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SAARC Report: The Cradle For Evolution

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VoicenData Bureau
New Update

After a brief period of sluggish growth, Asia has recently, shown strong

consolidation in the telecommunication sector.  The developed economies of Asia have moved ahead into

advanced networks and value added services (VAS), reaching maturity in those

markets.  It is again China and the

SAARC countries that are the real potential for growth in Asia, if not in the

world. 

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Many domestic subscriber bases have doubled in recent years with tariff

prices in the region, amongst the lowest in the world.Â

The business plan for most of the telcos in the region is to build a

profitable business model even when voice tariffs fall to one of the lowest in

the world-a one cent-a-minute level, when the US and Europe tariffs are

considered low at 20-25 cent-a-minute level; with the purchasing power parity

also amongst the lowest globally.  This

has placed enormous stress on margins in the industry, but many Original

Equipment Manufacturers (OEMs) are now setting up manufacturing facilities

locally to offset this pressure.

Today, global players in the telecom industry are developing interest, and

are increasingly investing in SAARC markets. Manufacturers are discovering the

region as a lucrative manufacturing center; Nokia and Ericsson have successfully

done this and now. Motorola too has announced a $100 mn plant in Chennai. Global

service providers are buying stakes in local players. Having said this, it is

the largely unapproachable rural sector in these areas, where there are

opportunities for growth. Innovative delivery options, a favorable regulatory

regime, and aggressive pricing stances will ensure that these opportunities are

cashed in on.  

India



India is clearly the leader in terms of penetration and its growth in the

SAARC region. India's mobile subscribers double the number of fixed line

subscribers. The telecom story continues to be the best advert of the

country's reforms process.  In

about nine years the teledensity has increased from 1.94%  in 1997 (achieved post 50 years of independence) to 13.25% on

March 31, 2006.  

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In the last six years, the number of mobile subscribers has gone up from just

about 1 mn to 100 mn, a subscriber base that only four other countries-China,Â

US, Japan, and Russia can boast of.Â

The explosive growth in numbers is directly juxtaposed to the steep

decline in the cost of mobile phones and effective tariffs, bringing the phone

within reach of people even below the middle-class. 

The Indian

Landscape
Telecom FDI

hike to 74%, triggered a tele-buzz
  • July 2005

  • October 2005

  • December 2005

  • March 2006

  • March 2006

  • April 2006



             

  • Hutch acquired BPL Mobile in $995 mn

    deal
  • Vodafone picks up 10% stake in Bharti

    for $1.5 bn
  • Maxis buys 74% stake in Aircel for

    $1.08 bn
  • Telekom Malaysia buys 49% stake in

    Spice for $178.8 mn
  • TTSL sells 9.9% stake to Temasek

    Holdings of Singapore for $330 mn
  • Aditya Birla Group accepts offer by

    the Tata Group to acquire their 48.14% in Idea

    Cellular for a total of Rs 44.06 bn ($97 mn)
Hardware

manufacturers setting up shops
  • Korean giants LG

    and Samsung shifted a portion of their handset making units to India

  • Nokia, the

    world's largest manufacturer, commenced operations in Chennai

  • Motorola too has

    announced a $100 mn plant in Chennai

Domestic

players are re-entering the fray 
  • Max group's

    Analjit Singh, who sold his 41% stake in Hutch, where he was the

    original license holder, is back, purchasing an 8.33% stake in the

    Hong Kong-based firm

  • C Sivasankaran, who

    sold his stake in Hutch to the Essar group in the 1990s, bought shares

    in Aircel that he sold last year, and now re-emerged with an equity

    stake in TTSL

The setting up of the Universal Services Obligation Fund (USOF) to grant

subsidy to telecom operators is a huge step, which will increase the teledensity

in the rural areas. This step will be responsible for reaching the magic

teledensity 25% by 2010.

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Government has set aside nearly Rs 12 bn (from USO Fund) to grant subsidy to

telecom operators, and infrastructure providers who are willing to set up

telecom network in rural areas.

For India's rapidly growing telecom sector, 2005 was a year of high tempo.

Mobile connections grew faster than ever before and value added services made

their presence felt and accounted for a notable share of revenues.Â

On the regulatory front, FDI limit was hiked from 49% to 74%, long

distance entry barriers were lowered, new uniform tariff structure for the

entire country called 'IndiaOne' was announced, and subsidies were announced

by the government for operators to promote rural telephony.

Pakistan



Pakistan's telecom market is in the process of evolving to come to grips

with the transition from a regulated, state owned monopoly to a deregulated,

competitive structure.  Penetration

of telecom services remains low.  The government has ambitious plans to increase the fixed line

teledensity of 2.5% in 2003 to 7% in 2010 (they have achieved 3.8% in 2005).Â

This includes installing a million lines annually. Currently, competition

is driving growth in the telecom market and a major impact has already been

felt.

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Pakistan

Fixed

Services

Fixed telephones*

5,870,000

Fixed-line teledensity

3.8%

Fixed WLL subscribers

499,800

Digital lines

100% (since 2004)

Public payphones

279,300

Public telecom operator

Pakistan



Telecommunication (PTCL)

*includes fixed WLL

subscribers

Mobile

Services

Mobile subscribers

21,651,800

Annual growth

174%

Mobile penetration

14.0%

Major mobile operators

Paktel

Pakcom

Mobilink GSM

Internet

Services

Number of ISPs

150 licensed; estimated

80-90

Internet cafes

4,500

Major ISPs

Paknet

Digicom

WorldCall

Internet host computers

(2004)

25,096

Internet users

4.5 mn

Internet penetration

2.9%

Internet subscribers

350,000

DSL subscribers

13,400

Source: Ernst &

Young

Currently, Pakistan is witnessing massive growth in its telecom industry.Â

In the four-year period up to 2009, nearly $4 bn of investment is

expected in the sector.  Pakistan's

telecom sector today, employs 20,000 people and this is set to grow rapidly in

the near future.  The country's

investment friendly policies such as the fixed line Deregulation Policy (July

2003), Mobile Policy (2004), and the Broadband Policy (Dec 2004) have created an

atmosphere favorable for investment.

Pakistan's

telecom sector employs 20,000 people and this is set to grow rapidly in

the near future. The country's policies such as the fixed line

Deregulation Policy (July 2003), have created an atmosphere favorable for

investment
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Growth in the market was reflected in the fact that $1.3 bn revenue was

raised in the auction of frequency spectrum in the mobile, wireless, and local

loop sectors, while fixed line subscribers base grew from 4 mn in 2003 to 5.9 mn

in 2005.  Mobile services saw a boom

with the base swelling from 2.4 mn in 2003 to 21 mn in 2005. And the overall

teledensity grew from 4.63% in 2003 to almost 18% in 2005.

There is an opportunity for massive growth in the country, as 70% population

living the rural areas are largely un-approached by modern telecom.

Sri Lanka



Sri Lanka's Telecommunications sector development has been embroiled in

the face of a nearly two decade long conflict between the government and

separatist Tamil Tiger Rebels.  The

Tsunami and other natural calamities in recent years have also affected both

existing physical assets and investment as well.  With the hope of enduring peace and a general improvement in

the country's socio economic well-being, the sector is poised for rapid

progress.  At present, the focus

areas are to open the market to competition) and to build the network

infrastructure.  There is a range of

significant initiatives, such as the government has funded the installation of

payphones across the countryside.  By

2004, there were already 204,000 payphones installed.  At that time there were 4.8 mn telephone lines in the country

and an installed capacity of 5.8 mn lines.

Digitalization has almost reached 100% .

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There have been severe supply restraints that have stunted the growth of the

sector. At the end of 2005, the fixed line teledensity was a low 5%, in

comparison to the bludgeoning demand. There were 250,000 fixed lines

subscribers, waiting for basic telephone services in 2002, which grew to 400,000

towards the end of 2004.  The

Emerald Isle has a teledensity, far lower than other countries with similar per

capita GDP.  Sri Lanka has the

dubious distinction of having a fast-dropping investment level in the telecom

sector. It dropped from $190 mn in 2000 to $50 mn in 2001. This too is in a

nascent phase of its development.



Sri

Lanka

Fixed

Services

Fixed telephones

974,200

Wireline

847,700

WLL

126,500

Fixed-line teledensity

5.0%

Digital lines

100% (since 1998)

Public payphones

204,000

Public telecom operator

Sri Lanka Telecom (SLT)

Mobile

Services
 



Mobile subscribers

2,156,500

Annual growth

62.4%

Mobile penetration

10.8%

Prepaid subscribers

65% of total mobile

subscriber base

Major mobile operators

MTN

Celltel Lank

Mobitel

Internet

Provider Services

Number of ISPs

23

Major ISPs

SLTNet

Lanka Internet

Internet host computers

(2003)

1,882

Internet users

400,000

Internet penetration

2.1%

Internet subscribers

90,000

Personal computers

(2003)

330,000

PC penetration (2003)

1.7%

Source: Ernst &

Young

Bangladesh



Bangladesh is one of the more underdeveloped, densely populated countries in

the world.  It has one of the lowest

numbers of fixed phones per hundred people in the world.

It is one phone per 150 people, which is 6 times lower than that in

neighboring India.

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Besides, a host of natural calamities having adverse effects on the

country's economy, and the slow growth of telecom network is compounded by

highly inefficient public owned telecom industry. The country also needs

economic and regulatory reforms.

The fixed line industry is dominated by state owned operators, and so is the

ISP market. The mobile industry has few private players.

Nepal



Nepal is another country that has seen slow progress in the telecom space.

The weak economy means that most investment has come through foreign

institutional aid such as World Bank loans etc.

The county's mountainous topography has made it an uphill task to set

up basic telecom infrastructure. Socio-political instability in the region also

affected the development process.

Moreover, more than 98% of the population has no access to telephones. More

than 60% of the existing phones are in Kathmandu alone. Rural services have been

neglected largely as the setting up of a rural network would require significant

investment. Overall 50% of the demand in the country for telephone access

remains unmet.

But there have been some signs of progress. Progress has been made since

1995, accruing from foreign loans and the introduction of transparent tendering,

which have increased threefold the number of lines that can be purchased for the

same money. The state-owned Nepal Telecommunication Corporation is the dominant

operator in all sectors.



Bangladesh

Fixes

Services

Fixed telephone

950,000

Teledensity

0.65%

Digital lines

94%

Public payphones

2,000

Public telecom



operators

Bangladesh Telegraph

and Telephone

Mobile

Services
 



Mobile subscribers

3,958,100

Annual growth

114.1%

Mobile penetration

2.8%

Major mobile operators

GrameenPhone

Pacific Bangladesh

Telecom Ltd (PBTL)

Sheba Telecom

Telecom Malaysia

International



Bangladesh (TMIB)

Internet

Services

Number of ISPs

100

Major ISPs

Grameen Cybernet

InTech Online

Integrated Servides

Network (ISN)

BTTBnet

Internet users

420,000

Internet penetration

0.3%

Personal computers

1,400,000

PC penetration

1%

Internet subscribers

(2003)

81,000

Source: Ernst &

Young

Other SAARC Countries



Bhutan had been in isolation from the rest of the world till very recently.

The country's only link with the outside world had been the trunk-call

facility to India since 1974.  It

was only in June 1999 that the first television station was set up in the

country. And that was the beginning of television sets, satellite dishes, and

antennas making an appearance on the Himalayan Kingdom's regal, mountainous

landscape.  It had been this terrain combined with a low economic

capability that had hindered any development at all, in the telecom field.

There has been a burst of growth in the recent past, with fixed line

subscribers doubling annually in recent years (teledensity still remains at 4%).

Investment has grown and there has been basic progress with

infrastructure-building as well. Mobile, Internet networks, and markets remain

highly undeveloped, with there being only a minute presence even today.

The Maldives archipelago boasts of a modern, and efficient telecom network.

There is now complete land coverage with fixed line connections. There was a

monopoly in the market till very recently, a telco owned jointly by the Maldives

Government and a Cable & Wireless plc (UK) that is accredited with the

building of this impressive infrastructure came in the picture. The company is

the sole operator of fixed line services and of mobile services, (49%

penetration of mobile network) and was until recently the sole ISP as well.

At SAARC Communication Ministers' Meeting held on May 22-24, 1998 in

Colombo, a SAARC plan of action was finalized.

This, inter-alia, included calls for reduction of telecom tariffs to the

lowest extent feasible, complete digitalization of inter-country links amongst

SAARC countries preferably by December 1999, allocation of sufficient bandwidth

for regional telecommunication links, setting up of websites/databases to

exchange information on telecom standards, policies and technologies, adoption

of Mutual Recognition Arrangements for equipment standards, and consultations to

evolve common SAARC positions on telecommunication issues of regional concern at

international fora. It would be fair to say that some amount of cooperation in

the area would help the progress of the telecom industry.

The urban

markets will reach its saturation soon, but it is the rural interiors that

display the real opportunity and challenge

Broadly speaking, it is socio-political factors that are the last roadblock

in the way of extensive telecom development in the region. Most governments have

been enthusiastic towards telecom progress and have created favorable

environments for this. The region shall need highly innovative business

practices, technology and services to address the real potential. The urban

markets will reach its saturation soon, but it is the rural interiors that

display the real opportunity and challenge. The area could prove to be a

lucrative ground for telecom boom in the long run. And the telecommunications

industry could contribute significantly to the development of these economies.  

The governments in the SAARC region may rightfully applaud itself as coming

out a winner in the mobile phone segments with a combination of rightful

de-regulation in regulatory framework and a focus on to increase the teledensity

in the region.  This region

gradually continues to be one of the most interesting platforms for the telecom

evolution.  

Prashant Singhal, Industry Leader

(Telecommunications), Ernst and Young



vadmail@cybermedia.co.in

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