INDIAN TELECOM SECTOR

Partial Liberalisation in Fixed Lines

Though some competition has been introduced in the Indian fixed line telecom sector it has not been fully liberalised. For example, the Indian government has resisted calls to introduce local loop unbundling. In many respects not only has the Indian telecom market been opened up more slowly than the more mature markets (Europe, North America and Japan), but also more slowly than in many developing countries (e.g. the major countries of South America). Provision of basic services has been the main priority, rather than increasing competition to enhance services.

BSNL and MTNL Dominate

The fixed line sector in India is dominated by two companies: BSNL (Bharat Sanchar Nigam Ltd.) and MTNL (Mahangar Telephone Nigam Ltd.) MTNL serves Delhi and Mumbai while BSNL serves the rest of the country. A third company, VSNL (Videsh Sanchar Nigam Ltd.), traditionally had a monopoly on international connections, but this sector has been liberalised. Several other companies also offer international services and some have their own submarine fibre optic cables.

Strong Growth in Indian Mobile Sector

In the Indian mobile sector there are more service providers and competition is much more dynamic than in the fixed line sector. There has been strong growth in the number of mobile cellular subscribers (MCS), especially over the last two years. At the end of the 2005/06 financial year there were 90 million MCS in India, but penetration of mobile usage was still very low, with only 8 MCS per 100 people. At end-2006 the Telecom Regulatory Authority of India reported that there were 149 million wireless subscribers, including approximately 9 million WLL users. Additions of MCS subscribers in Q4 2006 were running at 6.5 million per month. There are more than 73,000 base stations for mobile services in India.

But India Lags Behind Most of Asia

India continues to lag behind many other developing countries in terms of mobile penetration, but growth of Indian mobile subscribers over the last two years has been explosive. Mobile density in India is comparable with its neighbours, Pakistan and Bangladesh, but is much lower than in most ASEAN countries and China. Even Asian countries such as Indonesia and the Philippines, which at times in the last 10 years have had severe economic problems, have much higher mobile densities than India.

Further Potential for Expansion

Clearly there is great potential for further mobile expansion in India if mobile density approached the level of China or other developing Asian countries. This will be a positive development for fibre optic cable demand as additional network capacity will be needed to handle the traffic generated by expansion of the mobile phone subscriber base.

Traditional Fixed Lines Declining

In fixed line infrastructure there has also been strong development, but much of this growth has been achieved through the introduction of WLL services, and the number of Indian fixed line service subscribers using traditional wired lines has been static or declining in recent quarters. At the end of 2006 the total was 40.4 million, equivalent to only 3.7 per 100 people. There was actually a reduction of 1 million in the number of traditional fixed line subscribers between March and December 2006. Most of the growth in the total number of Indian main telephone lines in recent years has been due to increased take-up of Wireless Local Loop (WLL) services, rather than wired lines.

Erratic Demand for Copper Cables

The producers of external copper telecom cable (usually known as jelly-filled telephone cables, JFTC, in the Indian market) have had a very difficult time in recent years. With only two major customers with copper-pair fixed line networks, the suppliers have been very exposed to policy changes by these customers, especially BSNL. Procurement patterns have often been very erratic in the past. At times purchase orders have dried up for part of the financial year, but Indian manufacturers have continued to produce cable, building up stock of finished cables, in anticipation of a surge in demand in later months.

WLL Reduces Copper Cable

Indian telcos have enthusiastically embraced WLL as a way of rolling out a basic telephone service to parts of the country where no service existed. The main attraction is that the initial capital investment is lower than that required for the traditional wireline service. The widespread adoption of WLL in India has hit demand for copper telecom cables in a fundamental way. In some other developing countries, such as China, at the same time as WLL has been adopted in some areas, access lines with cables have continued to be installed elsewhere. In India, by contrast, WLL has largely displaced installation of new access lines.

Broadband Take-Up Increases

There was a marked acceleration in the take-up of broadband services in India during 2006: 2.1 million subscribers at the end of the year, compared to 0.9 million at the end of 2005 and less than 0.1 million at the end of 2004. Longer term, this is likely to mean some recovery in demand for copper telecom cables, as provision of broadband connections via DSL over copper pairs requires good quality access lines. In line with experience in other countries, this will mean upgrades of existing cables to enable DSL to operate over longer loop lengths.

Optical Cable Demand Increases

Indian cable suppliers have seen improved demand for fibre optic cable over the last two years, following a lean period. The customer base for fibre optic cables is broader than that for copper telecom cables, as in addition to the two fixed line operators, other telco service providers, such as mobile operators and private operators with their own networks, also have a requirement for fibre optic cable.