India Market Holds Promise

India Market Holds Promise

We would like to welcome all of our subscribers to the first issue of the India Weekly Telecom News (IWTN). IWTN will keep you up-to-date on the latest developments in India's growing telecommunications market. It will cover regulatory issues, market trends, network deployments, new services, contract awards, and much more. IWTN's broad coverage of the Indian telecom market will provide decision makers with the information necessary to make their business grow. We hope you enjoy Information Gatekeepers' India Weekly Telecom News.

Sincerely,

The Editors

Some of the issues covered this week include:

• The debate to raise the foreign direct investment cap from 49% to 74%

• Development of mobile games by Indian developers

• Launch of prepaid services by Reliance

• Latest row between FLAG and VSNL

• Financial results posted by Bharti, Sify, and VSNL

• Coverage of Morgan Stanley's Indian operator $4.4 billion capex forecast

• LG and Samsung discover the Indian mobile market is worth investment

REGULATORS

Increasing FDI component in Telecom

The Union Cabinet has decided to defer the decision regarding proposed increase in FDI (foreign direct investment) limit in the telecom sector, from the present 49% to 74%. This decision has been a disappointment for cellular operators, since this growing sector is in need of funds. While members of The Association of Basic Telecom Operators abstained from commenting on the issue, Bharti group chairman Sunil Mittal said that while the decision would not impact Bharti, it would help if the FDI cap was raised. Less than a month ago, the government had announced raising the foreign investment cap as a part of package for mobile operators, consequent to which, the COAI (Cellular Operators Association of India) had withdrawn its case against government allowing basic operators entry into mobility.

In a separate story, The Department of Telecom (DoT), in a recommendation to the Cabinet has proposed that it be a mandatory requirement for basic telecom companies and cellular operators, to issue equity afresh if they seek foreign funds beyond the 49% FDI cap. According to DoT, this step would ensure that the FDI component would always be lesser than the domestic holding in the telecom companies, even if the FDI cap were raised to 74%. While relaxing the FDI cap will get the funding for the telecom industry, the additional rider would address the security concerns, since the domestic holding would be higher than the FDI. Raising the FDI cap would be a cause of concern for Indian players like BSNL, Tata and Reliance, since their competitors like Bharti and Hutchison would be able to access additional funds.

Telecom service providers allowed to set tariffs

The Telecom Regulatory Authority of India (TRAI) has allowed telecom operators to announce tariffs without getting prior approval, provided they are compliant with the interconnect norms. Operators will be expected to file their new tariffs with TRAI within 7 days of implementation. Cellular operators will be required to allow pre-paid mobile users to receive calls and SMS within the validity period, even if the talk time on the pre-paid card is exhausted. All cellular operators will carry forward the unused balance of pre-paid subscribers within the grace period.

Call centers for the Indian farmer

The Indian government hopes to help the farmers in India through technology and telecommunication. With an aim to enhance the knowledge of the government and farmers equally, the Indian government plans to set up 13 Kisan call centers in the country. The call centers will serve as an information pool which farmers can tap into to get information on agriculture. The farmer would have to dial a four-digit toll-free number that would connect him to the nearest call center. Information would be provided in the local language. The call centers would be run by agricultural experts and will employ people from the local community. The project is expected to be launched sometime this month and is expected to cost between $1.3-1.5 million a month.

Dedicated body to monitor telecom security?

The Indian government deferred its decision to raise the limit of foreign direct investment in telecom service companies from 49% to 74% in the interest of national security. Intelligence agencies have asked the government to set up a body that will be exclusively engaged in monitoring security issues in the telecom sector. The Intelligence Bureau has stated that telecommunication, which plays a vital role in the security of the nation, needs to be protected. It felt that the total foreign equity in a telecom services company should be capped at 49%, whether it was through foreign direct investment or foreign institutional investors.

Exclusion of non- core revenue

The Telecom Regulatory Authority of India (TRAI) is considering exclusion of non-telecom revenues from the total revenues for the purpose of annual license fee calculation for telecom operators. TRAI has communicated with the Department of Telecom (DoT) in this regard. The cellular and basic operators have joined hands on this issue and are keen to meet the Communication Minister Arun Shourie to discuss the issue further.

The Cellular Operator’s Association of India (COAI) has said that the exclusion of non-telecom revenues would enable further reduction in tariffs. Presently, the operators pay between 8-12% of their total annual revenues as license fee to the government.

WIRELESS

Airtel launches SMS kiosks for the public

AirTel will set up 500 SMS kiosks in Bangalore. The kiosks which will be branded as Airtel ExpressSMS, will allow people in the city to send messages without owning a mobile phone. The service will be similar to a coin operated public telephone. People can send messages, locally and nationally, for just 2 cents a message. A message to an international mobile number will cost 6 cents. Users will receive a confirmation when a message is delivered. Incase the message is not delivered the payment will be refunded to the customer. Users of Airtel ExpressSMS can also receive messages.

Soon dual mode phones for India

With two competing technologies in play in the Indian cellular market – CDMA and GSM – roaming subscribers cannot switch between networks which operate on different technologies. For instance a Reliance subscriber (based on CDMA technology) cannot switch to the Hutch network (GSM platform). To bridge the gap between the two technologies, the CEO of Qualcomm believes that India will soon have dual mode phones. The handsets will allow users to connect to both CDMA and GSM based networks, without changing the SIM card. The phones will be available from Samsung. Qualcomm has developed the chip that will support both technologies. According to market sources, Motorola is in the process of developing a phone that can be used as a fixed line, mobile phone and a device to connect to the Internet. The product is likely to hit the Indian market by the middle of this year.

$2.8 billion expansion plans for BSNL

Bharat Sanchar Nigam Ltd (BSNL) is looking at expanding its network with an investment of $2.8 billion during 2004-05. The company will expand its capacity of GSM and CDMA connections. BSNL is targeting to increase its GSM capacity to accommodate 7-8 million additional connections, CDMA by 1.8 million and fixed line capacity by 1.5 million connections. The company will also look at expanding its broadband services, which is now available only in Bangalore, across 20 cities

Gaming – the latest rage in India

Mobile gaming is all set to become a lucrative business in India this year. The country is becoming the new creative hub for creating mobile games. Gaming companies are developing games around Indian themes – Bollywood, politics, cricket, Hinduism, Indian mythology, etc. Alok Kejriwal, the owner of a Mumbai-based gaming company, made $10 million last year selling his mobile games to the world. He develops around 20 games a month for companies like MSN.com, yahoo.com and China Mobile. Analysts have projected that the Indian wireless market will grow to 50 million users over the next three years. According to Hutch, which has almost 100 games for its mobile subscribers, after ring tones, games are the next big revenue earners. Airtel offers its users around 50 games.

Tel.Me. launches high-end handsets

Tel.Me., an Austrian mobile handset manufacturer, launched two handset models targeted at the affluent Indian who views a mobile phone as a ‘fashion statement’. The handsets will cost between $570-680. The company plans to sell about 100,000 phones this year, and hopes to garner a 20% market share in the premium segment. Although the mobile handset market is very price sensitive with $50 phones available, Tel.Me. is confident of carving a niche for itself in the market. The company believes that service providers will soon start subsidizing high-end phones.

Mobile Phones to have Broadband

GSM mobile operators are evaluating upgrade of their networks to EDGE, also called 3G. This technology enables Internet connectivity 3 times faster than the 2.5 g GPRS. While Idea cellular would launch EDGE service in Delhi, this week, Bharti would upgrade by middle of 2004. Upgrading to EDGE enables mobile service operators to maximize the frequency spectrum allotted to them, while it enables subscribers to connect to enterprise applications. EDGE also helps improve productivity of mobile workers by getting access to the Internet, Intranet, and emails.

Hoax SMS doing the rounds on Reliance’s network

A false and misleading SMS was received by around 5000 Reliance mobile subscribers in Gujarat recently. The message read “Reliance celebrates its anniversary by giving a special offer. Just forward this message to five Reliance India Mobile (customers) and make 100 free calls.” Officials from Reliance stated that the message was a hoax and the miscreants responsible for it were probably trying to confuse Reliance subscribers

In a related story, SMS pranksters seem to have hit the Hutch network now. A message promising free talk time if a certain message is forwarded to five more persons is prank that has been doing its rounds with the Hutch subscribers. The company has said that this is a just a prank, and Hutch has nothing to do with this. A similar case of ‘prank SMS’ had occurred with Reliance subscribers also.

Reliance to soon launch pre-paid services

Reliance Infocomm has tied up with Comverse Technologies to offer pre-paid services in India. The service will be launched in February. The company had recently withdrawn its popular “Rs 501” post-paid scheme. For its launch, Reliance will bundle its pre-paid cards with Motorola’s CDMA based handsets. Later on, Nokia and Samsung handsets may be offered. The denominations of the pre-paid cards are likely to range between $4.40 and $22. The company has plans to open pre-paid recharging centers across the country. Later on, customers would be able to re-charge their cards over their telephone using their credit or debit cards.

SATELLITE

Hughes launches new satellite broadband

Hughes Network Systems India, a satellite broadband equipment provider, has introduced DW6000, its latest broadband terminal, under the brand name DirecWay. According to Mr Nagesh Singh of Hughes Escorts Communications Limited (HECL), the minimum bandwidth offered is 256 kbps, under the new service and Hughes has the capability to offer bandwidth in multiple mbps to corporates through the DirecWay satellite broadband. The service plans for corporates involve offering bandwidth costs based on the company's requirements. The new terminal will provide access to Internet, Intranet and an Ethernet output for easier connectivity to LAN networks and satellite-based service activation along with the previously offered features like content delivery, digital media streaming, multicasting and distance learning.

BUSINESS

Flag lashes out against VSNL

The CEO of Flag Telecom Mr. Gallagher has lashed out at VSNL’s monopolistic control, despite not being a government body any longer. According to Mr. Gallagher, VSNL is restricting capacity available at the Indian landing station at Mumbai. Despite a huge demand for bandwidth, the supply has been artificially clipped by VSNL in order to keep competition in check and keep the prices at a high level. Flag's main competitor at the Mumbai landing point, is Sea-Me-We-3 (Southeast Asia-Middle East-Western Europe 3), a submarine cable which is owned by a consortium of about 100 carriers, which also includes VSNL. Flag has alleged that its capacity is being restricted to help its rival; Flag had to refuse the requests for capacity from more than 20 carriers due to the bottleneck imposed by VSNL.

BSNL Cellone orders go to Motorola, Ericsson

The network equipment for the GSM based cellular service of BSNL, called Cellone, will be procured from Motorola and Ericsson. Ericsson would be supplying for the northern and eastern regions and Motorola for the southern region. The western region details are still being worked out. The total order has been placed for two million lines and the capacity expansion would be around 50% for the south and 50% for east and north. BSNL had floated a tender for additional capacity in September 2003, and these orders are a consequence of that tender. Earlier Lucent was the equipment supplier for the western region, but now has stopped manufacturing GSM equipment.

Ericsson expects $400mn order from Bharti

According to industry sources, Ericsson is likely to receive an order worth between $300-400 million from Bharti. The deal is likely to be announced in a few weeks. The company had received a $70 million order from Bharti in 2001 for telecom networking equipment.