INDIA Telecom Report vFINAL DR 17/6/08 09:07 Page 17
Semiconductor India
through its support of the idea of network
The main challenges facing India’s general
sharing. This is particularly important at a
time when operators are looking to extend business environment is the country’s
capacity so as to reach rural parts of India.
infrastructure, and as such the government
India’s economic climate is on the whole
has identified power, national highways and
stable, but economic growth could slow in
fiscal 2008, having reached 9.2% in
rural infrastructure, and as such the
FY2006-07, as measures to tighten
monetary policy bring growth more in line
government spending. Indeed, for the
with a trend rate of 7.5%. Inflation is a key
Indian government to reach its target of
issue for the current administration, with the
government introducing a number of
achieving 500mn wireless subscribers by the
measures to cool price growth.
end of 2010, it is essential that mobile
However, hikes in the benchmark
repurchase rate and cash reserve ratio, as
growth is strong across rural India
well as a budget prioritising deficit
consolidation and tariff cuts, will prove to looking to explore the possibility of Ministry could insist that the Department of
be a drag on growth. Consequently, BMI outsourcing some of its software Telecommunications reduces its taxation
forecasts real GDP growth of 7.3% this development activities. Another possibility levels on telecom carriers.
fiscal year. Politically, India remains stable is for the US company to acquire a stake in
although the government does need to keep an existing mobile services provider; AT&T Overall, steady consumer demand,
its eye on inflation, with high food prices left India in July 2005 on selling its stake in government support and generally
given as the main cause for government Idea cellular. Another US major, Cisco favourable regulatory climate have all
defeats in state elections in Punjab and Systems, unveiled its Bangalore mixed to create a high growth market. The
Uttarakhand. Globalisation Centre in November 2007, fall of mobile tariffs, set to promote
extending its investment initiative in India affordability from lower income customers,
The main challenges facing India’s general by another US$100mn. is also a key ingredient to success story with
business environment is the country’s per minute peak rates falling from US$0.5
infrastructure, and as such the Despite these examples of investment, per minute in 2003 to about US$)0.02.
government has identified power, national Virgin Group chairman Richard Branson Although in general this is good news for
highways and rural infrastructure, and as criticised India’s general business the consumer, it is having an impact on
such the government spending. Indeed, for environment ahead of his company’s entry operator ARPU rates and therefore profit
the Indian government to reach its target of into India as MVNO. He claimed the margins, as the levels of handset usage
achieving 500mn wireless subscribers by country’s business environment was not drops. It will continue to do as long as
the end of 2010, it is essential that mobile open enough, calling it overtly protected. It growth is centred on rural demand and
growth is strong across rural India. But, should be added that he was not speaking prepaid plans remain extremely popular
there are daunting hurdles to overcome specifically about India’s telecom market, throughout the country.
before this can eventuate with a lack of and may have been referring in more detail
electricity, remote and rough terrain making to the country’s retail, insurance and All in all the BMI report on the Indian
it hard to establish the necessary banking sectors. telecommunications industry shows a
infrastructure as well as the added challenge vibrant and growing space that is ripe for
of marketing services to low-income Although Branson did not refer to it, one investment with strong return for both
customers also presenting a problem. area of India’s business environment, which indigenous companies as well as the
is certainly causing disquiet, is the high international companies eager to enter this
India’s potential for growth and its general level of taxation, which if unchecked could lucrative and expanding growth market for
investor friendly regulatory framework have an impact on growth and could deter consumers and manufcturers.
could encourage AT&T to re-enter India’s future investors. This is something that
telecom network. New CEO Randall government is monitoring closely, and there N.B.: For more information on this report
Stephenson visited India in July 2007, is some evidence that India’s Finance contact the editor for further details.
Summer 2008 | www.semiconductor-india.com 17
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