure on power and fuel and maintenance costs.

MTNL's losses for the first six months in FY13 has increased to Rs. 2153 crore, up 26 percent when compared to a loss Rs. 1714 crore for the six months ended September 2011. For the year-ended March 2012, MTNL had recorded losses to the tune of Rs. 4108 crore.

MTNL's broadband services continue to grow. The numbers of subscribers of broadband as on September 30, 2012 have increased to 1,085,169 from 991,444 since the same time last year. Despite the fact that MTNL provides broadband services only in Delhi and Mumbai, has consistently been the third largest broadband service provider in the entire country with 1,085,169 broadband subscribers on its roll. The company has deployed adequate capacity for mobile and broadband connections to meet the demand. During the quarter ending on September 30, 2012, new customers numbering 22,419 for broadband were added bringing the total to 1,085,169.

Videocon

Videocon Telecommunications Limited offers GSM mobile services under the brand name Videocon. The services are running in Tamil Nadu (including Chennai), Punjab (brand sharing agreement between HITL and Videocon in Punjab service area), Haryana, Mumbai, Gujarat, Kerala, Madhya Pradesh, Uttar Pradesh (East), Uttar Pradesh (West), and Himachal Pradesh.

Videocon Telecommunications has bought spectrum in the November 2012 auction for six circles (Bihar, Haryana, Gujarat, Madhya Pradesh, UP East, and UP West) worth Rs. 2221 crore. This will reduce Videocon's footprint. It had acquired spectrum for 21 of the 22 telecom circles in the country in 2008, but that spectrum sale has been annulled by the Supreme Court; so, its circles, after the current auction, will come down from 21 to six.

Videocon is expected to roll out 4G services across all its newly-won circles by mid 2013. It intends to cover 45 percent of India's population after rolling out services as it sees high potential for continued growth and profitability in these circles.

Reliance Industries Limited (HFCL)

RIL entered the BWA sector by acquiring 95 percent stake in Infotel, which emerged as a successful bidder in all 22 circles of the auction for BWA 4G spectrum. In rolling out this technology, RIL hopes to be the chief catalyst in building a knowledge economy that can place India at the forefront of the countries providing world-class 4G services. RIL is planning to alter the course of data services market altogether.

RIL's entry into the telecom sector is certain to revise and revive the sector altogether. By subsidizing the cost of data services as well as of carrier technology, Reliance could easily render 3G services obsolete. Also affected will be the players in the dongle plug-in devices business that provides wireless connectivity to the Internet. Undoubtedly, RIL's foray into the sector will ring in good news for customers as it is likely to push down the prices of broadband services and boost Internet access across the country. With auxiliary plans of leveraging 4G broadband services into digital education format, RIL is looking to widen the scope of 4G technology at length.

Others

Other service providers with some presence include AT&T Global Network Services, BT Global Communications India, Cable & Wireless Networks India, Equant Network Services India, Tikona Infinet, HCL Comnet Systems & Services, Quadrant Televentures, Sify Technologies, Sing Tel Global (India), Tulip Telecom, Verizon Communications India, Hughes Communications India, and Kappa Internet.

AT&T Global Network Services, BT Global Communications India, Equant Network Services India, Sify Technologies, Sing Tel Global (India), Tulip Telecom, and Verizon Communications India cover pan-India and have the license for NLD, ISP, and ILD services.

Cable & Wireless Networks India offers ILD and NLD services and covers across India.

Tikona Infinet has pan-India presence and offers NLD and ISP services. HCL Comnet Systems & Services with all India presence offers VSAT and ISP services.

Quadrant Televentures is present in the Punjab circle and has UASL license. Hughes Communications India with pan-India presence has the license for VSAT, NLD, and ISP services. Kappa Internet offers ISP services and has all India presence.

S Tel, a joint venture between Bahrain Telecom and Chennai-based Siva Group, was the first telecom company to announce closure of its operations. Later, UAE-based Etisalat also announced exit from its joint venture Etisalat DB. Etisalat has also written off about USD 820 million worth value of its Indian operations by way of an impairment charge as an after effect of the order. Loop Telecom is also shutting down business in the country, except in the Mumbai circle where its sister concern Loop Mobile offers services. In February 2012, Loop Telecom had written to Prime Minister Manmohan Singh saying it will surrender the license if the government refunds Rs. 1454 crore fee along with interest.

Although the industry has taken significant strides in the past decade, the task of providing access to mobile services at affordable rates across the hinterlands remains incomplete. While this spells opportunity for the industry, significant investments will be required in order to increase reach in the rural areas. The challenges being faced by the industry are unique and multi-faceted and will require innovative solutions coming from operators and regulator working together. There has been a significant increase in network operating expenses besides governmental fees, levies, charges, and penalties adding to margin pressures for the operators.

The balance sheets of Indian telcos are expected to weaken in 2013 - to fund regulatory payments, and to re-acquire expensive licenses amid a continuing limited ability to raise tariffs. Government's decision to change its spectrum-allocation policy from a fixed-cost regime to an auction of all existing and future spectrum assets is likely to raise the cost of licenses and spectrum, which will weaken the credit metrics of most telcos if funded by debt.

The top-four operators by revenue market share - Bharti Airtel Limited, Vodafone India Limited, Idea Cellular Limited and Reliance Communications Ltd are required to pay significant amounts for a one-off charge for excess spectrum (above 4.4MHz), spectrum re-farming and future spectrum auctions. Credit metrics of the other four private telcos are unlikely to improve significantly due to large CapEx needs, weak balance sheets, and the addition of more debt as they re-acquire their canceled licenses at significantly higher prices. Nationally owned telcos will continue to suffer operating losses due to high staff costs and low ARPU subscribers.

The ongoing industry consolidation is unlikely to reduce overcapacity in 2013, as the market will remain competitive enough to prevent any sustainable rise in tariffs. The sector can afford at most only six profit-making operators in the long-term, and the industry structure needs to adjust further to raise average revenue per minute (ARPM) - currently the least in the world at Rs. 0.41-0.43, according to Fitch. The top-four operators-EBITDA margins (2012 simple average of 28 percent) are unlikely to improve much, due to a combination of competition, high initial 3G network costs and low ARPU for new users. Revenue in 2013 will rise only by the mid-single digits, in line with subscriber growth which should go up by an average monthly net addition of 3-5 million. Voice will remain the primary driver of revenue growth, while data's contribution to revenue will double to 7-9 percent.

High interest costs, and CapEx required to meet growing data traffic and voice coverage, will keep 2013 free cash flow (FCF) margins low at around two to four percent - insufficient to pay for regulatory payments. Indian telcos CapEx will run at around 20-25 percent of revenue to meet rising demand.

The potential development impact of wireless broadband access will be seen in coming years as Internet users are shifting more and more from wire line to wireless connections and devices and secondly, wireless-broadband access including prepaid mobile broadband is escalating. MVAS will digitally transform the nation and help foster inclusive growth.

The government has a vision to provide telephone connection and broadband facilities on demand across the country at an affordable price. For the telecom industry to continue to present the multiplier effect for the Indian economy, it will need to be supported through proactive policy initiatives aimed at sustainability. There is a need to relook and redesign policies bringing them in alignment with the national objectives for this critical sector. Structural imbalances in the sector need to be rectified through proactive actions.