An Industry Report on “TELECOMMUNICATION INDUSTRY”

Submitted To: Dr. Vidhisha Vyas

Submitted By: Group 9

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CONTENTS

S.R.No. Particulars Page No.

1 Introduction 3

2 Segments in Telecom Industry 4

3 Current Scenario 4

4 Demand of Telecom Industry 7

5 Supply of Telecom Industry 8

6 Price Elasticity of Demand 9

7 Gross Revenue of Telecom Industry 9

8 Nature of Market 11

9 Key Players of Telecom Industry 12

10 HHI Index 12

11 Government Policies in Telecom Industry 13

12 Future Perspectives 14

13 References 14

INTRODUCTION

The word “TELECOMMUNICATION” comprises of two words- tele and communication. The word “TELE” is a Greek word which means “distant” and “COMMUNICATION” means “to share something”.

Telecommunication can be done through various modes like telephones or Smartphone, telegraphs, video telephony, public internet etc. The Indian Telecommunication Industry is regarded as the second-largest industry in the market. Also, it has second highest number of users of internet worldwide. The telecom industry is divided into some subsectors: Infrastructure, Equipments, and MVNO i.e. Mobile Virtual Network Operators, White Space Spectrum, 5G, Telephone service providers and Broadband.

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(Source: www.medium.com )

India ranks second in terms of number of telecommunication subscriber base with nearly 1.2 billion subscribers as well as in the internet users with nearly 700 million users. In today’s information age telecommunication has vital role to play. India’s telecommunication market is expected to grow in the future. TRAI (Telecom Regulatory Authority of India) is a statutory body was introduced by government to regulate telecom services and tariffs in India. 

SEGMENTS IN TELECOM INDUSTRY

The Telecommunication Industry is divided into three segments:

Wireless (Mobile)

Wire-line (Fixed Line)

Broadband/Internet Services

Figure 1: Segments in Telecom Industry

CURRENT SCENARIO OF TELECOM INDUSTRY

Total Subscribers and Tele-density:-

During the financial year 2017-18, the Indian Telephone Subscribers has expanded its base of 17.

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44% at a CAGR which reached around 1206.22 million. Tele-thickness (characterized as the quantity of phone associations for each 100 people) in India, expanded from 18.3% in financial year 2007 to 92.84% in financial year 2018. Total phone supporter base and tele-thickness arrived at 1,183.77 million and 90.05%, respectively, at the end of April 2019.

Figure 2: Current Scenario of total subscribers and telecom density

(Source: www.ibef.org)

Wireless and Wireline Share in telephone subscriptions

According to IBEF, there has been a rapid increase in the wireless segment of India’s Telecommunication Industry. If compared from FY 2011, then wireless telephone subscribers were 95.90% and now there has been a steady increase and reached 97.04% in April, 2019. But from March, 2019 (98.17%) to April, 2019 (97.04%) there is a fall of 1.13% in wireless segment.

Figure 3: Current Scenario of wireless and wireline share in telecom industry

(Source: www.ibef.org)

Rural and Urban Share in telephone subscriptions

The Indian Telecommunication Industry has experienced a growth from FY 2011 to FY 2019 as per Rural and Urban Areas. The total rural subscribers have increased from 33.35% in FY 2011 to 43.46% in FY 2019. But Urban area subscribers have decreased from 66.65% in FY 2011 to 56.54% in 2019.

Figure 4: Current Scenario of rural and urban share in telecom industry

(Source: www.ibef.org)

DEMAND IN TELECOM INDUSTRY

Indian telecom registers increase in demand each year. As the Indian mobile market is growing rapidly as a result of penetration into rural areas of India, so the number of subscribers from rural India is also increasing gigantically and is substantially contributing to the Indian GDP. With more mobile penetration and decline in telecom and data costs, it is estimated that nearly 500 million new internet users will add to this scenario within next 5 years, creating new business opportunities for telecom and other industries.

Main parameters governing demands are Income capacity of population, Youth population and Data usage. Citizens of India are becoming smarter, wiser and more techno-savvy, hence demanding more out of the telecom industry and have high expectations. Now-a-days due to Digital India policies by government, people have also started using many a digital platforms in everyday life.

An average Indian smartphone user uses 9.8GB of data per month, which is highest in the world and will reach 18GB per month in 2024 due to high usage of video contents on YouTube, Netflix, and Amazon Prime etc.

So, the demand for the telecom industry is increasing in an exponential way and has a long way ahead.

Figure 5: Increase in Demand Curve

(Source: www.economicshelp.org )

SUPPLY OF TELECOM INDUSTRY

As there is a very high demand, so it’s a challenge for the telecom industry suppliers to meet the demands of the citizens. The main focus of the suppliers as to capture market share by keeping the costs as low as they can by reducing the profit margins, but increasing the revenue due to increasing number of subscribers. Indians are price sensitive, keeping this in mind the prices of the data and calls are set, lower the cost more is the tele-density. In 2007 the tele-density of India was nearly 18%, but now in 2019 it is at 90.05%.

To meet the demand and increase the supply of telecom industry, government is also actively helping them by making suitable, proper and easy policies to follow. One such policy is the National Digital Communication Policy, 2018 which allows Foreign Direct Investments worth US$ 100 billion into the telecom sector by 2022.

So there is a need for more supply from the suppliers side of telecom industry with more quantity as well as quality to meet the present as well as rising demand of the people.PRICE ELASTICITY OF DEMAND OF TELECOM INDUSTRY

31553151247775The price elasticity of demand of telecom industry depends on range of factors such as availability of substitutes, income level of the consumer, price level of the product or services. As the Indian mobile market is growing, the demand for the telecommunication services is also increasing as its users are increasing rapidly.

Current market scenario shows that telecommunication industry follows penetration pricing policy, and all the service providers are charging nearly same prices, this is the main reason why demand curve of telecommunication industry is downward slopping and demand of the services provided by them is elastic in nature.

Figure 6: Price Elasticity of Demand

For example – If Airtel is charging Rs.400 for providing unlimited data and calling facilities for 3 months and on the other hand Jio changes its prices from Rs.400 to Rs.350 for the same services as provided by Airtel, in short run it might not affect Airtel but in long run the demand for Airtel will become price elastic and customers will shift to Jio because of availability of substitute. This means that the small decrease in the prices of the one service provider will lead to larger than proportionate drop in the demand of the other service provider.

Therefore the current market situation shows that there is high price elasticity of demand in telecommunication industry.

GROSS REVENUE OF TELECOM INDUSTRY

The Gross Revenue of Indian Telecom Industry has increased from FY 2008 to FY 2018 (as per the report of IBEF) in terms of US dollars ($) i.e. from US$ 32.05 billion in FY 2008 to US$ 39.49 billion in FY 2018. Between the months of September and December 2018, the Sales of telecom industry were Rs 175,219 crores.

The sector is observing an anticipated growth by 7% in FY 2020 which is backed by helpful tariff wars and enlarged spending by subscribers due to the minimum recharge plans by the companies.

Figure 7: Graph showing Gross Revenue of telecom industry in terms of US $

(Source: www.ibef.org)

As per above graph, there has been a small decline in the Gross Revenue in FY 2019 as compared to FY 2018 i.e. from US $39.49 in 2018 to US $25.04 in 2019.

NATURE OF TELECOM INDUSTRY

Telecommunication is an Oligopoly market. Oligopoly is the market structure with small number of firms, none of which can keep others having significant influence in the market. 

Characteristic of Oligopoly market are – 

• Few Sellers – Oligopoly market is characterized by few sellers and their number is limited. It is the special type of imperfect market. It has larger number of buyers and few sellers. In India, there are only 3 best telecom companies and many buyers and still they cover 80% market share.

•Homogeneous or Differentiated Product- Oligopolies produce either homogeneous or differentiated products. Products may differ in way of design, trademark or service. In telecom industry, the products are homogeneous as the companies provide network for wireless telecommunication.

• Interdependence- This is the most important feature of oligopoly in terms of decision making process. The change in price or output of any of the firm can have straight effect on the income of the competitor. In this industry are dependent on each other over matters like policy making, pricing and other issues. 

• Ability to Set Price- The governing firm in oligopoly market have the privilege to set the price in the market. In this market industry or the service provider is the price setter rather than the price taker. The only condition is that all the firms have to be more or less uniform with the price. 

KEY PLAYERS OF TELECOM INDUSTRY

Figure 6: Key Players of Telecom Industry

HHI INDEX OF TELECOM INDUSTRY

HHI Index stands for “HERFINDAHL-HIRSCHMAN INDEX”. It is used to measure Market concentration and Competition among Market Participants.

Formula to calculate HHI:

HHI= (Firm 1’s market share) ^2 + (Firm 2’s market share) ^2 + (Firm 3’s market share) ^2+…+ (Firm N’s market share) ^2

Where, N is the number of firms in the market.

Indication as per:

Range of HHI Indicates

Below 100 a highly competitive market

Between 100 to 999 An unconcentrated market

Between 1000 to 1800 Moderate market concentration

Above 1800 High market concentration

As Per Telecom Industry:

HHI= (market share of Airtel) ^2 + (market share of Jio) ^2 + (market share of Vodafone Idea) ^2

= (34%) ^2 + (26%) ^2 + (40%) ^2

= 3432

Since, the sum of square of all market shares of all the telecom companies is more than 1800 therefore there is high market concentration. It means that the more highly concentrated market is then it has less competition in the market.

GOVERNMENT POLICIES OF TELECOM INDUSTRY

To compensate for the Call-Drop: TRAI has asked the operators that call drop should not be more than 2% and this worked as now it has reduced to 0.52% in March 2018 from 2016.

Relaxed FDI norms: In telecom industry, FDI capitalization has increased from 74% to 100% for providing services like voice mail, electronic mail, and dark fiber.

Standards for Quality of both Wireless and Wireline services: As per TRAI, in 2015 an amendment was made to improve the quality standards for both wireline and wireless services.

Telecommunication Tariff Order: TRAI made an amendment in February, 2018 about Telecom Tariffs which says that firms are free to provide promotional offers to the consumers.

Set up Internet Connections: According to National E-Governance Plan, 1 million internet connections are to be established by The Department of Information Technology.

Make in India: The government of India asked to promote domestic production of mobile handsets i.e. Policy of Phased Manufacturing Programme.

Amendment for broadcasting and cable services: The govt. of India made it mandatory for every DTH operator to apply tariff for supply and installation of consumer premises equipments which would include security deposits, montly rent and activation of services. In July 2019, 100% Digitalization was achieved of cable TV network.

National Digital Communication Policy, 2018: This policy of Government was amended in 2018 which is focuses on Connect India, Propel India, and Secure India.

FUTURE PROSPECTIVE OF TELECOM INDUSTRY

In Telecom Industry, it is expected that the revenue will grow to US $ 26.4 billion by 2020 and CAGR also to reach till 30% by 2021.

The National Digital Communication Policy, 2018 has predicted attracting investments worth US$ 100 billion in the telecommunications sector by 2022.

There has been immense demand for data based services due to growing popularity of Internet as it is a major catalyst in the growth of the telecom sector.

The consumers of India are more attracted towards Telecom services due to low tariff plans.

REFRENCES

www.ibef.orgwww.equitymaster.com

Cite this page

Telecom Industry. (2019, Dec 10). Retrieved from http://paperap.com/telecom-industry-best-essay/

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