Mpowering India 2011

INDIA
m -POWERING
2011
Foreword
The Indian telecom sector has emerged as a strong growth engine for the Indian economy in the last decade, with the country witnessing a voice revolution. The upcoming decade will usher in an information era through Mobile Value-Added Services (MVAS). MVAS has assumed vast significance in recent times due to the rapid growth in wireless subscriber base, the focus on data services and the increase in the uptake of 3G. Consequently, the mobile phone has transformed into a persuasive medium to deliver information services spanning various usage areas such as governance, commerce, agriculture, education and health. This, coupled with the sheer pervasiveness of mobile telephony (865.71 million subscribers as of August 2011), is contributing to a more inclusive and better empowered nation. A conducive regulatory environment, the focus on Indias untapped rural sector, enhanced quality of services, better technology and increasingly affordable devices are imperative for MVAS to be able to empower each and every citizen of India both rural as well as urban. Not only will these services lead to improved information access for subscribers, but they will also open up new and alternative revenue streams for service providers. On the occasion of India Telecom 2011, the 6th International Conference and Exhibition, the Department of Telecommunications takes immense pleasure in releasing this report titled m-Powering India. Developed by KPMG in India and FICCI, the report explores how mobile telephony is leading to empowerment in the nation against the backdrop of the overall telecom sector. This report is expected to serve as a useful reference manual for all stakeholders.
R. Chandrashekar Secretary Department of Telecommunications Ministry of Communications & IT Government of India New Delhi
The Federation of Indian Chambers of Commerce and Industry (FICCI) and KPMG, in association with the Department of Telecommunications, are proud to present the report India Telecom 2011 m-Powering India. This report focuses on the future of MVAS in India and its role in empowering the nation. These services will digitally transform the nation and help foster inclusive growth. The report highlights the key m-services such as m-banking, m-education, m-governance, m-health, m-agriculture, etc., and draws out their growth drivers and challenges. It also outlines the evolving ecosystem and steps undertaken to create a win-win ecosystem for the stakeholders. The report underlines the key role that equipment manufacturing and infrastructure development will play in making MVAS another exemplary chapter in the successful Indian telecom growth story. The report highlights the investment opportunities and potential in the Indian telecom sector. The report also provides the reader an insight into the evolution of the telecom industry over the last decade. We extend our deep gratitude to the DoT for providing us an opportunity to work with them for the India Telecom 2011 event.
Dr. Rajiv Kumar Secretary General FICCI Sean Collins Global Chair KPMG Communications and Media Practice Romal Shetty Partner and Head,Telecom KPMG in India Jaideep Ghosh Partner, Management Consulting KPMG in India
CONTENTS
Growing and Empowered India A Macro View The Global Telecom Market USD 2 Trillion and Still Growing The Indian Telecom Market On the Cusp of an Information Revolution Wireless Communication The Key to Connecting India m-Powering India Inclusive Growth through the Mobile Phone M-Banking The Killer Application for m-Powerment Other Innovative Mobile Services Leading to Empowerment Technology and Infrastructure The Basic Enablers of Empowerment Delivering m-Powerment through a Win-Win Ecosystem Telecom Manufacturing Enabling Sustainable Growth Telecom Research and Development Investment Opportunities in the Indian Telecom Sector Regulatory and Policy Environment International Best Practices in Creating Successful m-Powerment Services Conclusion 03 13 21 31 41 49 61 69 75 81 89 93 101
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1 | m-POWERING INDIA - INDIA TELECOM 2011
SUMMARY
Indias incredible growth story is manifested in the countrys sustained performance to become the fourthlargest economy in the world by Purchasing Power Parity (PPP), after the US, China and Japan. A strong domestic demand and inflow of investments have been the driving factors behind this phenomenal economic growth. Also, while growth in most of the Asian economies, such as China, Thailand and Malaysia, has been driven by the manufacturing sector, growth in India has been driven by the services sector. The vitality of the telecom sector to the country is implicit from its everincreasing contribution to Indias GDP (increased to three percent in 2010 from 1.6 percent in 2006). The last decade can be rightly called the decade of the voice revolution. The total telecom subscriber base, including wireless and wireline subscribers, reached 899.8 million in August 2011 from 41 million in 2000. The total teledensity in India reached 74.9 percent in August 2011 a growth of 15.3 percentage points over the preceding year. Even after this strong rise in teledensity, the Indian telecom market is far from saturated. A large part of the countrys population base, primarily in the rural areas, still does not have access to quality telecommunications services, and therefore present significant opportunities for growth. The Indian mobile market is still largely a voice market. Data revenue accounted for about 15 percent of the total mobile revenue in March 2011, as against close to 30 percent in China and the UK. However, data is undeniably going to be the key driver of the Indian mobile market in the years to come. The year 2010 was a landmark year in the history of the Indian telecom sector with the auction and allocation of 3G and Broadband Wireless Access (BWA) spectrum blocks. With the advent of better networks, India now stands at the cusp of another revolution the information revolution. Mobile Value Added Services (MVAS) is becoming an integral and indispensible part of the telecom industry value chain. The MVAS market is expected to increase from INR 122 billion in 2010 to INR 482 billion by 2015, driven by the uptake of 3G services in urban as well as in rural areas. It is expected to change the dynamics of the Indian telecom sector by empowering users on one hand and providing significant commercial opportunities for all service providers across the value chain, on the other. Some of the services expected to make an impact on the Indian telecom market are listed here:
EXECUTIVE
m-POWERING INDIA - INDIA TELECOM 2011 | 2
m-Banking
The Indian banking sector has grown significantly over the years with strong fundamentals; however, as per estimates from the Reserve Bank of India, about 40 percent of the Indian population still lacks access to formal financial institutions and therefore, is largely unbanked. Mobile phones have the potential to deliver financial services to this unbanked population in the form of m-banking. Driven by progressive banking regulations by the government, m-banking services are picking up in India, with 707 ,496 m-banking transactions for INR 616.1 million being reported in February 2011. Quality education is crucial to create a skilled workforce and therefore is a pre-requisite to the India growth story. In order to increase the accessibility of the Indian rural population to affordable basic education, the Government of India, along with private education players, has planned to leverage wireless technology and offer m-education services, such as basic education lessons, exam tips and result alerts. Effective governance can increase the countrys productivity and therefore its competitiveness. In a country as populous and diverse as India, delivering good governance services can be quite a challenge. Basic governance services delivered through the mobile phone can help governments deliver public services in an inclusive manner. The sheer reach of mobile phones, coupled with the innovative potential of mobile applications, is making m-governance a cornerstone of various state government schemes. India needs to build a robust healthcare system for its growing population. m-Health the use of mobile devices in collecting health data, delivering healthcare information to practitioners, researchers and patients, real-time monitoring of patients, and direct provision of care is expected to contribute significantly in providing basic healthcare services to the remotest parts of the country. With over 50 percent of the Indian workforce engaged in agriculture, agricultural growth plays a pivotal role in the overall economic health of the nation. In order to enable faster growth of the agricultural sector, wireless technology can be leveraged to disseminate vital information to farmers. This can include basic information such as weather forecast and crop advisory and also complex machine-to-machine automation services that increase farm productivity. Along with facilitating information access, m-Agriculture is also expected to play a prominent role in overcoming infrastructure constraints and supply chain inefficiencies in the agricultural sector. Location-based services delivered through the mobile phone hold significant potential of empowerment. These services use knowledge of the geographical position of a mobile device to generate useful information for the subscriber and the service provider alike. Navigation assistance, emergency or disaster relief, social networking and map assistance are some examples of locationbased services which benefit subscribers. Machine-to-machine (M2M) communication, comprising services such as fleet management, smart metering, agro and irrigation monitoring, etc., have the potential to unleash significant efficiency gains across urban and rural markets cutting across the customer and enterprise segments. Although in a nascent stage in India, these services are expected to form a part of the information revolution of the upcoming decade.
m-Education
m-Governance
m-Health
m-Agriculture
Location-based services (LBS)
Machine-toMachine (M2M) applications
Technology and infrastructure are the basic enablers of MVAS. There is a need to work towards creating a collaborative ecosystem comprising all stakeholders regulators, industry players and end users through which the mobile phone can become the preferred platform for promoting socioeconomic development of the country. There is also a need to focus on domestic telecom equipment manufacturing and to invest continuously in R&D to foster innovation. With these prerequisites in place, the digital infrastructure created by the mobile phone can address the various gaps in physical infrastructure and drive inclusive growth.
CHAPTER 1
Growing and Empowered India

A Macro View
The India growth story

Indias economic growth has been a tremendous growth story. Driven by the domestic reform measures adopted in the 1980s and the 1990s, India has been on an upward economic growth path for the last three decades. However, a marked acceleration in growth was only witnessed from 2003-04 onward. During the five years preceding the global financial crisis in 2008, Indias economy grew at an annual average growth rate of 8.9 percent1 to become the second-fastest growing economy in the world after China. It is currently the fourth-largest economy in the world by Purchasing Power Parity (PPP), after the US, China and Japan.2 Indias capacity for strong economic growth and resilience was best showcased during the global financial meltdown in 2008-09, when growth plunged to 6.8 percent, only to return to the pre-crisis growth levels within a year. The Indian economy posted a growth of 8 percent and 8.5 percent in the subsequent two years, respectively. Furthermore, in the current fiscal, growth is expected to remain within the range of 8 percent to 8.5 percent, despite inflationary concerns.3
Average decadal growth of GDP (%)
GDP annual growth (%) (2001-12F)
Recessionary plunge
Quick return
Source: CSO, KPMG Analysis
1 CSO, Summary of macro economic aggregates at current prices, 1950-51 to 2008-09; KPMG Analysis 2 CIA, World Fact Book, 2010 3 CSO, National Accounts Statistics, Press Releases, May 2011
Key growth drivers

Indias growth story has largely been driven by domestic demand and investment. The gradual but steady liberalisation of government policies since 1991 has created conditions for a sustained investment boom, a buoyant international economic environment and a rapidly expanding services sector. Along with the usual demand side and supply side drivers, India also owes this growth to a certain set of sector-specific drivers, as some sectors, such as the telecom and IT sectors, have distinctly contributed significantly to the countrys growth.
Demand-side drivers
On the demand side, increasing investment has been the principal driver of growth since 2003-04. The contribution of investment to GDP growth was 33.6 percent during 1998-99 to 2002-03 and increased to a remarkably high level of 58 percent during 2003-04 to 2007-08.4 Accordingly, the investment rate (investment-to-GDP ratio) increased from 27 percent in 2003-04 to around .6 36 percent in 2010-11.5 Such strong fundamentals have resulted in growing cross-border interest in
the country, leading to a growing momentum in FDI inflow from 2003-04 onward. FDI inflow increased from USD 4 billion in 2003-04 to a whopping USD 38.0 billion in 2009-10.6 Cushioned by the countrys growing capital market and an increasingly growing and prosperous consumer segment, FDI inflow showed strong resilience during the global financial crisis of 2008 and continued to increase. India now ranks second in the list of top FDI destinations in the world and the country is expected to retain its position among the top-five attractive destinations for international investors during 2010-12.7
Components of Indias GDP growth (%)
4 CSO, Summary of macro economic aggregates at current prices, 1950-51 to 2008-09; KPMG Analysis 5 Economic Advisory Council to the Prime Minister , e Economic Outlook 201112, July 2010
6 RBI, Monthly Bulletin, July 2011 7 UNCTAD , World Investment Prospects Survey 2010-2012, September 2010
Rising investment...
Investment as a percentage of GDP (2001-12F) Foregin inflows - USD billion (2001-11)
Source: Economic Advisory Council to the Prime Minister, RBI Monthly Bulletin
In addition to investment, the other important demand-side driver of growth in India has been private consumption. The contribution of private consumption to GDP growth at 45 percent during 2003-04 to 2007-08 was the second highest after investment.8
Supply-side drivers
The surge in savings has been the principal supply-side driver of growth in India. The investment boom in India has been matched by a concurrent upward movement in domestic savings; gross domestic savings increased from 27 percent of GDP in .6 2003-04 to around 34 percent of GDP in 2010-11.9 Currently, India has one of the highest national savings ratios in the world (34 percent compared with 23.6 percent in Japan and 9.8 percent in the US).10 This is expected to increase further as the dependency ratio continues to decline. To illustrate, the dependency ratio in India declined from 0.8 in 1991 to 0.7 in 2001 and is further expected to decline to 0.6 in 2011.11
8 CSO, Summary of macro economic aggregates at current prices, 1950-51 to 2008-09; KPMG Analysis 9 Economic Advisory Council to the Prime Minister , Economic Outlook 2011-12 10 World Bank, World Development Indicators, September 2011 11 Government of India, Economic Survey, 2007-08
Increasing savings...
Savings as a percentage of GDP (2001-12F) Comparison of savings ratio (2011)
Source: Economic Advisory Council to the Prime Minister, RBI Monthly Bulletin
Sector-specific drivers
Unlike other growing Asian economies such as China, Thailand and Malaysia, where growth has been driven by the industrial segment12, growth in India has been largely driven by the services sector. The share of the overall services sector in Indias GDP increased from 44 percent in 1990-91 to 55 percent in 2010-11, making India a primarily servicesled economy from a traditional agriculture-driven economy.13 The telecom sector has been a significant growth catalyst for the Indian economy. The contribution of the telecom sector to the GDP has increased from 0.7 percent in 199091 to 3.6 percent in 2009-10.14 There is a direct correlation between telecom penetration and GDP growth. As per a World Bank study, a 10 percent increase in teledensity increases the GDP growth by 0.06 percentage points.15 Growing importance of the service sector (%) (1980-2011)
12 13 14 15
Edelweiss, India 2020 Report, March 2010 CSO, National Accounts Statistics, May 2011; KPMG Analysis Statistical data, CSO, Accessed in August 2011 World Bank, Unfinished Business: Mobilizing new efforts to achieve the 2015 millennium development goals, September 2010
Contribution of the telecom sector to GDP (1980-2010)
* Latest Available Data
An empowered India
Economic growth has empowered Indians by enabling a better quality of life. India entered the category of lower middle-income countries in 2008 as per the World Bank classification.16 With growing per capita income, Indias burgeoning middle class is taking consumption to levels comparable to that in other emerging and developed economies.
Indians are earning more and spending more

Per capita income (current USD) Percentage of Indian households in different income brackets
Indias increasing per capita income
Source: Edelweiss Note: Per capita income is Gross National Income (GNI) per capita, Elite category (> INR 1000k), Consuming classes (INR 90k-1000k) and Deprived segment (< INR 90k) based on annual income levels as in year 2000
Increase in income levels has also enabled widespread access to services such as telecom and banking, which have multiplied the empowerment effect.
16 Edelweiss, India 2020 Report, March 2010
Telecommunications A key driver of growth

Fuelled by the telecommunications revolution of the 2000s, the growth in the Indian telecom sector has been pivotal in accelerating Indias socio-economic growth. Increased connectivity and access to various innovative information, communication, and entertainment services have given Indians better control over their lives along with increasing business productivity, better governance, effective security systems and improved response to emergencies. India is among the fastest growing telecommunications markets across the world. It is also the second-largest wireless market in the world after China. The overall telecom penetration in India almost touched 75 percent in August 2011 and the market continues to exhibit unabated growth.17 Telecom services, especially wireless services, have led to significant empowerment of the urban Indian population. From ubiquitous voice connectivity to accessing sophisticated applications on high-end smart phones and feature phones, the mobile phone has become an ultimate platform of convenience for these consumers. Owing to the sectors potential in creating empowerment, it has attracted the attention of not only enterprises, but also the government. In line with the inclusive model of development, the Government of India (GoI) is aiming to make mobile empowerment inclusive. Wireline telephony being economically unviable in many parts of rural India due to infrastructure constraints, wireless is being looked upon as the primary means of voice connectivity and Internet access in rural India. By offering timely access to critical market information that enable effective response to market changes and improved provision of basic services such as healthcare, education and banking, the mobile phone is truly becoming an effective empowerment platform in rural India.
A promising outlook
The long-term growth outlook of the Indian economy is positive. For the next few years, the economy is expected to grow at a rapid pace on the back of strong domestic fundamentals. a large worker base, a young population is also expected to play a huge role in driving consumption and investment in the country. The average age in India is currently 25 years and by 2050, 68 percent of its population is expected to be in the working age group (1564 years); this is in contrast to many countries in the developed world and regional competitors such as China.18
High demographic dividend

Demographic dividend is expected to drive Indias growth over the next few years. While catering to the demand for
Working age population as a percentage of total population
Source: UN Population Statistics
A skilled and educated workforce

The large pool of skilled, Englishspeaking and low-cost workforce has positioned India as a preferred manufacturing, production and outsourcing centre in the world. India has the third-largest higher education system in the world after China and the US.19 Recognizing the importance of skills for sustaining the countrys growth momentum, the government is expected to introduce programmes for the provision of vocational training to 500 million workers by 2022.20 A better skilled workforce is expected to boost economic growth through higher employability and productivity.
17 TRAI, Telecom Subscription Data, August 2011 18 United Nations, World Population Prospects 2010, Accessed in August 2011
19 The Hindu, Indias open door to foreign universities, April 2010 20 GoI, Press Information Bureau, June 2011
Improved infrastructure
Increasing infrastructure investment through Public Private Partnerships (PPP) is creating immense growth opportunities by boosting trade and investment and connecting rural India, where close to 70 percent21 of the Indian population resides.
Infrastructure investment (2007-16F)
Source: Planning Commission of India Note: Infrastructure includes electricity, roads and bridges, railways, ports, airports, storage, telecom, irrigation, water supply and sanitation, and oil & gas pipelines
The gradual liberalisation of the infrastructure sector is further expected to boost investment and trade. Relaxed labour laws and the proposed National Manufacturing Policy are also expected to play a significant role in the growth of the nation.
21 Census of India, Provisional Population Totals, Accessed in August 2011
CHAPTER 2
The Global Telecom Market

USD 2 Trillion and Still Growing
Globally, the telecom sector continues to be a key growth sector. Having generated revenues worth USD 2.01 trillion in 2010, it is expected to grow at a moderate pace in 2011.1 Until 2009, the global telecom sector grew across regions, with growth in wireless services offsetting the decline in wireline revenues. However, since 2007 when wireless revenues surpassed wireline , revenues, the sluggish growth in mature markets has started impacting overall industry growth. Telecom service providers shelved investment plans, especially as an aftermath of the recent financial crisis, have severely limited the growth potential in these mature markets. Telecom markets in emerging nations, on the other hand, have retained their growth paths. These markets, not yet saturated, are being driven by increasing telecom penetration and concurrent introduction of new technologies and services.
Growth stemming from data and mobile device sale

Global telecommunications revenues increased 5.5 percent year-on-year (Y-o-Y) in 2010 to reach USD 2.01 trillion1, mainly driven by an increase in revenues from data services and the sale of mobile devices. The revenues are expected to grow at a moderate pace in 2011. Moreover, growth is expected to be fuelled by incremental revenues from emerging markets in Asia-Pacific, the Middle East North Africa (MENA) region, and Latin America.
Global telecom market revenue by segments (2009-2015F)
Source: Gartner
1 Gartner, Market Trends: Global Telecommunications Market, May 2011
Global telecom market - share of segments (2010)
Source: Gartner
Telecom services continue to dominate the global telecom market, with the services to equipment revenue ratio exceeding 3:1 in 2010.2 However, this trend is undergoing a change with increasing investment in telecom
infrastructure, which is expected to increase further. This is reflected in the fact that the contribution of telecom equipment revenues to total telecom revenues grew 100 basis points in 2010.2
Break-out of global telecom services revenue (2010) (Total revenues = USD 2 trillion)
Source: Gartner
2 Gartner, Market Trends: Global Telecommunications Market, May 2011
Mobile subscriber base continues to grow

Over the last decade, the global telecom subscriber base has grown at a CAGR of 12.4 percent.3 The continuing growth in wireless subscriptions has been only partly offset by the continuous decline in wireline subscriptions. However, since the last few years, saturated mature markets have arrested this aggressive growth rate to some extent; the yearover-year (YoY) growth of global wireless subscriptions stood at 11.8 percent in 2010 compared with 13.2 percent and 15.8 percent in 2009 and 2008, respectively.3
Global wireless and wireline subscriptions
Source: Economic Intelligence Unit
Global wireless and wireline penetration (%)
3 Economic Intelligence Unit, Data Tool, Accessed in August 2011
Emerging markets to drive wireless growth, witnessing surge in investments

In developing countries, wireless subscriptions, often the only means of connectivity due to low wireline penetration, have witnessed strong uptake. In India and China, for instance, monthly net additions have been around 16-18 million and 8-10 million subscribers, respectively over the last year ending March 2011, with the two nations accounting for around 60 percent of the total subscriber base in the Asia-Pacific.4 As per Ovum, BRIC (Brazil, Russia, India and China) nations would account for 40.6 percent5 of the global mobile subscriptions in 2015. This growth is expected to be driven by continued competitive pressure on handset prices and tariffs that have made wireless services affordable for mass adoption. While the global recessionary environment in 2008-09 negatively impacted capital spending in developed nations, telecom investments in emerging markets such as India and China continued nearly unabated. Driven by the assurance of significant untapped demand, telecom service providers in these markets have been committing huge investments on expanding network coverage and launching new technology. Moreover, structural subsidies in China and India, and government expenditures have created a favourable investment environment for telecom service providers and equipment manufacturers.
Telecom investment in key markets (2007-10)
4 BuddeComm, Asia - Telecom Forecasts, April 2011 5 Ovum, Mobile Connections Forecast: 201116, July 2011
Focus on mobile data services to sustain growth

Declining ARPU and rising costs are putting pressure on telecom service providers margins across the world. With voice becoming highly commoditised in most markets, both developed and emerging, it is evident that future growth in ARPU will come from increased uptake in data services, or Mobile Value Added Services (MVAS). The strong uptake of smartphones has led to an increase in the demand for applications, and thereby higher adoption of data plans in developed markets. Even in developing markets, data services such as P2P SMS and Caller Ring Back Tones (CBRT) have generated substantial revenues. Globally, in 2010, mobile data accounted for 16 percent6 of the total telecom services revenue. It is expected that revenues from mobile data will continue to grow strongly, driven by a rise in sales of tablets and other related consumer electronic devices. Service providers are focusing on new MVAS offerings to drive ARPU. In developed markets, high-end services, such as video calling, high-speed mobile Internet, mobile gaming, mobile TV, Global Positioning System (GPS), mobile money, etc. are gaining popularity. In developing countries, on the other hand, more utilitarian services such as mobile banking, mobile healthcare, mobile education, etc. are being developed and deployed. Globally, mobile data revenues are expected to account for 29.3 percent of total revenues in 2015.6
Global wireless ARPU comparison (2010)
Source: Economic Intelligence Unit database, KPMG Analysis
Mobile payments a killer application in developing markets

Mobile payment services, particularly mobile banking, are emerging to be the perfect solution to address the banking needs of the worlds large unbanked population base. Gartner projects the number of mobile payment users globally to surpass 141.1 million in 2011 and mobile payments volume to cross USD 86 billion, a growth of 75.9 percent over 2010 (USD 48.9 billion).7 The growth in transaction volumes is expected to be driven mostly by money transfers and prepaid topups in developing markets. That said, service providers in these markets have not quite adopted global success models from countries such as Kenya and the Philippines, on the belief that these models may not be suitable for their markets. As per KPMGs Mobile Payments Outlook 2011, business leaders globally view security as the main challenge in developing and deploying mobile payments strategies.
6 Gartner, Market Trends: Global Telecommunications Market, May 2011 7 Gartner, Worldwide Mobile Payment Users to Reach 141 Million in 2011, July 2011
Broadband for all

Although the number of Internet users globally has doubled since 2005,8 only about 30 percent9 of the world population is currently connected to the Internet owing to a very low level of home Internet penetration in developing nations. To overcome this bottleneck, governments are investing heavily in public Internet access. With the International Telecommunications Union (ITU) proposing broadband access to 50 percent of the worlds population by 20158, the focus is also on promoting high-speed wireless broadband access and the development of content and applications in local languages. The introduction of 3G and other more advanced wireless standards such as LTE and WiMax is expected to facilitate wireless broadband access across the world.
Globally, broadband subscriptions grew at a CAGR of 31.2 percent to reach 1.4 billion primarily driven by a strong rise in mobile broadband subscriptions.8 Global Internet and broadband subscribers Global fixed and mobile broadband subscriptions
Source: International Telecommunication Union Note: Broadband users comprise fixed and mobile broadband users
Source: International Telecommunication Union
8 International Telecommunication Union, Key Global Telecom Indicators, Accessed in August 2011 9 US Census Bureau , International Data Base: Total Midyear Population for the World: 1950-2050, Accessed in August 2011
CHAPTER 3
The Indian Telecom Market

On the Cusp of an Information Revolution
The Indian telecom market has witnessed tremendous growth over the past decade. It has been one of the fastest growing telecom markets in the world. In 2010, India accounted for about 14.9 percent of the global wireless subscriber base1. With increasing focus on MVAS and network rollouts in the untapped rural and semi-rural areas, the Indian telecom market is braced for significant future growth.
Subscriber base - A global comparison

In the past year, with 27 percent .4 Y-o-Y growth in total subscriber base2 (both wireless and wireline), the Indian telecom market again surpassed other emerging telecom markets. Various favourable initiatives from the government, such as the introduction of Mobile Number Portability (MNP) and 3G, have contributed to this growth. With low penetration levels, especially in the rural areas, the Indian telecom market presents significant opportunities of growth. However, a continuous decline in tariffs and minutes of usage (MoU) per subscriber pose a strong challenge to market growth.
Growth in total subscriber base in India and other key markets (2006-10)
Source: Economic Intelligence Unit, TRAI
1 EIU, Telecom data, Accessed in August 2011
2 TRAI, Telecom Subscription Data, August 2010 and 2011
Break-out of global mobile subscriber base by key countries (2010)
Increasing telecom penetration

The total telecom (wireline and wireless) penetration in India reached 74.9 percent in August 2011, surging 15.3 percentage points Y-o-Y.3 While wireless services have penetrated well into the urban regions (157 .8 percent penetration in August 2011), wireless telephony is still out of reach for a majority of the rural population (35.2 percent in August 2011).4 The penetration of wireline services in the country is even lower at 7 and .1 1 percent in urban and rural areas, respectively as of August 2011.4
India - telecom subscriber base and penetration
3 TRAI, Telecom Subscription Data, August 2010 and 2011 4 TRAI, Telecom Subscription Data, August 2011
Wireless services driving growth

The wireless services market in India is one of the largest wireless markets in the world, with 865.7 million subscribers as of August 2011.5 India - wireless subscriber base and penetration
Source: TRAI
However, despite a strong growth in the subscriber base (29.1 percent Y-o-Y in August 20115), the market is characterised by very low ARPU levels accompanied by significant churn. The wireless services market in India, catered to by 15 service providers, is highly competitive. This has led to pricing pressures, which have, in turn, pushed down wireless tariffs and hence ARPU levels (record low ARPU of
INR 98 and INR 64 per month for GSM and CDMA subscribers, respectively, in June 2011).6 The 22 telecom circles in India (18 telecom circle service areas and 4 metro service areas) are classified under 4 categories Metros, Category A, Category B and Category C on the basis of revenues derived from each circle. Metros, with only 4 percent of the total population base, have about
12 percent of the total subscriber base, implying a high penetration level. Circle A follows in penetration, with 32 percent of the population base and 35 percent of the wireless subscriber base. Circles B and C, with 45 percent and 19 percent population base, respectively, account for a mere 39 percent and 14 percent of the wireless subscriber base, respectively.5
5 TRAI, Telecom Subscription Data, August 2011 6 TRAI, Telecom Performance Indicator Report, June 2011
Circle-wise break-out of wireless subscribers (August 2011)
Source: HSBC Global Research and KPMG Analysis
The urban market, with a penetration of 157 percent7 in August 2011 is .8 nearing saturation. During the same period, net additions in urban India increased only 0.8 percent as against 0.9 percent in rural areas.7 It is clear that future growth lies in circles B and C. The entire telecom ecosystem, including service providers, network equipment
players and passive infrastructure players, is focusing on developing low-cost delivery solutions (reduced telecom network rollout costs and other key operating costs such as energy charges), which would create a business case for serving the sizeable untapped non-urban opportunity.
The shrinking wireline segment

The Indian wireline services sector too is competitive, with the presence of seven service providers, including the state-run incumbents BSNL and MTNL. The sector has been losing subscribers over the last few years, mainly due
7 TRAI, Telecom Subscription Data, August 2011
to the fact that wireless services are expanding in coverage and becoming increasingly more affordable for the masses. As per TRAI, wireline service providers lost 0.1 million subscribers in August 2011.7
India - wireline subscriber base and penetration
Source: TRAI
While wireline has been largely substituted by wireless in most urban areas, in rural areas, where wireless penetration is still quite low, wireline plays an important role in the form of Village Public Telephones (VPTs). The
number of VPTs increased from 581,000 in December 2010, to 583,000 in June 2011, connecting 98.1 per cent of the inhabited villages in the country.8 While the number of VPTs have been increasing over the past few years, the
number of Public Call Offices (PCO) has continuously declined since 2008. The total number of PCOs plunged 29.8 percent Y-o-Y to 2.83 million, mainly due to the increasing penetration of wireless connections.8
Village Public Telephones and Public Call Offices
Source: TRAI
There could be two reasons that enabled VPTs to weather the wireless challenge better than PCOs: The call charges made from a VPT are less than those from a PCO The commission payable to the operative custodian of a VPT is higher
than that payable to a PCO operator custodian Going forward, easier and more affordable offerings on the Broadband Wireless Access (BWA) spectrum, both in urban and rural areas, can further impact wireline penetration. Future growth in wireline services can only be
generated through the delivery of highspeed fixed broadband access at low costs. Also of prime importance will be value added services such as bundled triple play offers, IPTV services, and localised/community-based services.
8 TRAI, Telecom Performance Indicators Report, June 2011
Broadband and Internet opportunities

The Internet subscriber base in India has grown significantly over the last few years (11.11 million Internet subscribers have been added between June 2007 and June 2011 at a CAGR of 21.9 percent).9 This growth was fuelled by a continuous fall in the prices of personal computers and Internet tariffs. Furthermore, the growth in the number of public Internet cafes has also contributed to increased Internet usage in the country. Although Internet use is increasing, the ratio of broadband subscribers to the Internet and broadband subscribers in India total number of Internet users is still very low. Broadband access is a key focus area for the GoI and as a result of various government initiatives, the total number of broadband subscriptions grew significantly (25.9 percent Y-o-Y) to reach 12.7 million in August 2011.10 The broadband penetration is expected to get another boost through an increase in the uptake of 3G services and the auction of the 4G spectrum in 700 MHz frequency bands.
Source: TRAI *Broadband in India is defined as a connection with speed of more than 256 kbps
9 TRAI, Telecom Performance Indicators Reports, June 2007 and 2011 10 TRAI, Telecom Subscription Data, August 2010 and 2011
The Indian Internet market is dominated by four big players, which together accounted for 88.3 percent11 of the total subscriber base in June 2011.
Among the different Internet access technologies offered by service providers, Digital Subscriber Line (DSL) is the key one, accounting for 52.3 percent of the total Internet subscriptions and 85.7 percent of the total broadband subscriptions as of June 2011.11
Share of alternative Internet access technologies - June 2011
Internet market share by operators - June 2011
Source: TRAI
Source: TRAI
The Internet subscriber base in India has grown significantly over the last two to three years due to increasing user comfort with Internet applications. However, despite a strong growth in the subscriber base, penetration levels still remain very low at 1 percent as of March 2011. The government realises the importance of Internet connectivity for furthering the national growth agenda and aims at addressing the issue of low penetration and coverage across the country. The 3G and BWA auctions that took place last year are expected to act as catalysts for enabling Internet access to even the remotest parts of India. With net broadband additions at 0.1 to 0.2 million per month and broadband penetration at just 0.7 percent, the broadband market provides huge potential for growth.12
11 TRAI, Telecom Performance Indicators Report, June 2011 12 TRAI, Consultation Paper on National Broadband Plan, June 2010
New frontiers of growth

Rural telephony
The Indian telecom growth story has so far been primarily fuelled by urban demand. However, the overall penetration of 36.2 percent as of August 2011 in rural areas presents a huge growth potential.13 In 2003, the Department of Telecommunications (DoT) in India initiated the Universal Service Obligation Fund (USOF) to promote the development of rural telecom infrastructure for fostering rural connectivity. The fund provides subsidies to private players who establish telecom infrastructure in rural areas. The USOF has already allocated funds worth INR 103.71 billion towards various activities, of which INR 24 billion were allocated in the year 2010-11.14 To ensure broadband coverage, the Government has approved a scheme for creation of a National Optical Fibre Network (NOFN) in October 2011, for providing broadband connectivity to village panchayats. The objective is to extend the existing optical fibre network which is available to the districts/ block Head-Quarters level to the Gram Panchayat level initially by utilising the USOF The cost of the initial phase of . the NOFN scheme is estimated to be about INR 200 billion. A similar amount of investment is also envisaged by the private sector to complement the NOFN infrastructure while providing services to the individual users. In October 2011, the Indian government launched its low-cost tablet, Akash for a subsidised price of USD 35.15 Fast networks, coupled with affordable devices will finally bring high speed broadband within the reach of Indias vast rural population. According to the draft National Telecom Policy 2011 (NTP 2011), the Government intends to provide high speed and high quality broadband access to all village panchayats through optical fibre -in next two years. Along with broadband access, the Government is also considering making computers and peripherals more affordable to every Gram Panchayat.16 Emphasis has also been given to increasing the rural teledensidty. Along with the Governments efforts, the private sector too is targeting growth at the bottom of the pyramid. Along with focussing on low cost delivery, operators are targeting utilitarian wireless data services that rural subscribers will actually find very useful. The proposed launch of BWA in 2012, especially WiMax, will further boost access to low cost voice and data in Indian villages (WiMax is considered by many as the ideal BWA standard for rural India as WiMAX base stations are particularly cost-effective).
Data services
Globally, data services are being banked upon to compensate for sluggish voice revenues. India is no exception to this trend. After two decades of strong growth in voice services, data services will be the next trigger for growth in the Indian telecom market for both the wireline and the wireless segment. In the wireline segment, high speed access will positively impact data usage. In advanced markets such as the US, services providers have had to cap wireline data usage after moving their wireline broadband subscribers to their fibre networks. If India can match up these services in terms of quality of service and pricing, the market will see similar traction in data consumption. In the wireless segment, mobile Internet access holds the key to growth. India is second only to the US for Internet browsing on mobile phones (by the number of web page views using handsets ). The introduction of 3G will further boost the use of mobile broadband, mobile data as well as applications. According to estimates by telecom research firm Analysys Mason, India will have 17 million 3G dongle users in 2014 from a mere 0.1 million in 2009. Mobile data users will total 77 million in 2014, from 0.4 million in 2009. This represents significant potential for service providers, equipment manufacturers and content providers alike.
13 14 15 16
TRAI, Telecom Subscription Data, August 2011 DoT, Status of Disbursements made and availability of Funds, Accessed in August 2011 Economic Times, India debuts worlds cheapest tablet computer at $35 tomorrow, October 2011 Ministry of Communications and Information Technology, Draft National Telecom Policy 2011, October 2011
CHAPTER 4
Wireless Communication
The Key to Connecting India
Evolution of the Indian wireless industry over a decade

The telecom sector in India has undergone many changes in the last decade relating to regulation, industry structure, call tariffs, innovative services and other new areas of growth. As a result, wireless penetration has increased from a mere 2 percent in 2000 to reach about 72.1 percent in August 2011.1 Wireless subscribers have been a major contributor to this growth, crossing 865.7 million1 in August 2011 from 3 million2 in 2000. The fast pace of growth over the period has changed the mobile handset from a luxury device to a musthave communication tool. The success of the wireless technology is reflected in the fact that wireless subscribers now account for 96.2 percent of the total telecom subscriber base (as of August 2011).3
Wireless subscribers vis-a-vis wirelines subscribers - growth over a decade
Source: Economic Intelligence Unit, TRAI
* Till August 2011
1 TRAI, Telecom Subscription Data, August 2011 2 Planning Commission, Telecom Sector in India: Vision 2020, Accessed in April 2011 3 TRAI, Telecom Subscription Data, August 2011
Wireless revenues constituted more than 85 percent of the total telecom services revenues as of December 2010.4 Wireless revenues vis-a-vis wireline revenues - growth over a decade
Along with a fast growing economy, new technology and healthy competition, the growth of supporting industries such as equipment and infrastructure has also helped in the growth of wireless services in India.
The current state of the Indian wireless telecom market

The Indian wireless sector is witnessing an interesting phase, with wireless penetration over 72.1 percent.5 The industry expects tough challenges in the next few years, especially in the urban segment. The presence of 15 players in the market has brought down tariffs to figure among the lowest tariffs globally. The dominance of pre-paid subscriptions (over 97 percent of the total wireless subscriber base as of June 2011) further contributes to low ARPU.6
Prepaid versus postpaid subscribers (June 2011)
Source: TRAI
4 Economic Intelligence Unit, Data Tool, Accessed in August 2011 5 TRAI, Telecom Subscription Data, August 2011 6 TRAI, Telecom Performance Indicators Report, June 2011
India has traditionally been a technologyagnostic country, with the co-existence of both GSM and CDMA services. Owing to their first mover advantage, GSM players have been able to capture over 86.6 percent7 share of the wireless market as of June 2011. As for CDMA, despite a relatively delayed start, the subscriber base grew strongly until 2009. However after 2009, the share of CDMA subscribers has declined by 6.3
percentage points from 19.7 percent in December 2009 to reach 13.4 percent in June 20118 due to the cannibalization of CDMA subscriber base by launch of GSM services by major CDMA players.8 The decline in CDMA subscriptions can also be attributed to handset-related issues, such as limited choice, lower battery life, costlier handsets and the absence of the USSD code.
Wireless subscriptions by technology (GSM and CDMA)
Source: TRAI
Increasing competition and the governments progressive policies have led to a decrease in tariffs, which has resulted in higher penetration rate but lower ARPU. The ARPU per month for access services declined 22.5 percent Y-o-Y in June 2011.9 However, the decreasing ARPU has been offset by the continuous increase in subscriber
base, resulting in stable but slow growth in revenues in the last few years. Decreasing margins due to low tariffs have compelled service providers to launch innovative schemes, such as pay per second, payment for incoming calls, lifetime prepaid and low-cost handset bundling, to increase ARPU.
7 TRAI, Telecom Subscription Data, June 2011 8 TRAI, Telecom Performance Indicators Report, December 2009 and June 2011 9 TRAI, Telecom Performance Indicators Report, June 2011
Adjusted gross revenue
Wireless ARPU (blended)
Source: TRAI
Source: TRAI, KPMG analysis
Trends and opportunities in the wireless segment

The last few years have witnessed a number of much-awaited, consumerfriendly developments in the Indian wireless market. Pan-India mobile number portability (MNP), launched in January 2011, allowed subscribes to switch between service providers while retaining their mobile numbers. The draft National Telecom Policy-2011 (NTP 2011) aims for nation-wide MNP and this will further benefit subscribers.10 The launch of 3G has given subscribers a taste of high-speed Internet access from their mobile handsets. A large number of innovative applications have literally brought the world at the subscribers fingertips. With the proposed launch of BWA next year, the wireless data experience is set to further improve. The draft NTP 2011 has advocated the abolition of roaming charges. This will imply significant cost savings, especially for business users. Given these significant developments, the opportunities of developing innovative services and business models have become more pronounced than ever. Some of the trends and opportunities expected to drive the wireless market in India are as follows: a host of new services and solutions customised for the rural market.
Handset innovations boosting local manufacturing

The emergence of various domestic handset manufacturers in competition to international players has encouraged players to innovate constantly on handset technologies. Smartphone shipments in India are estimated to grow by a whopping 70 percent Y-o-Y until 201511. The latest innovation in the handheld market, tablets, has already caught on in urban markets. Rural markets too have not been deprived of the tablet experience thanks to the Governments efforts at launching an ultra low-cost tablet model specifically designed for the rural population. As rural markets get more connected, the need for good quality, yet affordable handsets will boost the domestic handset industry.
The rural opportunity will drive growth

The draft NTP 2011 aims to increase rural teledensity from the current level of around 35 percent to 60 percent by the year 2017 and 100 percent by the year 2020. For the wireless segment, BWA technologies to be launched in 2012 will create additional voice as well as data opportunities.10 The Governments intention to minimize the cost per site in rural areas will mean affordable services for rural subscribers. For service and equipment providers, this means an opportunity to launch
10 Ministry of Communications and Information Technology, Draft National Telecom Policy 2011, October 2011 11 Bloomberg News, Apple Cedes Surging India Smartphone Market to Nokia-RIM, October 2011
Value-added services to drive growth

Non-voice, value added services, will drive future growth in the Indian wireless market. The launch of 3G services by telecom players is expected to increase the demand for data services, especially in urban regions. While MVAS in urban areas will revolve around high-end applications enabling better information, entertainment and communication (for example instant messaging, social networking, high quality gaming, video sharing, streaming music, enterprise applications, etc.), in rural areas, empowerment of subscribers will come through basic, but more utilitarian services such as m-healthcare, m-governance, m-banking, m-education, etc.
With mobile advertising becoming an integral part of VAS, the ecosystem has expanded to include advertising agencies and marketers.
MVAS market size and growth

The MVAS growth story is as impressive as that of the overall telecom sector. SMS has been the most popular form of MVAS, because along with being a popular peer-to-peer MVAS service, it is also a popular access mode for other MVAS (content pushed to subscribers through SMS). The MVAS market is expected to grow from INR 122 billion in 2010 to INR 482 billion by 201512, driven by the increase in the uptake of highend entertainment and communication services in urban areas and the increasing adoption of various utilitydriven data services and applications in rural areas.
The non-SMS VAS market in India continues to be dominated by music ringtones (RT) and CRBT. Together, RT and CRBT continue to account for over 30 percent of non-SMS VAS.13 According to various industry estimates, SMS and CRBT will continue to remain the heaviest contributors to Indian VAS revenues in the next five years. Among other VAS, mobile Internet (both through handsets as well as dongles) will rapidly gain traction, driven by more affordable access to faster networks.
The MVAS ecosystem

The MVAS ecosystem is a complex one involving a wide variety of stake-holders, often with overlapping roles. The following are the broad stake-holder groups in this ecosystem: Content providers: content owners and aggregators Technology enablers: platform providers and application service providers Content delivery bodies: carriers and handset vendors Content consumers: subscribers MVAS can be delivered either on-deck or through the off-deck mode. In the on-deck mode, VAS providers supply content, platforms and solutions to carriers through contractual agreements. These agreements are not governed by any policy framework. In the off-deck model, VAS providers deliver content directly to subscribers. However, carriers still often serve as the billing interface.
MVAS market size (2009-15F)
Source: TRAI
11 TRAI, Consultation Paper On Mobile Value Added Services, July 2011 12 IAMAI, Mobile VAS in India, July 2011
The growing size of the VAS market is reflected in the increasing share of data revenues as percentage of total revenues up 5.3 percentage points in a little less than two and half years.13 Data revenues as a percentage of total revenues
Source: Macquarie Research
MVAS consumption trends the rural urban divide

Although VAS usage is growing across the country, the usage patterns are different in rural and urban India. In the urban regions, subscribers needs are very different from the needs of rural users. Urban subscribers both need and want business mobility (access to corporate e-mail and other business applications on their mobile phones) and high-end entertainment services such as access to social networking sites, video sharing sites, rich media games, etc. Rural subscribers, on the other hand, need access to basic infrastructure services such as education, healthcare, banking, agricultural support, etc. through their mobile phones. VAS meeting different needs in urban and rural areas
Source: KPMG analysis

13 Macquarie Research, India telecom sector: Mobile data the silver lining, May 2011
MVAS growth drivers

Increase in penetration and
Introduction of 3G: Since its launch,
- Disproportionate revenue sharing:
spending power: The use of the mobile phone is fast becoming widespread. Along with this, with increase in disposable income, consumers especially urban consumers have developed an appetite for mobile data services that bring value.
Advancement in handset/devices:
The share of GPRS-enabled handsets in the total handset base increased from 51 percent to 65 percent between 2009 and 2010.14 A recent study by Nielsen found that Indias growing population of smartphone users are spending more time on entertainment and Internetbased content than on calling and messaging.15 For the rural market, handset manufacturers have started designing handsets which not only have all the basic features, but also additional, customised features such as insect repellent capabilities.
Innovative data offerings,
3G services have been adopted by more than 9 million Indian mobile subscribers as of May 2011.18 The launch of 3G services has allowed customers to access data services at a faster rate and reasonable price. Subsequently, their data usage has increased. Nielsen estimates data usage for 3G users in India to be close to 44 percent more than that of 2G users.19
In the existing revenue sharing arrangement, the network provider claims the majority share of VAS revenue (over 60 percent).
- Lack of policy framework: Since
Challenges in the MVAS market

The MVAS market in India is full of possibilities. However, the market has been facing several challenges, which need to be addressed to unlock its true growth potential.
Lack of compelling applications
the contractual arrangement between the operator and content owner/aggregator in the on-deck model is not governed by a policy framework, there is no formal dispute resolution authority in case of conflicts over Management Information System (MIS).
- Innovation disincentive: Content
particularly applications: Traditionally, Indian subscribers have shown their affinity for SMS and various forms of mobile music. Mobile applications are considered to be a big driving force in VAS consumption. A recent research by Nokia along with Professor Trevor Pinch of Cornell University revealed that 77 percent of people in India have up to 30 applications on their smartphones. Social networking, music, business functions (e-mail, expense management), utilities and games are the most popular categories of applications downloaded and used.16 Analyst firm Ovum predicts that mobile application download in the Asia Pacific region will hit 5 billion by the end of year 2011 compared to just 1.6 billion in 2010, and India will account for a sizeable share of this incremental growth.17
and localised content: The incipient mobile application boom in India is largely limited to the urban areas. Soon, to be able to sustain growth, the application market will need to transcend into semi-urban and rural areas too. Currently, the number of compelling applications applications that go beyond music, business or social media to offer real utility to subscribers is limited. For instance, the mobile banking service m-PESA in Kenya was instrumental in offering banking services to the countrys substantial unbanked population. The VAS industry in India needs to come up with such applications to gather mass appeal. A related constraint is the lack of availability of localised content and content in vernacular languages.
Structural inefficiencies in the
developers and VAS providers are often forced to invest in only those services and applications which are popular and guarantee immediate returns to network operators. This thwarts the innovation potential. Limited penetration of alternate billing mechanisms such as mobile wallets and credit cards has kept the network operators control at a fairly high level even in the off-deck model. VAS providers in this model are hampered by the loss of control on pricing of their products and also their revenue shares. These bottlenecks in the VAS market have prevented international VAS players from entering it, therefore further limiting expansion and growth.
Lack of consumer awareness:
ecosystem: The complex VAS ecosystem in India is characterised by several structural inefficiencies that are hampering growth.20 In the on-deck model, some of these are:
Indian subscribers awareness about the various VAS offerings available on the market is limited. Traditionally, the main service touch points for subscribers, the network operators, have been promoting VAS through SMS marketing campaigns. However, for a long time, VAS never assumed as great importance in operators marketing communication as other service parameters such as network coverage and tariff plans.
14 IAMAI, Mobile VAS in India, July 2011 15 Nielsen, Trends & Insights, September 2011 16 Business Standard, Nokias Global Study reveals Indians prefer Businessfocused apps, February 2011
17 ZDnet, APAC mobile app downloads to hit 5B in 2011, September 2011 18 Telecom Talk, India Adds 9.5 Million GSM Subscribers in May Airtel Leads, June 2011 19 Nielsen, Data usage for 3G users close to 44% more than 2G users, September 2011 20 TRAI, Consultation paper on Mobile Value Added Services, July 2011
Mobile broadband and broadband wireless access to drive growth

The draft NTP 2011 targets achieving 175 million broadband users by 2017 and 600 million by 2020.21 The high cost of setting up wireline broadband infrastructure has acted as a significant impediment to the widespread broadband adoption in India. This is especially true in the rural areas, where lack of availability of basic infrastructure such as power has prevented investment and restricted growth in wireline broadband access. As of August 2011, the wireline broadband subscriber base in the country stood at approximately 12.7 million a penetration of only 1 percent.22
Mobile broadband (through 3G) and wireless broadband access (through 4G standards LTE and WiMax) are being considered as the solution to the poor broadband coverage in the country. While mobile and wireless broadband will supplement wireline broadband in urban India, in many semiurban and rural areas, these technologies, primarily BWA, are being considered to be a substitute for wireline broadband. Indias BWA landscape, likely to be dominated by LTE, will offer subscribers a speed of around 10 Mbps (theoretical speed of BWA technologies is around 100 Mbps). This high speed data access will be instrumental in meeting rural Indias need for basic infrastructure.
21 Ministry of Communications and Information Technology, Draft National Telecom Policy 2011, October 2011 22 TRAI, Telecom Subscription Data, August 2011
CHAPTER 5
m-Powering India
Inclusive Growth through the Mobile Phone
The Indian government and industry players understand the importance of social and economic inclusion and are working toward creating platforms and mechanisms for inclusive growth. The high penetration of wireless technology, both in terms of area covered and technology adoption, has made the mobile phone an obvious choice for promoting inclusive growth and development. The MVAS ecosystem is playing an instrumental role in bringing about empowerment in all strata of society by offering convenient services that address the need-want balance of different subscriber segments. Information services
The current adoption of MVAS in urban India is hindered because of the lack of relevant content and limited functionalities of traditional mobile devices. However, the situation is transforming at a rapid pace, with an increase in the demand for services, such as news, live traffic and weather updates. Other MVAS offerings to urban subscribers are related to m-commerce, more specifically to services, such as updates on bank balances, transaction alerts, mobile ticketing and order/package tracking. The revolution in information MVAS is giving urban consumers access to information in a myriad of ways not possible earlier, thereby empowering them to take more informed decisions regardless of their location.
Urban m-powerment personalized information, communication and entertainment on the go

The Indian urban population, unlike the rural segment, has access to multiple sources of information, communication and entertainment. These include television, newspapers and magazines, theatres, wireline broadband services, etc. However, due to the additional elements of personalization and mobility, accessing information, communication and entertainment through mobile devices has the power to empower like no other source or medium. Beginning with simple peer-to-peer SMS an easy-to-use, affordable and non-intrusive communication medium SMS services grew to become a medium to deliver other digital content, such as alerts, horoscopes ringtones, advertisements, etc. More advanced communication VAS, such as video calls and push email on handsets further empower subscribers by giving them more control over their communication needs. Similarly, the use of social networking and mobile instant messaging applications brings in more variety and flexibility in communication. Enterprise users find mobile access to enterprise applications significantly contributing to their worklife balance. Along with communication services, information services such as applications from leading newspapers and magazines, stock market alerts, cricket score alerts, and various network messages alerting the subscriber on data usage, bill details, etc. add a muchneeded element of convenience in busy urban lifestyles.
Entertainment, whenever wherever

Music, wallpapers and ringtones constitute the majority of uptake in entertainment MVAS in urban India. When using these services, subscribers like to enjoy the high degree of personalization that they offer. The freedom to view and consume content of their choice at a time when they choose to also confers an element of empowerment.
Information and communication beyond P2P SMS

Other than voice calls, the oldest form of communication through the mobile phone, SMS, has been the most popular communication service in urban India.
Rural m-powerment the confluence of consumer needs and business opportunities

With 70 percent of Indias population1 accounting for almost 50 percent of the nations GDP2, empowering the rural population is high on the nations agenda. Rural India is still largely characterised by infrastructure gaps, addressing which will involve time as well as significant resources. In this backdrop, the growing penetration of mobile phones among the rural populace can be harnessed to address its need for information, financial inclusion and social reforms. The mobile phone, therefore, has rightly been identified as an alternative medium to generate rural empowerment.
Access to information empowering agri-workers

Agriculture continues to be a major contributor to rural GDP with a share , of almost 40 percent.3 Some of the key challenges impacting agricultural productivity are deficits in physical infrastructure, the lack of availability of agricultural input and poor access to agriculture-related information. Therefore, the next revolution in agriculture would necessarily be driven by greater adoption of information and technology infrastructure.4 Mobile phones can play a major role in reducing the information asymmetry by forming an effective link to market information for farmers. Various
international studies on farmers in Senegal, Ghana and Uganda have shown the adoption of mobile telephony to have played an important role in reducing price dispersion, transportation and transaction costs. The Indian farmer is dependent on middle-men who control the supply chain and influence the price. A number of ICT initiatives in agriculture, such as computerisation of agriculture markets, e-Choupal and e-Sagu, have lowered transactional costs for farmers and increased system transparency. Mobile applications can also be developed on these lines to help farmers.
1 2 3 4
Census of India, Overview of Rural population, Accessed in August 2011 FICCI & Nielsen, Challenges before an Integrated India: Bridging The Rural-Urban Divide, 2010 NCAER, Pre- and Post- Reform India: A Revised Look at Employment, Wages, and Inequality, 2009 ICRIER, Socio-Economic impact of mobile phones on Indian agriculture, Sep 2010
Access to financial services empowering unbanked population

Financial inclusion ensures widespread access to reliable systems for credit, savings, remittances, insurance and payments. It promotes financial security, which has a positive socioeconomic impact. Despite a number of policy initiatives by the government, India continues to be characterized by very low levels of financial inclusion. According to the RBI, only 40 percent of the Indian population has a savings account, only about 10 percent has any kind of insurance cover and only 0.6 percent has any kind of non-insurance cover.5 The situation in rural India is much more acute, with almost 60 percent of the rural populace facing financial exclusion.6 The key challenges facing greater financial inclusion in rural areas have been the lack of access to bank facilities and high operational costs. Besides, there is a need to customise products suited to the needs of the rural populace. For instance the rural population prefers to transfer money in small amounts paying minimal transaction costs. Furthermore, considering the unpredictability of agricultural income, the rural population requires greater flexibility in loan repayment and investment schedules. Internationally, mobile data services such as m-PESA have been very successful in bringing banking services at an affordable cost to the unbanked and under-banked population segments. Rural India needs such services which can extend financial inclusion to its residents and empower them with financial security.
A variety of services meeting the need for social and political inclusion
According to the 2010 UNDP report, India was ranked 119 out of 169 countries in terms of successfully implementing social reforms.7 The report underlined Indias poor performance in penetrating social reform, especially in the areas of equality, healthcare and education. m-Health, m-education and m-governance can potentially contribute toward addressing the basic social needs of the rural population.
physically challenged in 2008. Mobile initiatives such as these can open avenues for enhancing awareness and dissemination of education in remote and rural communities.
m-Governance
m-Governance has emerged as a key tool to enhance the quality of government services to citizens and bring in more transparency. Advancement in technologies helps in the reduction of leakages and transaction costs, and improves the efficiency of service delivery. Several e-governance projects, such as the computerisation of land records, the Bhoomi project in Karnataka, eSeva in Andhra Pradesh, and the FRIENDS project in Kerala, have been quite successful. However, the limited penetration of the Internet and computers has impacted their effectiveness, especially in rural areas. m-Governance can complement e-governance by addressing the issue of reach and lead to greater social and financial inclusion Recognising this potential, the Department of Information Technology (DIT) has initiated the formulation of a new policy framework on m-governance. The specific focus of this policy is on expanding access and reach of public services to all residents, especially in rural areas10.
m-Health
India has 0.5 physicians per 1,000 patients, which is much lower than the global average of 1.9 physicians per 1,000 patients.8 This poses a major challenge in healthcare delivery, especially in the rural areas. m-Health can play an important role in improving the delivery of healthcare services to rural and other remote areas in the country. The key applications of m-health are education and awareness, remote data collection, monitoring, disease and epidemic tracking, and diagnostic and treatment support.
m-Education
Education is a key area of concern, with over 30 percent of Indians still unable to read or write. Although 85 percent of schools in India are in rural areas,9 these schools lack adequate facilities and infrastructure. To remediate this issue, the SNDT University collaborated with a leading wireless service provider and launched a mobile education initiative for rural communities and the
5 6 7 8
Governance Now. Financially excluded households put India to shame, June 2011 Basic Statistical Returns (BSR) of Scheduled Commercial Banks, Accessed in August 2011 UNDP Human Development Report2010, Accessed in August 2011 Universal health coverage, Planning Commission, September 2011
9 UNDP Human Development Report - 2010, Accessed in August 2011 , 10 DIT, Draft Consultation Paper on Mobile Governance Policy Framework, 2011
Modes of delivering m-Powerment

VAS content is delivered to subscribers through different delivery platforms based on the type of content. Historically, VAS distribution has been predominantly based on SMS and IVR platforms, and to a lesser extent, on GPRS and WAP portal platforms. With the introduction of 3G services and converged networks by leading service providers, distribution platforms are undergoing significant changes. High bandwidth multimedia content services, such as mobile TV and online gaming, are driving innovation in VAS product offerings, which can also be accessed through the mobile Internet. This trend is expected to continue because of increasing penetration of smartphones and the demand for datarich applications, such as videos and gaming. While browser-based services would account for a larger proportion of the market, voice- and SMS-based applications are likely to continue to dominate. Short Messaging Service (SMS): SMS is a form of text-based VAS offered on mobile phones. The content that can be distributed through SMS commonly includes information SMSes for news updates, cricket scores, monophonic ringtones, etc. IVR: Interactive Voice Response (IVR) is a technology that allows a computer at the service providers end to detect voice and touch tones through a normal phone call. IVR has particularly benefited areas of low literacy rates due to the ease of use and local language support. IVR service is now being used for highend applications, such as m-banking and music on demand. One case in point is an m-education initiative by a leading service provider that allows subscribers to take conversational English language lessons through an IVR application that guides subscribers through audio clips. Wireless Application Protocol (WAP) / General Packet Radio Service (GPRS): WAP and GPRS are used to deliver rich content, such as songs, videos and games, to a subscriber. A GPRS subscription also allows a subscriber to browse the Web, receive and send emails and instant message. For subscribers that are less conversant with personalising handsets, wireless service providers are providing content to subscribers directly through their retail outlets. A number of VAS players have invested heavily in traditional modes (SMS and IVR) of distribution. Given the increasing utilisation of browser-based delivery platforms, innovative services other than music would need to be delivered through these channels to generate monetary benefits. Given the ARPU sustainability that data-rich applications provide to service providers, the focus on GPRS/ WAP and browser-based delivery modes is expected to increase.
Prerequisites to inclusive growth

Several factors will be instrumental in delivering empowerment to rural and urban India through mobile services.
Usability Ease of use to drive mass adoption

One of the main reasons why SMS has been so phenomenally popular all over the world is its simplicity and ease of use. To gain wide acceptance and adoption, mobile data services aimed at empowerment need to be simple to use. Recent research on rural mobile subscribers by Association for Computing Machinery (ACM) confirms that textual interfaces are difficult to use by first-time, low-literacy users, and error-prone for literate, but new users.11 Localised IVR menus and multilingual content can help low-literacy subscribers and first-time users fully utilize the potential of various MVAS. Similarly, pre-loaded content and applications on handsets can enhance comfort levels of users.
Availability The right kind of services to the right segments

Since the rural and urban subscriber segments have very different empowerment needs, it is important for the industry to be cognizant of these differences and design services targeted to specific needs. For instance, urban teenagers do not need to access m-education, but they need to be connected to social networking websites through their handsets. Similarly, a farmer in a remote village will find regular weather alerts much more useful than alerts on cricket scores. Service providers need to ensure that they are capitalising on these diverse needs by carefully customising their offers.
Data tariffs and price of applications: Data tariffs in India have fallen significantly over the last decade, but can be still considered expensive in rural and semi-rural areas. Cheaper, flat-rate data tariffs will encourage data usage. Also, in a market dominated by prepaid subscribers, service providers offering low value recharge vouchers and balance transfer options add to the affordability. Most utility-based applications for the rural market are free to download, but in the future, as the rural MVAS market matures, these applications might become paid and then the price of these applications will also determine usage.
Data (2.5G) plan tariffs
Affordability Services priced by spending power of the masses

The affordability of MVAS depends on the affordability of three related components: Low-cost handsets and tablets: The handsets that are used to access empowering MVAS need to be available at affordable prices. For rural areas, easy financing of handsets is also important. Handset subsidies, such as those offered by handset manufacturers, also add to affordability. With BWA services being available from 2012, affordability of tablets will also play a major role in making empowering MVAS available to rural users.
Source: IAMAI Note: Estimated price for entry level plan with unlimited monthly data usage
11 ACM, Transactions on Computer-Human Interaction (TOCHI) TOCHI - Volume 18 Issue 1, April 2011
CHAPTER 6
m-Banking
The Killer Application for m-Powerment
Over the last decade, banking has evolved from the brick and mortar model to an Internet-based model where individuals can access banking services 24/7 through mobile phones. Combining the mobile and banking sectors has not only empowered customers, but has also generated significant opportunities for both banks and service providers.
About 41 percent of urban India is unbanked. In the rural regions, the proportion of unbanked population is higher at 60 percent.1 Banking touch points are expected to reach just 0.07 per 1,000 people2 by December 2011, still leaving a huge proportion of the population with no access to banking facilities. This high degree of financial exclusion makes the provision of banking services through the mobile phone a huge empowerment opportunity. M-Banking services, in addition to being accessible to the unbanked, also involve low transaction costs. In India, banking transaction cost through the mobile channel is only INR 2 per transaction in contrast to INR 50 through the branch and INR 15 through the ATM channel.3 Thus, the RBI has urged banks to promote m-banking to reduce costs and pass the benefit to customers by lowering lending rates and increasing deposit rates.
Global transaction costs by banking channel
Source: Tower Group, Fiserve, Mcom data Note: Data as of 2009
1 Macquarie Research, India telecom sector: Mobile data the silver lining, May 2011 2 Business Standard, Are you ready for M-banking?, January 2011 3 CRISIL Research, Market potential of m-commerce, August 2011
The concept of m-banking

In the simplest form, m-banking is a medium that provides subscribers 24/7 access to basic banking services through their mobile phones. However, m-banking can also include more complex banking services such as access to demat accounts, loan accounts, funds transfers, investment options, etc. While m-banking involves consumers direct transactions with a bank, the broader concept of m-payments, which allow consumers to make payments for purchases from their mobile phones also include retailers and merchants. In m-banking, banks decide on both the bouquet of services to be offered and the technology platform to be deployed to make them accessible. The most common delivery platform is a Wireless Application Protocol (WAP) site that can be securely viewed on mobile devices. More recently, banks have also started focusing on platform-specific applications that provide dynamic content and greater ease of use.
The concept of m-banking has evolved to include information and transaction-based services: Information services: Information-based services are those which provide the subscriber with various useful alerts and updates concerning his banking account and transactions. These services, which can be either push or pull services, are largely delivered through SMS as security concerns involved are minimal. Push alerts use preset rules to notify a customer of financial transactions; in contrast, pull alerts provide ondemand information to customers. Type of information services through m-banking Push service
Alert for a transaction through debit/credit card Minimum balance alert Bill payment alert
Transaction services: Transaction-based services are delivered over an application platform. The bank account and credit or debit card is linked as a payment instrument and financial transactions can be effected on request. Type of transaction services through m-banking
Bank account
Credit/Debit card
Merchant/Bill payments
Demat account
Buy/Sell transactions and status
Funds transfer
Pull service
Loan repayment Request for transaction history
Source: CRISIL Research
Access to card statements
SIP payments
*Illustrative list
Demat holding status Balance equiry
Alert for fund tranfer
Cheque book request
Source: CRISIL Research
*Illustrative list
Potential in financial inclusion

m-Banking has received wide acceptance among mobile subscribers globally mainly on account of the convenience and ease of use it confers. In countries such as the Philippines and Kenya, concerted efforts from the governments and the industry have created very successful m-banking channels. The replication of such models in India can have a very positive impact on the countrys GDP . m-Banking can be a potent empowering tool for both the rural and urban regions. In the infrastructure-enabled urban regions, accessing banking operations through the mobile phone can add to convenience. In many semi-urban and rural regions, the empowerment potential lies in granting basic banking services to the unbanked population.
Adoption trends in India

Since the time the RBI allowed 40 banks to launch m-banking services, about 50 million subscribers4 have already registered for the services (primarily information-based services). In February 2011, 707 ,496 m-banking transactions worth Rs 616.1 million were reported.5 The RBI estimates that as of May 2011, 6.8 lakh m-banking transactions, worth Rs 610 million, were being settled through this channel every month.6 Also, as of April 2011, the National Payment Corporation of India had issued about 8.5 million Mobile Money Identifiers (MMID - a unique seven-digit account number used in mobile funds transfer operations) and numbers were estimated to be growing at the rate of 10,000 users each day7. The RBI believes that, although the number of m-banking users is substantial in absolute numbers, it is very low vis--vis the number of mobile phone subscribers in the country. Moreover, the uptake of m-banking services for making payments has primarily been restricted to urban households because of low levels of awareness and low literacy rates in rural regions. With the majority of Indias unbanked population residing in rural areas, the potential of m-banking in rural areas is immense. Indian subscribers use of m-banking is currently restricted to low-cost transactions such as checking account balance, viewing transaction details and checking on cheque status. However, security concerns, coupled with low awareness levels, are making them cautious of using mobile platforms for more complex operations such as transferring funds.
m-Banking usage in India (March 2011)
Source: Department of Information Technology *Data based on total of 129.21 million transactions on mobiles
4 5 6 7
CRISIL Research, Market potential of m-commerce, August 2011 MediaNama, Information sourced from Reserve Bank of India (RBI) through RTI Act, April 2011 Business Standard, Mobile banking, cash at point-of-sales services remain dismal, says RBI, May 2011 Times of India, Mobile payment system to gain steam in coming months, May 2011
Regulation and governance

m-Banking in India is governed by guidelines issued from the RBI. The first guidelines for m-banking transactions covering m-banking, money transfer, m-payments and m-commerce were issued in October 2008. Subsequently, in December 2009, the RBI revised these guidelines to bring in more flexibility and therefore, financial inclusion. The three main areas where the central bank relaxed regulatory control on m-banking transactions are:
Transaction limits: Raised the daily
payments from INR 5,000 and INR 10,000, respectively.

Security standards for lower value
Currently, the RBIs guidelines on m-banking cover the following critical areas: Regulatory and supervisory interventions Registration for service Technology and security standards Interoperability Inter-bank clearance and settlement guidelines Customer complaints and grievance redressal Transaction limit
transactions: Allowed banks to undertake transactions up to INR 1,000 without end to end encryption. This, in a way, reduced the transaction cost.
Cash delivery in funds transfer
ceiling to INR 50,000 per customer for both funds transfer and mobile
services: Facilitated transfer of funds from the accounts of m-banking users for delivery in cash to the recipients through agents appointed by the banks as business correspondents.
The m-banking ecosystem

The success of m-banking rests on successful collaboration among all players in the complex ecosystem the regulator, technology enablers, financial institutions, service providers and merchants. Participants in the m-banking (including m-payments) ecosystem
Merchants Handset manufactures
Consumers
The Regulator
Software and technology providers Network operators Financial institutions
Financial institutions: Banks, credit/
debit cards issuers, prepaid card issuers, and mobile wallet issuers are the primary providers of m-banking and m-payments services.
Telecom service providers: Telecom
from a third-party) and/or support the various platforms (e.g. JAVA) and technologies (e.g. Near Field Communication) required to access these applications.
Merchants: Merchants are not
Bank-led model
Under this model, the banks extend their services to customers by partnering with operators and the other stake-holders in the ecosystem. The bank-led model may be implemented by either using correspondent arrangements or through a joint venture between a bank and an operator. The ownership of the customer lies with the bank. Example: First National Bank (South Africa)
service providers offer platforms such as Unstructured Supplementary Service Data (USSD), service provider WAP sites and SIM Application Toolkit (STK) to provide m-banking services. Service providers define the design and are involved in the delivery of services.
Technology enablers: Technology
enablers design and develop applications compatible with handsets and sell those applications as products. They also maintain the applications after deployment and play the role of aggregators.
Handset manufacturers: The role
involved in the ecosystem for m-banking in the strictest form that is accessing the bank through a handset. Their role is, however, very critical in m-payments because they accept payments from the consumers by reading the card at the Point of Sale (PoS) machine. In order to provide a seamless experience to consumers, it is imperative that merchants are empanelled on a single platform.
Regulator: The regulator provides
Operator-led model
In this delivery model, mobile operators form the face of the service, which they deliver by forming alliances with banks and other financial institutions. Operators get the principal proportion of the revenues and banks claim the processing fee. Example: M-PESA (Safaricom, Kenya), A1 Bank (mobilkom, Austria)
the overall regulatory framework and is responsible for governance of and compliance to the framework. Within the ecosystem described above, m-banking services are delivered by the following three alternative models depending on which participant has more operational control, and therefore, more control on revenue sharing: Bank-led Operator-led Third-party led
of handset manufacturers is not that prominent in simple m-banking services that are delivered via SMS and WAP sites. However, when it comes to the use of m-payments services, handset manufacturers need to ensure that their products either come pre-loaded with popular applications (which are either self designed or sourced
Third-party service provider-led model

Third-party service providers tie up with banks and telecom service providers, and provide m-banking and m-payments services through their own applications. Third-party service providers keep the major proportion of the revenues, while financial institutions earn through processing fees. Operators earn through data carriage charges that apply to the download and use of these applications. Examples: Obopay and Paypal Keeping in mind various concerns (such as security) and priorities (financial inclusion), in India, the RBI has expressed preference over the bank-led model. However, irrespective of the underlying business model, in order to fulfil its empowerment potential, m-banking services must address some basic expectations from the various participants in the ecosystem. These are illustrated in the diagram below: Participants in the m-banking (including m-payments) ecosystem
m-banking and payments - expectations of ecosystem participants
Consumers
Network operators
Financial Institution
Network agnostic solutions
Merchants
Ease of use
Faster transaction time Easy integration with existing systems
Security
Increased ARPU Branding opportunity
Low or zero cost
Speedy settlement Interoperability Customer loyality Security Accessibility Lower churn Security Personalization Low or zero cost of adoption
Growth drivers
Increasing mobile penetration:
The increasing mobile penetration in the country is making the mobile phone nearly ubiquitous. With the governments emphasis on the rural telecom sector, even rural India is increasingly getting connected through the mobile phone. This bodes well for the uptake of all utilitarian VAS, including m-banking.
Increasing spending power in rural
firm GfK Nielsen revealed that 7 percent of all mobile phones sold in the rural areas were touch screen handsets as against 10 percent in urban areas.10
Unbanked population in India:
About 72.111 Indians have access to mobiles, while only 40 percent12 have access to bank facilities. This gap provides a huge opportunity for m-banking.
Favourable age structure: India is
population at 28 percent of the global working population13. Consumers belonging to this age group have high inclination toward real-time, self-service transactions such as accessing their banking accounts through their mobile handsets.
Encouraging regulatory
India: Rural Indias purchasing power is on the rise and telecom is one of the sectors which rural Indians are choosing to spend their additional income on. A 2011 study by research
expected to add 120 million people to its working-age group during 201020, taking the countrys working
environment: The RBI has been encouraging the uptake of m-banking by progressively simplifying the regulatory environment. This is encouraging banks and telecom operators to increasingly offer m-banking services to their subscribers.
Challenges and impediments

Gap in awareness and usage:
Various studies have pointed toward the gap between consumer awareness and the use of m-banking, and have stressed on bridging this gap to enhance the uptake. About 60 percent of the unbanked population in India resides in rural areas14, where illiteracy rate is very high. Thus, the challenge lies in designing services in a way that can be easily understood and used by the rural population.
Security concerns: The security
security challenges. Therefore, there is a need for stronger regulations for m-banking services on the same lines as e-banking. There is a need for updating m-banking regulations as the static PINs currently being used in m-banking are vulnerable to being easily hacked.
Handset compatibility: Not all
of financial transactions plays a vital role in winning the trust of customers and encouraging them to use m-banking services. The execution of transactions from a remote location and the transmission of financial information over the wireless network pose complicated
handsets available on the market support the different technologies that banks deploy to offer m-banking services, such WAP or applications. , Therefore, there is a need to simplify the technological platform used to provide m-banking service. For instance, in rural areas, the population mainly uses handsets in the range of INR 2,000. These handsets cannot be used to access high-end applications or platforms.
10 Communications Today, Rural India gadget-savvy too, January 2011 11 TRAI, Telecom Subscription Data, August 2011 12 Economic Times, India to have more than 5 crore bank accounts, February 2011
13 SME Times, Subir Gokarn, Deputy Governor, Reserve Bank of India, March 2010 14 Macquarie Research, India telecom sector: Mobile data the silver lining, May 2011
What the world can learn from Kenya

m-PESA, the m-banking service from Safaricom and Vodafone in Kenya, is known as the most successful m-banking service in the world. This operator-led service, launched in 2007 , gathered nearly 14 million users within a span of four years. One of the biggest benefits of the service is that it can be used for the smallest of transaction m-PESA revenues and users volumes. As of June 2010, m-PESA transactions amounted to about 70 percent of the volume of electronic transactions in Kenya but were only 2.30 percent in value15. At the end of 2010, USD 400 million, or 29 percent of the countrys GDP was travelling through , the m-PESA system16.
Source: Safaricom
The success of m-PESA can be attributed to several factors some specific to the service while some others pertaining to the market and regulatory environment.
sending money through informal and potentially unsafe routes (e.g. via a stranger travelling to the village).
Mobile penetration in Kenya: At
m-PESA: Key success factors (external)

The banking environment in Kenya:
Prior to the launch of m-PESA in Kenya, 38 percent of people did not use any form of financial service; formal, semi formal or informal. National money transfer is one of the most needed financial services in Kenya because of the high population of urban migrant workers who need to send money back to their families in the villages. Prior to m-PESA many people would have to resort to
the end of 2008, mobile penetration in Kenya was 39 percent or over 15 million subscribers. Most of the subscriber base knew how to make basic voice calls and send SMSes17.
The regulatory environment in
Kenya: The Central Bank of Kenya has actively been involved in the regulation of mobile money services in Kenya. The open approach adopted by the bank allowed Safaricom to offer m-payment services without partnering with a bank. This meant that users of the service did not need to have a prior bank account.
15 CGAP 10 things you thought you knew about M-PESA, November 2010 , 16 Beyond Profit, Where Mobile Money Matters, April 2011 17 International Finance Corporation, M-Money Channel Distribution Case Kenya, 2010
m-PESA: Key success factors (internal)

Product offering: m-PESA is
Marketing communication:
designed around the provision of national remittance services. It is an SMS-based system that enables users to deposit, send, and withdraw funds using their mobile phone. Customers do not need to have a bank account; they can transact using 17 ,600 agent18 outlets in the country (as against only 840 bank branches). m-PESA also allows users to purchase airtime, pay bills, and withdraw/ deposit money and purchase goods and services.
Pricing: Registration and deposits are
m-PESA carries the Safaricom brand, which is Kenyas most valued brand. At the time of launch, Safaricom invested significantly in above-theline marketing campaigns aimed at increasing awareness. Along with significant advertising in traditional media such as TV and radio, road shows and tents were organised that travelled around the country signing people up, explaining the product and demonstrating how to use it.
Ecosystem: Safaricom has developed
free. Most other transactions have a tiered price structure where the user pays depending on the volume of the transaction. Transaction values are typically small, ranging from USD 5 to USD 3019.
an extensive agent network nationwide. Currently, there are over 17 ,600 active cash-in/cash-out points servicing m-PESA. Several large institutions such as Kenya Power and Light Commission (KPLC), Kenya Airways, and Nakumatt Supermarkets also support the product.
Initiatives from the Government of India

The success of m-PESA indicates that in a developing country, m-payments and m-banking can play a huge role in bringing about empowerment. Recognizing its potential, the Government has undertaken several m-banking projects in India.
The National Payments Corporation A Little World (ALW) (a technology
of India (NPCI), in association with several banks, launched the Interbank Mobile Payment Service (IMPS) in November 2010. The IMPS offers instantaneous, 24X7 interbank , electronic fund transfer service through mobile phones.
implementation partner) tied up with NXP Semiconductors to design an m-banking platform for the Andhra Pradesh government. ALW has also carried out pilot projects with SBI in villages located in some of the most inaccessible and difficult terrains of the country such as Pithoragarh in Uttarakhand, Mizoram, Meghalaya, and remote villages in Andhra Pradesh.
18 Mobile Money Africa, Going mobile: Egypt gears up for cellphone banking, June 2011 19 International Finance Corporation, M-Money Channel Distribution Case Kenya, 2010
CHAPTER 7
Other Innovative Mobile Services Leading to Empowerment
Besides m-banking, a variety of other MVAS is leading to social and political inclusion in India, leading to empowerment of the masses.
m-Health
Out of the 70 percent of Indias population that live in the rural areas, only an estimated 30 percent have access to modern medicine. Every year, Indias educational system meets about 30 percent of the total requirement for doctors in the country1. Delivering affordable health care to Indias billionplus population involves significant investment and long gestation periods. Mobile devices, on the other hand, are used by an increasingly large proportion of the population and can therefore be used to empower the Indian populace with affordable basic healthcare services, especially in the rural areas. m-health leverages mobile devices to deliver healthcare services and healthrelated information exchange which can increase access, affordability, and quality of healthcare. drive awareness and best practices on prevention. However, private healthcare players too have started providing these services at a few places in the country in collaboration with telecom operators and equipment manufacturers. their health status and medication, nutritional plan, etc., through mobile alerts is an exemplary way of empowering them. Mobile Care, Support and Treatment Manager is a tool to improve the management of HIV/AIDS in developing countries. It enables HIV/AIDS patients to access their lab tests and medical history reports through mobile phones.
Examples of m-health projects

Medical/Demographic data collection3
In a large developing country such as India, it is difficult to perform a comprehensive collection exercise of health and population data. However, community health workers from Media Lab Asia, along with All India Institute of Medical Sciences and a software company, launched an open source application called Community Accessible and Sustainable Health system on Personal Digital Assistants (PDAs) as a pilot to collect medical and demographic data in 2002. An assessment of the pilot showed high acceptance among health workers. It also led to the improvement in entry time for data. The users were satisfied with the interface and were ready to replace paper-based records with the handheld device.
Tele-medicine
In 2003, a Java-enabled application was launched by Tele-Doc4 in 15 villages in Haryana to connect rural healthcare workers with doctors in urban areas for remote diagnosis and treatment. It enabled doctors to receive real-time diagnostic information and prescribe appropriate treatment. Another such programme was introduced by a leading hospital in the year 20005 to provide medical services to rural and semi-urban areas through an audio-visual-enabled delivery system. The programme has been successful in providing over 57 ,000 tele-consultations across various disciplines over the years. It has more than 71 tele-medicine centres across India and provides 24/7 consultation for just INR 45.
Adoption trends
The global m-health technology market is expected to grow 25 percent annually, from USD 1.5 billion (Rs 10,125 crores) in 2010 to USD 4.6 billion by 20142. Although it offers great potential for empowerment, the concept of m-health is still an evolving concept in India. One of the main reasons for this is the lack of awareness among patients and doctors about what m-health is and what benefits it can provide. The market also lacks sustainable business models, which is holding back a lot of private players. Currently, m-health services are predominantly used by the government during epidemics to
Patient monitoring4
The remote monitoring of patients will give a lot of flexibility to doctors and health workers and help in increasing the ratio of number of patients per doctor. Keeping patients informed about
1 DNA, October 2011 2 LiveMint 3 United Nations Foundation, mHealth for Development, 2009
4 Center for Health Market Innovations, Mobile Care, Support and Treatment Manager (MCST), Accessed in September 2011
5 Modern Medicare, Wireless technology: Giving wings to healthcare, February 2011
m-Agriculture
Though agriculture is Indias largest occupation with more than 506 percent population still dependent on it, the contribution of agriculture to Indias GDP is only 18.5 percent7. The government expects the agriculture sector to grow by 3-4 percent in the next few years8. With a growing population and an increasing need for self-sustenance, the agriculture sector will continue to play a major role in the economic development of the country. Empowering the nations farmers is therefore a key priority for the government. Given the unpredictable nature of their occupation, the most beneficial form of empowerment for Indian farmers is the ability to take informed decisions. For this, they need timely access to critical information about weather forecasts, crop prices, irrigation tips, etc. m-Agriculture, or services that deliver critical agricultural information and other services to agri-workers through mobile handsets, can address this need and increase the nations agricultural productivity.
Examples of m-agriculture projects

IFFCO Kisan Sanchar Limited (IKSL)
The Indian Farmers Fertilizer Cooperative, IFFCO, along with private sector telephony service providers, offers agricultural VAS to farmers through a SIM card. Using this card, farmers can access pre-recorded voice SMS carrying important information such as weather forecasts, real-time prices, farming tips, etc. They can also access a helpline from where they can get answers to any agriculture-related questions that might have. As of August 2011, this service had around 2 million subscribers9.
Adoption trends
Industry players with the help of the government have launched various m-agriculture applications, such as IFFCO Kisan Sanchar Limited (IKSL), Nano Ganesh and m-krishi, to empower farmers by reducing information asymmetry and increasing agriculture productivity. The adoption of these services is still not phenomenal, but is increasing owing to the efforts by the government and the private sector.
6 Government of India, Overview of Agriculture, April 2011 7 CIA, World Factbook, 2010
8 FICCI, Economy Watch, August 2011 9 GSM World: Case Study
m-Krishi
An agro-advisory service, m-krishi provides farmers to access agricultural information, along with the opportunity to clarify doubts from experts. Farmers can download the application on their handsets and connect to geo-location services, such as GPS and Google Earth to receive information on local weather, soil conditions, pesticides and food-grain prices.
Nano Ganesh
While the most common form of m-agriculture used in India is delivery of agricultural information, there is also significant need for automation in the labour-intensive agricultural sector. To modernise irrigation services and operations, an agricultural automation service called Nano Ganesh was launched in 2009. This service, comprising a pair of devices and a mobile connection, allows farmers to use their mobile phones to remotely operate their irrigation pumps and also alerts them if there an attempt to steal the pump or any of its accessories. As of October 2009, about 12,000 units of Nano Ganesh had been sold in India10.
m-Governance
With the rapid advancement in information technology in the last decade, the government has digitalised the delivery of several public services. This increasing adoption of e-governance has increased accessibility of these services along with improving speed and transparency. However, the low Internet and broadband penetration in the country has restricted the widespread adoption of e-governance services. In order to overcome this bottleneck, the government has taken to the mobile platform to deliver public services to the nations populace.
Future potential
The potential of innovative m-agriculture services in India is significant. Agriculture will continue to remain a priority sector in the country and Indian farmers need for information and automation will only grow with time. Concurrently, mobile penetration in rural India is also expected to rise, making m-agriculture a potent means of agricultural empowerment. Innovative services tailored to farmers specific needs, relevant content and sustainable business models will be the key drivers of m-agriculture in India.
Adoption trends
With growing wireless penetration in rural areas in recent years, government bodies have started piloting m-governance services and integrating wireless technology with various government departments to create cost-effective, efficient and 24/7 information systems. However, the introduction of m-governance services in India can still be considered to be at a nascent stage.
10 Business Standard, October 2011
The various m-governance pilots running/being considered in the can be categorised as follows:
Information-based services: It is
Examples of m-governance projects

Road Transport Authority, Government of Kerala11
The Kerala government has introduced an m-governance service that allows individuals to receive the status of applications and details of taxes and insurances paid. Additionally, the scheme protects customers from potential fraud while purchasing secondhand cars, as customers can send details of car parts (e.g., engine number, chassis number) via an SMS and receive information on those parts, thereby eliminating any possibility of being sold stolen goods.
Future potential
Increasing wireless penetration and better awareness of services will help in increasing the uptake of m-governance services in future. As the government continues to focus on improving m-governance, the gamut of services can range from basic information-based services such as natural disaster alerts to enabling polls through mobile phones. The availability of m-governance services in regional languages and integrated speech assistance tools can be highly effective empowerment means as this will mean that even the illiterate rural masses can access these services from the convenience of their homes or fields. The central government is currently working on a framework that aims to formulate guidelines on the use of mobile devices for providing government services, such as paying utility bills and filing tax returns. It would also formulate standards for easy interoperability of services across multiple service providers and multiple government departments. It also aims to fully integrate existing infrastructure created under the National e-Governance Plan by setting a Mobile Service Delivery Gateway (MSDG) platform. The framework is expected to be in place by 2012 and would enable the central government to include various government services under the ambit of m-governance.
very critical for a government in a democracy to transfer accurate and timely information to its citizens so that they can form opinions and take informed decisions. Also, m-governance can act as a tool to collect feedback and other information from citizens for making the system more robust and strong.
Management/administration
services: The primary purpose of m-governance services is to improve the internal operations of public departments. It will enable these agencies to work in a more transparent and effective manner.
Participatory services: m-governance
Goa State Service Delivery Gateway (SSDG)12

The state government in Goa has launched a state portal, Goa State Service Delivery Gateway (SSDG), and a national Mobile Service Delivery Platform (MSDP) under the national e-governance plan. These will allow citizens to file an online application for a ration card and check the status of their applications by sending an SMS along with the application number. The government is also working toward setting up a central facility to provide m-governance services using a cloud computing model.
services can be used in collecting citizen inputs for political decisionmaking. This can change the face of political democracy and significantly enhance democratic participation.
11 Kerala State IT Mission, Motor Vehicle Department, Accessed in August 2011
12 Infotech Corporation of Goa Limited, SMS Gateway - A Smart way to Connect, Accessed in August 2011
m-Education
Education is one of the potent means to achieve empowerment. The Indian governments concerted efforts have brought down the illiteracy level of the country to 26 percent (in 201113), but a sizeable population in India, especially rural India, is still in the need of affordable basic education. m-Education services or the delivery of educational content and services through the mobile handset can significantly add to the governments efforts at eliminating illiteracy and establishing a scalable educational in infrastructure for the masses. There is a huge potential for m-education services at all levels of the educational ecosystem, from primary education to higher education and from government schools to private coaching institutes. The government plans to adopt mobile phone as an essential tool to impart education to students in the country. This would allow students, primarily in rural areas, who cannot access quality educational services at their locations, to study subjects of their choice by just paying a minimal fee.
Empowering women
Gender equality and womens empowerment is a very important part of social inclusion and the general development of the nation. Since the last two decades, the growth of IT and the telecom industry has played a significant role in womens empowerment, primarily in urban and semi-urban regions. Recognizing the potential, various players have started developing women-specific mobile applications, both for urban and rural markets. These applications aim at providing both social and financial benefits to women through access to education, healthcare, self-employment opportunities and personal safety.
Adoption trends
The Government of India, along with private education players, has started offering various m-education services, such as basic education lessons, exam tips, mobile tutorials for school syllabi, English lessons and general knowledge, and result alerts. With an increase in wireless penetration and the growing MVAS industry, various companies are focusing on providing services, such as language training, mobile reading, adult literacy and vocational training on specific subjects, though mobile phones.
Examples of m-education projects

MGurujee
It is an m-learning application/portal that allows users to access content in the areas of engineering, management, civil services, medicine, school syllabi and general knowledge tutorials. It offers learning content in practice, quiz, timed or tutorial mode by charging a nominal fee per question set and a fixed subscription amount per month.
Examples of MVAS projects leading to womens empowerment

Soochna Shakti
Part of the DoTs Sanchar Shakti scheme funded by USOF Soochna , Shakti is a service aimed at empowering rural women through news, information and expert advice on health, education (including learning English), self employment and finance. The service is available through a multi-lingual IVR portal that can be accessed from all handsets. Various government bodies, NGOs, universities and private organizations are developing the content for this service.
English Seekho
English Seekho is an application that provides conversational English language lessons through an Interactive Voice Response (IVR) application on mobile phones. It helps non-English speaking people to get familiar with the language by taking interactive lessons.
Future potential
India is one of the youngest populated countries in the world and thus, has a huge demand for educational services in the future. Education would play a vital part in making the population skilled and employable. The literacy rate at about 74 percent13 still provides a huge potential for imparting educational services in the country. Moreover, there are some states, which have literacy levels below the national average, and therefore they need to pay immediate attention to the situation.
Self Employed Womens Association (SEWA) Scheme

SEWA is a trade union of more than 1.1 million women workers in the unorganised sector. Its main objective is to determine livelihood security for its members. SEWA provides updated information on commodity prices to women workers so that they can determine when and where to get the best price for their produce. It also helps in crop planning and making informed harvesting decisions.
13 Census of India, Brief Analysis of provisional population figures 2011 Census, Accessed in August 2011
Fight Back
A local charity in New Delhi is soon about to launch a mobile personal safety application for women called Fight Back. Using this application, women in danger of their personal security can trigger text messages with a GPS location to up to five people, including the police. The SOS message will also reflect on the users social networking pages.
m-Powerment platforms and technologies of the future

Location-based services (LBS)
Many of the empowering applications described in the preceding sections integrate the users location data to provide useful communication services to the users. Location-based data helps in customizing a mobile service/ application to specifically address the users needs. Therefore, mobile location-based services are very important in the way to empowerment through the mobile phone. The Indian market for Location-Based Services (LBS) has grown from USD 22 million in 2007 to reach USD 500 million in 2011. Driven by the various empowering mobile applications that are being launched, this market is expected to grow exponentially in the near future. Navigation assistance, emergency assistance, disaster relief, transport alerts, people tracking, local search etc., are some of the mobile LBS that will contribute significantly to empowerment.
M2M communication can be useful in both rural and urban segments. In rural areas, farmers can leverage this technology for automation of agro and irrigation services, water level monitoring, and data gathering for milk and agri-cooperatives, fisheries, poultry and soil analysis. On the other hand, in the urban region, people can leverage the technology for mobile ticketing, purchasing in kiosks, vending machines, and remote monitoring of office and home equipment. The introduction of large-scale national projects such as the Restructured Accelerated Power Development & Reforms Program (R-APDRP) and Aadhaar (the Government of Indias unique user ID project) are fuelling the growth of the M2M market in India.
Near Field Communication (NFC)

Near Field Communication (NFC) is a technology that allows contactless data transfer among compatible mobile handsets within a short range (less than 10 cms). Globally, NFC has played a critical role in enabling successful m-payments services in countries such as Japan. In India too, there exists considerable potential for NFC-enabled applications and services. By making mobile phones function as credit cards, NFC will provide a significant boost to the m-payments market in urban India. In rural India, the potential of NFC lies in providing remote access to financial services such as banking accounts and pension accounts. Also, since NFC-based peerto-peer data transfers are likely to be more user-friendly than Bluetooth transfers (which require pairing of devices), even elderly users can be comfortable using this technology. This will be a big step towards overall empowerment.
Machine-to-Machine (M2M) communications

With the pace of development exerting significant demands on the countrys productivity and efficiency, automation is becoming a key route to empowerment. M2M communications, a technology using which devices and applications can relay messages to each other, can act as a powerful enabler of automation, and hence empowerment.
CHAPTER 8
Technology and Infrastructure

The Basic Enablers of Empowerment
Telecom technology forms the backbone of all advancements in this sector. The huge empowerment potential of mobile phones can be realised only if the underlying technology is strong enough to support the expected level of innovation. Technological advances not only enable the conception of innovative services, but also play a huge role in making those services available to the masses through user-friendly interfaces and at affordable prices.
The India growth story

Mobile phones began with the first generation (1G) technology in the 1970s. The 1G analogue system for wireless communication saw two key improvements during the 1970s: the invention of the microprocessor and the digitisation of the control link between the mobile phone and the cell site. 2G is used to describe the advent of digital wireless communication for cellular mobile systems. The leap from 1G to 2G effectively took mobile phones from analogue to digital. The 2G system provides better quality and higher capacity at lower cost to consumers. Table 2: Mobile technology in India Technology 1G 2G 2.5G 3G 3.5G 4G
Source: Telecoms market research
2G utilises various digital protocols, including GSM, CDMA, TDMA, iDEN and PDC.1 Before making the major leap from 2G to 3G wireless networks, the lesserknown 2.5G was an interim standard. While 2G and 3G have been formally defined as wireless standards, 2.5G is not considered a standard and was created for the purposes of marketing. 2.5G saw some of the advances inherent in 3G networks, including packet-switched systems.
The recent evolution from 2G to 3G has ushered in faster and higher-capacity data transmission. 3G technologies enable faster and greater network capacity and more advanced network services.
Platform Analogue network GSM, CDMA GPRS, EDGE UMTS, WCDMA EVDO, HSDPA WiMax, LTE
Services available Voice calls 1G + SMS, caller ID, conference call 2G + MMS, Internet 2.5G + high-speed Internet, video calls, streaming music, 3D gaming 3G + video on demand, video conference 3.5G + high-speed Internet
1 ITU, All about technology, Accessed in July 2011
Beyond 3G in India: Broadband Wireless Access (BWA)2

With growing competition and the need for on-the-move connectivity, the demand for fast, scalable, cost-effective and wireless networks to provide broadband connectivity is gaining ground in the Indian market. 4G is a step up from 3G, which is currently the most widespread, high-speed wireless service. On average, 4G wireless is supposed to be 4 to 10 times faster than 3G networks. The underlying technology in 4G can be WiMax or long-term evolution (LTE). In June 2010, the Indian government held the auction of BWA (4G) s and collected INR 385 billion. Infotel (owned by Reliance Industries) emerged as the sole pan-India BWA service provider. Worldwide inter-operability for microwave access (WiMax) technology is designed to provide high-speed Internet access with fast data downloads. LTE delivers faster data speeds and new services by creating a new radio access technology that is optimised for IP-based traffic. LTE is the result of ongoing work by the 3rd Generation Partnership Project (3GPP), a collaborative group of international standards organisations and wireless technology companies. The results of the auction suggest that in India, LTE will be preferred 4G standard when services are launched in 2012. LTE will help in increasing capacity, reducing network complexity and thus, lowering deployment and operational costs. It will enable service providers to meet the growing demand for mobile data solutions, making it possible for richer services to be delivered to consumers more cost effectively.
Telecom infrastructure in India

In a cellular network, cells are generally organised in groups of seven to form a cluster. There is a cell site or base station at the centre of each cell, which houses the transmitter/receiver antennae and switching equipment. The BTSs are installed in a contiguous manner, so as to facilitate the handing over of signals from one BTS to another. The radius of each BTS varies from 500 metres to as much as 8-10 kilometres, depending upon subscriber usage, topography, frequency-band and spectrum availability. All base stations of each cell are connected to a central point called the Mobile Switching Office (MSO), which is generally connected to the Public Switched Telephone Network (PSTN). Telecom towers are the lifeline of cellular networks. In India, Infrastructure Providers-1 (IP-1) can provide assets such as towers, dark fibre, right of way (ROW) and duct space, through simple registration without paying any fee. It can also create active infrastructure on behalf of the e. As per TRAI, there were 400,000 telecom towers in India as of April 2011. The tenancy level for the industry stood at 1.68 in 2010-11.3 The telecom tower industry will require approximately 100,000 more towers to cater to the projected subscriber base of around 1 billion by 2014 and to support the rollout of 3G and BWA services.4
Infrastructure sharing and consolidation

Initially, service providers used their tower infrastructure for competitive advantage. However, over the past few years, the leading service providers have opted to share their infrastructure. Infrastructure sharing provides excellent opportunity for wireless service providers to reduce their costs and emissions. There are two levels of infrastructure sharing: passive and active.
Passive infrastructure refers to the sharing of civil infrastructure such as physical
sites, buildings, shelters, towers, masts, power supply and battery backup. This is by far the most common form of infrastructure sharing in India.
Active infrastructure sharing: This refers to the sharing of electronic elements
such as antennas, feeders, radio access network (RAN), cables, node B and transmission equipment.
2 Verizon Wireless, LTE: The future of mobile broadband technology, Accessed in July 2011 3 Towers: standing tall, Voice & Data, June 2011
4 TRAI, Recommendations on Telecommunications Infrastructure Policy, April 2011
Key drivers for infrastructure sharing

Capex and opex savings: The
setting up of a countrywide cellular network requires substantial capex. Infrastructure sharing allows service providers to maintain an asset-light service approach and releases significant cash resources.
Faster rural rollout: As wireless
the Standing Advisory Committee on Radio Frequency Allocation, state electricity boards and land owners, before the tower and electronic infrastructure can be installed. Infrastructure sharing will help in reducing execution risks by reducing the overall number of towers.
Alternate revenue stream for
Local restrictions and
environmental benefits: Local authorities are becoming more concerned about the environmental and aesthetic effects of the increasing number of towers. Zoning regulations drive service providers to share civil infrastructure. Currently telecom companies can share only passive infrastructure. In the draft National Telecom Policy 2011 (NTP 2011), the government has proposed to allow active infrastructure sharing. This will result in lower cost for setting up network and less time for rolling out services.
service providers penetrate rural and semi-urban areas, infrastructure sharing will act as an important tool to achieve faster rollouts at feasible costs. Owing to higher land development costs, security costs, insurance costs, power shortages, a higher proportion of ground-based towers, unclear land ownership and expensive backhaul connectivity costs in rural areas, service providers have strong incentives to share infrastructure.
Reduction in execution risks:
incumbents: Infrastructure sharing enables service providers to earn revenues from a new source and make the tower business a profit centre, apart from freeing up significant cash resources
Government initiatives on
Significant execution risks are involved in erecting towers. It requires as many as 40 clearances from separate authorities, such as
infrastructure sharing: The government favours faster deployment and investment optimisation in the telecom sector. Infrastructure sharing limits duplication and gears investment toward underserved areas, product innovation and improved customer service.
Technology trends
National fibre optical network (NFON) to drive wireline broadband penetration
The proliferation of broadband enables the growth of content, applications and services that will go a long way in making India a truly competitive knowledge-based economy. Broadband is a powerful tool for making positive impact on the life of people by providing affordable and equitable access to information and knowledge. While for individuals, broadband has a direct impact on their lifestyle and behaviour; it contributes enormously towards trade and generation of employment in states. It is estimated that every 10 percent increase in broadband penetration leads to a 1.3 percent
5 International Telecommunications Users Group, Broadband Commission Presents Report to United Nations, September 2010
increase in GDP5 The rapid growth of . wireless services has increased its penetration from about 2 percent in 2000 to reach about 72.1percent in August 2011.6 However, the limited availability of broadband connectivity has led to a digital divide between citizens with access to high-speed connectivity and those without it. ICT applications require high-speed internet connectivity. Bandwidth requirement for village panchayats will be higher due to sharing and extensive use of audio/ video applications owing to low literacy levels. Therefore, it becomes imperative to take optical fibre up to the panchayats to ensure broadband connectivity with adequate bandwidth.
6 TRAI, Telecom Subscription Data, March 2000 and August 2011
To ensure broadband coverage, the Government has approved a scheme for creation of a National Optical Fibre Network (NOFN) in October 2011, for providing broadband connectivity to village panchayats. The objective is to extend the existing optical fibre network which is available to the districts/block Head-Quarters level to the Gram Panchayat level initially by utilising the USOF The cost of the initial phase of . the NOFN scheme is estimated to be about INR 200 billion. A similar amount of investment is also envisaged by the private sector to complement the NOFN infrastructure while providing services to the individual users. The network physical structure comprises of three layers, viz. Access Layer (also called as last mile), Aggregation Layer and Core Layer (also called backbone). The existing core Optical Fibre Cable (OFC) network already deployed by one or more service providers covers State/District/Block headquarter (HQ) but does not extend to most of the Panchayats. Traffic from various access networks is aggregated through Aggregation Layer which functions as the collection agent of data from several sources in the access network and efficiently transports it to the backbone/core network for delivery to different destinations across the country. However, the existing OFC has little presence at Panchayats in the Aggregation Layer. The present scheme of NOFN intends to bridge the gap in the Aggregation Layer by extending the network to all the Gram Panchayats. The present scheme of NOFN, however, does not cover the optical fiber at the Access Layer, which is largely expected to be met through commercial and market dynamics augmented with policy initiatives, wherever necessary.
The scheme will generate benefits in form of additional employment, e-education, e-health, e-agriculture and reduction in migration of rural population to urban areas. It will also facilitate implementation of e-governance to facilitate inclusive growth. It will enable effective and faster implementation of various mission mode e-governance projects amounting to about INR 500 billion initiated by Department of Information Technology as well delivery of a whole range of e-services by the private sector to rural areas. The draft NTP 2011 focuses on creating knowledge-based society by providing broadband on demand by 2015. It aims to achieve 175 million broadband users by 2017 and 600 million by 2020 at minimum download speed of 2 Mbps and make available higher speeds of at least 100 Mbps on demand. It also envisions providing high speed and high quality broadband access to all village panchayats through optical fibre by the year 2014 and progressively to all villages and habitations. It also strives to recognise telecom and broadband connectivity as basic a necessity as education and health and confer Right to Broadband to Indian citizens.
base stations. Besides governmental efforts, efficient power management is becoming a business necessity for wireless service providers in the Indian market. At present, operating expenses, including energy costs are nearly 25 percent of the total network operating costs. Some of the initiatives being taken for developing energy-efficient networks and energy-efficient handsets are as follows:
Designing low-energy base station
sites
Deploying base stations powered by
renewable energy
Implementing infrastructure sharing Reducing mobile device life cycle
emissions through recycling

Community power and low power
handsets. Thus, green telecom offers twopronged empowerment in the form of better affordability and environmental protection, mainly driven through lower opex costs.
Cloud computing will help overcome device challenges in delivering m-Powerment

The latest buzz in information technology, cloud computing can act as a significant enabler of m-Powerment by making the delivery of various mobile applications agnostic to handset storage capacity and computing power. As and when available, this will be a breakthrough technology for rural India, where low-cost, low storage basic phones outnumber high-end handsets significantly. Using cloud applications to access the various empowering services and applications will mean that even the owner of the most basic handset can enjoy access to these applications. This will be a significant reflection of widespread social inclusion.
Green telecom leading to two-pronged empowerment

In December 2009, the Minister of State for Environment and Forests announced the Indian governments commitment to reduce 20-25 percent of carbon intensity from the 2005 level by 2020. The Indian government is already providing various incentives for the initiatives involving the use of renewable energy resources. The government has also offered the USOF support to encourage service providers to opt for green energy and bio-fuel as an alternative to powering
CHAPTER 9
Delivering m-Powerment through a Win-Win Ecosystem
Indias mobile market has all the right demand side drivers in place to deliver widespread empowerment through mobile phones. However, the cornerstone of m-Powerment is compelling MVAS. To deliver m-Powerment successfully through customised MVAS, there needs to be a thriving ecosystem in which participants have clear roles and which delivers equitable returns to all participants.
The MVAS ecosystem

An MVAS ecosystem driven by an m-Powerment vision has three broad stake-holders: the industry, the regulator and the end-user. Each participant fulfils several roles and responsibilities and in return, has several expectations from his participation. The broader ecosystem aims to provide the right mix of content and applications at the right price in a regulated framework. It also helps to build awareness about telecom services among customers and recognise remarkable contribution among suppliers. Under the overarching objective of delivering holistic empowerment, a successful MVAS ecosystem is one which creates value for all the participants.
Source: KPMG Analysis
The broad ecosystem for MVAS in India, when segmented further, reveals a complex and fragmented environment comprising a wide variety of stake holders, often with overlapping roles. The following are the broad stake-holder groups in this ecosystem:
Content providers: Content owners
Content delivery bodies: Network
and aggregators
Technology enablers: Platform
operators and handset vendors

End-users: Subscribers
providers and application service providers
The following diagram depicts the participants in the MVAS industry.
Source: KPMG Analysis
With mobile advertising becoming an integral part of VAS, the ecosystem has expanded to also include advertising agencies and marketers.
Content aggregator
These are the companies that perform the functions of in-house content development and aggregation of content from other content owners. The companies provide content to wireless service providers and also directly to the end user through their own portals.
revenue model is based on either a lump sum fee paid on the completion of the application or metrics such as the number of downloads.
Content owner
At the first level of the MVAS value chain are the content copyright owners, who develop original copyright content.
Platform providers
Platform providers offer the platform that plugs into the telecom service providers network and acts as a bridge between aggregators and service providers. They also manage and maintain the platform as per SLAs and handles the integration of diverse applications and reconciliation of accounts and billing.
Content creator
These are the companies that generate customised content as per subscriber preferences. Examples include companies running their own mobile portal on voice, SMS, WAP or USSD.
Application developers
Application developers make use of different platforms provided by technology enablers to develop and enhance the quality of applications. They also build customised applications for service providers, and in some cases, manage these services as well. The
Handset manufacturers
Handset manufacturers are relatively recent entrants in the MVAS ecosystem. Handset manufacturers pre-load their devices with customised content, for which they pay royalty to the content owners. Most handset manufacturers offer application stores from where their customers can purchase applications. They source these applications by directly reaching out to local developers, with whom they share revenue every time an application is downloaded. They also share revenue with network providers for billing support.
Creating a win-win MVAS ecosystem

Internationally, successful MVAS services have always been supported by a winwin ecosystem. In order to unleash the potential of the MVAS market in India, it is imperative that the various structural inefficiencies in the existing ecosystem are addressed to bring in more equity and transparency. The following are some of the steps that will lead to a win-win MVAS ecosystem in India.
Redistribution of control
Currently, the MVAS market in India revolves around network providers, who retain the maximum control on the ecosystem. VAS providers (content providers, technology providers, etc.) form a niche, unorganized market comprising a large number of start-ups. The network provider, who bills VAS to the end-user, forms the face of VAS delivery to subscribers and is therefore responsible for strategic decisions around content and pricing. The network provider also retains control on all usage MIS for content consumed from their portals. This affects VAS providers in the following ways:
Information asymmetries on usage data and MIS prevents VAS players from
Network providers
More than any other entity in this multiparty ecosystem, the service provider is in a unique position to understand customers and their intent, interests, needs and preferences. Service providers are the custodians of all data/ information, and therefore hold a critical value in the MVAS ecosystem. Their primary role in this regard is that of a carrier of content and other services to subscribers.
being able to monitor sales and forecast demand

Network providers want to concentrate on the most popular, fast-moving
categories of MVAS such as entertainment content. This prevents VAS providers from being able to invest in more utilitarian content and applications that can truly lead to empowerment The draft NTP 2011 advocates separation of carriage from content. This proposal, when implemented, can bring about an equitable distribution of control in the VAS ecosystem.
Equitable revenue sharing

Some of the major driving forces behind a successful MVAS market are the creativity and innovation of the content creators and the resource and enterprise of content aggregators. Each stakeholder has an important role to play in the value chain and hence an equitable revenue sharing model would be one of the key factors to create a win-win ecosystem for all the players.
A favourable regulatory environment

Although the telecom market in India is one of the most highly regulated telecom markets in the world, the VAS market has traditionally remained outside the purview of regulations. There is currently no policy framework governing VAS providers association with network providers. To create a winwin ecosystem, the VAS market needs to come under an optimal regulatory framework. This will not only boost VAS providers position in the ecosystem, but will also be imperative in channelling the right amount of resources in the development of MVAS that can lead to empowerment, especially in rural India. The government has hinted at such a regulatory framework in the draft NTP 2011.
Increased data usage, lower churn

Currently, data forms 13-15 percent of Indian network providers ARPU. In the developed nations, this proportion is as high as 30-35 percent.1 A win-win ecosystem will need to assure network providers of increased data usage and therefore increased ARPU and lower churn.
1 Ovum, Mobile Voice and Data Forecast: 201116, July 2011
CHAPTER 10
Telecom Manufacturing
Enabling Sustainable Growth
State-of-the-art telecommunications equipment, the key to a modern, reliable and robust telecommunications system, is vital for leading India on the path of m-Powerment. With a remarkable 2G footprint, a rapidly growing 3G market and the expected rollout of LTE and WiMax, there is a strong demand for telecom equipment in India. The massive growth in the number of subscribers will necessitate the upgradation of networks and induction of new technologies and services. This will create a huge demand for switching, transmission and subscriber equipment. It is estimated that for 3G alone, the investment would be to the tune of USD 15 billion. The demand for network elements will translate into a requirement for components, tests and auxiliary equipment. The overall requirement is expected to be USD 100 billion until 2015.1 This has led to excellent opportunities for domestic and foreign investors in the manufacturing sector. The last two years saw many renowned telecom companies setting up their manufacturing base in India. Several home-grown handset manufacturers have also entered the telecom manufacturing segment.
Regulations governing telecom manufacturing2

All equipment manufactured, traded or used in India are required to meet the relevant International Telecommunication Union (ITU) and Telecommunication Engineering Centre (TEC) standards. A license and frequency clearance is required from the WPC to import equipment. Telecom Equipment Manufacturers Association (TEMA), established in 1990, is an industry association for telecom equipment manufacturers as well as component and cable manufacturers. It plays an active role in the dissemination and exchange of information among the GoI, foreign agencies, embassies, trade missions and national and international trade associations. The draft NTP 2011, released in October 2011, focuses on encouraging the domestic telecom manufacturing sector to propel the economic growth. It aims to fulfill 80 percent of the demand through domestic manufacturing with a value addition of 65 percent by year 2020. To achieve these targets, the policy envisions creating a corpus to promote R&D, IPR creation and entrepreneurship and developing a framework with the Ministry of Human Resource Development (MHRD) to periodically upgrade academic curriculum of telecommunication courses. The government foresees the challenge of skilled workforce and seeks to establish an apex body to guide skill development in the telecom sector.3
1 TRAI, Recommendations on telecom equipment manufacturing policy, April 2011 2 PSA, Equipment for Indian telecom boom, Accessed in July 2011
3 Ministry of Communications and Information Technology, Draft National Telecom Policy 2011, October 2011
Evolution of the telecom equipment segment

India boasts of a large and booming domestic telecom equipment market. Anticipated investment of INR 450 billion in telecom infrastructure is needed every year to cater to the fastgrowing telecom subscriber base.4 Telecom equipment manufacturing was exclusively reserved with GoI enterprises until 1984. Subsequently, private entry was allowed in the domain of manufacturing of telephone instruments, cables, transmission equipment, small switching exchanges developed by C-DoT and large exchanges. With time, the regulations governing private entry were further relaxed and presently, the private sector is allowed to manufacture the entire range of telecom equipment or components. The requirement for a license for manufacturing equipment was abolished in 1991 and the VAS sector was declared open to the private sector in 1992, following which radio paging, cellular mobile and other VAS were opened gradually to the private sector. The emergence of India as a major manufacturing export base of equipment was one of the key objectives of the NTP 1994. Ericsson , India established its manufacturing unit in Kukas, Jaipur (Rajasthan). With NTP 1999, R&D efforts to build world, class manufacturing capabilities were strengthened. In 2005, the FDI ceiling across telecom services was raised from the existing 49 percent to 74 percent. In the same year, LG set up its plant with a manufacturing capacity of 20 million GSM mobile phones near Pune. In 2006, 100 percent FDI in the sector through the automatic route was allowed. Soon after, Nokia opened its manufacturing facility near Chennai. In 2008, Motorola set up a manufacturing facility at Sriperumbudur, Chennai. In October 2011, the draft NTP 2011 was unveiled with telecom manufacturing sector highlighted as a key focus area in the coming years.5
4 TRAI, Recommendations on telecom equipment manufacturing policy, April 2011
Telecom equipment demand, production and exports
The total demand for telecom equipment, including handsets, stood at INR 547 billion for 2009-10. The .65 demand is projected to be about INR 1.08 trillion in 2015-16 and INR 1.7 trillion by 2019-20.6
Table 3: Demand for telecom equipment (2009-2020F) Type of equipment (INR billion) Wireline equipment Wireless equipment (excl. handsets) IP and packet switching equipment Broadband equipment Backhaul and transmission equipment Other (miscellaneous products) Mobile handsets Total
Source: Ovum
2009-10 11.69 141.46 40.57 72.01 43.72 0.61 237 .60 547 .65
2015-16F 4.96 264.44 146.89 77 .61 78.38 124.67 384.02 1,080.96
2019-20F 4.48 444.28 202.31 298.15 109.60 28.99 613.10 1,700.91
Despite the growth in domestic manufacturing, only 40 percent of the requirement for equipment is met through local sourcing, with the remainder coming from global companies manufacturing in India. Lately, the trend is shifting to build inhouse expertise for indigenous growth within the telecom manufacturing sector. In 2010-11, India produced telecom equipment worth INR 535 billion as compared to INR 144 billion in 2002-03, implying a CAGR of 17 .8 percent.7
There is a growing emphasis on the export of telecom equipment. With multinationals setting up bases in India, India is emerging as a manufacturing hub and aims at enhancing its telecom exports each year. In 2002-03, India exported equipment worth INR 4 billion. The exports have increased to INR 150 billion in 2010-11, implying a CAGR of 57 percent.7 .3
6 TRAI, Recommendations on telecom equipment manufacturing policy, April 2011
7 TEPC, Policy recommendations to increase domestic telecom growth and export of telecom equipment and services, Accessed in July 2011
Telecom equipment production (2002-11)
Source: TEPC
Telecom equipment exports (2002-11)
Source: TEPC
India emerging as a global telecom manufacturing hub

India is fast developing as a hub for global telecom manufacturing. The production and exports of telecom equipment have been on a steady rise in the last few years. The Telecom Equipment and Services Export Promotion Council (TEPC) has set the following milestones to achieve by the year 2014: Exports to grow at 25 percent CAGR to reach over INR 450 billion Domestic telecom products to grow at a CAGR of 18 percent Employment generation (direct and in-direct) of more than 20 million To meet at least 70 percent of domestic telecom demand from products manufactured by Indian companies To have at least a few IPR-driven, billion-dollar Indian product companies8 The draft NTP 2011 proposes to actively incentivize export of telecom equipment and services. To ensure the competitiveness of the equipments, it emphasises on developing national standards and participating in evolving international standards.9
Government and TRAI initiatives

The long-term goal of the government is not only to become a global telecom manufacturing hub but also to aid inclusive growth by focusing on areas, such as employment generation and financial inclusion. Manufacturing units in rural areas would help provide employment and income generation opportunities, thereby, reducing the dependence on agriculture. This would help the rural population to access better education and health facilities, and in turn, improve the countrys literacy rates and employability. In April 2011, TRAI released recommendations on Telecom Equipment Manufacturing Policy, proposing new regulations to boost manufacturing by domestic firms and limit foreign firms market share in Indias booming telecom equipment manufacturing market. Through the draft NTP 2011, the government plans to provide preferential market access for domestically manufactured products with special emphasis on Indian products for which IPRs reside in India to adequately address the strategic and security needs of the country consistent with international commitments.9
8 TEPC, Policy recommendation to increase domestic telecom growth in exports of telecom equipment and services
CHAPTER 11
Telecom Research and Development
The telecom sector in India has witnessed tremendous growth over the last decade; however in R&D Indias role has been restricted to being a technology solution provider. The government aims at developing technology for masses and strengthening security infrastructure for telecom network.1 It is promoting modern technologies through pilot projects on existing and emerging technologies, including WiMax and 3G. Also, the emphasis is on technologies with a potential to improve rural connectivity.1 The government is also focusing on the production of telecom equipment and is in the favour of promoting the manufacture of equipment domestically by offering incentives to service providers for using domestic products and creating funds for encouraging R&D. In line with this, MCIT through draft NTP 2011 has proposed forming a fund to promote indigenous R&D, IPR creation, entrepreneurship, manufacturing, commercialising and deployment of telecom products and services.2 The new draft also proposes to offer financial resources on favourable terms and fiscal incentives to indigenous manufacturers of telecom products and R&D institutions.2 Also, Centre for Development of Telematics (C-DOT) initiated research on developing the advanced version of 4G wireless technology and is competing with global vendors. Moreover, a Chinese equipment manufacturer is planning to invest USD 120-150 million to set up a R&D centre focused on developing handsets in Bangalore and employing about 3,500 to 4,000 people. With the aim of improving R&D infrastructure, service providers, top academic institutes, and the GoI have collaborated to set up the Telecom Centres of Excellence (TCOEs).
Telecom Centres of Excellence

The unparalleled growth in innovative services and technologies in the telecom sector has given birth to the need for comprehensive in-house research and talent development. With focus on enhancing the talent pool and technological innovation, securing information infrastructure, and bridging the digital divide, Telecom Centres of Excellence (COEs) have been set up. Each one of the eight COEs (seven operational and one proposed) focuses on a niche area of activity.
Table 4: TCOE focus areas Associate institute IIT Kharagpur IIT Delhi IISc Bangalore IIT Kanpur IIT Chennai IIT Mumbai IIM Ahmedabad WPC, Chennai
Source: COAI
Principal sponsor Vodafone Essar Bharti Airtel Aircel BSNL Reliance Communications Tata Teleservices Idea Cellular Govt with industry consortium
Areas of focus Next-Generation Network (NGN) and network technology Telecom technology and management Information security and disaster management of infrastructure Technology integration, multimedia and computational mathematics Telecom infrastructure and energy Rural Applications Policy, regulation, governance, customer care and marketing Spectrum management (proposed)
1 Department of Telecom, Indian Telecom Sector Targets, Accessed in August 2011 2 Ministry of Communications and Information Technology, Draft National Telecom Policy 2011, October 2011
With focus on niche areas, the COEs undertake application development to suit the behavioural pattern of Indian subscribers and customise global best practices for the Indian setting. The COEs are also engaged in planning the macro infrastructure for growth in a cost-effective manner and the development of the talent pool. Moreover, the COEs focus on promoting innovation in the top academic institutes of India to enable absorption of the current technology and also to develop indigenous capability.
Contract R&D
In the 1980s and 1990s, many MNCs opened research labs in India to serve local manufacturing operations and to customise products to match domestic needs. However, the last decade witnessed some MNCs setting up operations in India to cater to international markets and this led to R&D being outsourced to India. The Indian telecom sector also witnessed R&D moving out of the headquarters of Telecom Equipment Manufacturers (TEMs) for cost-effective, faster and innovative models of product development. India came out as a favourable R&D destination as indicated by the global survey conducted by the Economist Intelligence Unit (EIU) in September 2004. As per the survey, about 28 percent of the respondents cited India as an R&D hotspot: a place where companies can tap into existing networks of scientific expertise, a place that has good links to academic research facilities, and a place that provides an environment where innovation is supported and easy to commercialise.3 Within the technology sector, VLSI design is an area for which multinationals have looked at India for some time now, and it remains a growth area for R&D outsourcing. Many large semiconductor companies, including Texas Instruments, National Semiconductors, Intel, Freescale, ST Microelectronics, Cadence and Motorola, have established R&D facilities in India.
reverse innovation has started from India. Especially, innovative mobile services have mostly been emerging from India. Indian telecom vendors have been able to increase scalability and add newer functionalities on existing platforms, lowering the total cost of the solution. For example, chip packaging for critical components has been upgraded to industrial grade to sustain a wider range of temperature levels ranging from -5C to 80C degrees. Hence, the reliability and flexibility that these solutions bring will help increase a vendors success around the globe, offering service providers the same benefits of scale and adaptability dictated by the India market.
Centre of Excellence in Wireless Technology (CEWIT)

CEWIT was established by the DoT in partnership with the Indian telecom sector to develop next-generation wireless technologies and products and to provide inputs for the standardisation of emerging and future wireless technologies. The CEWIT is currently focusing on the 3GPP Rel-9 and the IEEE 802.16m standards. Its research is also focussed on end-to-end Quality of Service in heterogeneous wireless networks and efficient encoding schemes for SMS for Indian languages.
R&D future
Indias telecom companies are considered to be lagging behind their global counterparts in R&D spend. However, the Indian telecom sector is expected to get new investments worth USD 1.5 billion for telecom R&D by 2012.4 In 2009, global players across the telecom value chain spent about USD 38 billion on R&D, of which one-fourth was offshored to low-cost countries.4 Indias share of the total offshored R&D expenditure was around USD 3 billion, which received a further boost in 2010 due to 3G, 4G/WiMax and LTE deployments globally.4 Telecom R&D in India will get another boost if the suggestion relating to sourcing infrastructure equipment made by TRAI is implemented. TRAI is in favour of mandating 80 percent of the network equipment and other related infrastructure to be sourced from domestic manufacturers by 2020. In this regard, TRAI, in April 2011, proposed recommendations on Telecom Equipment Manufacturing Policy to cater to the growing requirement of the telecom R&D.
Broadband Wireless Consortium of India (BWCI)

Broadband Wireless Consortium of India is a non-profit organisation that addresses various aspects of BWA, including technology development, standardisation, trials, deployment and regulation. The BWCI aims at creating an industry-wide consensus on technological and regulatory issues and foster industry-academia collaboration.
Reverse innovation
The unprecedented growth in the telecom market, evolving telecom business models, and challenging environmental conditions, make India ideal for innovation. Also, the idea of
3 Knowledge Wharton, Contract Research for Global Firms Creates Hotspots for IT, Telecom & Biotech, November 2005
4 Knowledfaber, In-depth Analysis of Telecom R&D in India: An MNC and Vendor Perspective, May 2010
CHAPTER 12
Investment Opportunities in the Indian Telecom Sector
The rapid growth of the Indian telecom sector has attracted the attention of investors worldwide. India witnessed a significant inflow of foreign capital from private equity and hedge fund investors over the past decade. In the ten years from April 2000 and March 2011, the Indian telecom sector has received FDI inflow amounting to INR 482.2 billion, accounting for an average of about 8.3 percent of the total FDI received by the country.1 With the presence of almost all the major telecom companies of the world, the telecom sector in India is the third-largest recipient of all FDI flow in the country. 2 A series of progressive policy initiatives by the government such as planned investment of INR 6.5 trillion in the 12th Five Year Plan3 and promotion of domestic telecom equipment manufacturing are expected to boost the telecom sectors attractiveness as an investment destination. Market-driven factors such as the planned expansion of networks, development and deployment of 3G infrastructure and widening of BWA network by players will also drive investments. The Draft National Telecom Policy 2011 endeavours to create an investor friendly environment for attracting additional investment in the Telecom Sector.
Capital expenditure
Telecom markets in the developed countries are highly saturated and fiercely competitive. Attracted by the favourable investment climate and encouraging market potential, many global telecom service providers forayed into the Indian telecom market in the last decade. The entry of new players stimulated investments in the sector, with capex by service providers growing at a CAGR of 20.6 percent during 20052010, to reach USD 7 billion.4 .3 However, at a time when the country requires maximum capital infusion to expand networks and to meet roll-out challenges, capital expenditure has started to decline with service providers putting their expansion plans on the back burner. The sector has already witnessed service providers failing to meet roll-out obligations in many circles. Along with it, there has been a significant decline in FDI a 47 percent decline during April-December 2010 as compared to April-December 2009.5 One of the new entrants in Indias telecom sector has already lowered the investment outlook to INR 8.1 billion from its earlier guidance of INR 12.2 billion.6
FDI inflow the Indian telecom sector (2006-11)
Source: Department of Industrial Policy & Promotion Note: Telecom sector includes radio paging, mobile services and basic telephone services and Data is for the period 1st April-31st March
1 Telecom Tiger, Indian telecom sector received Rs.48,220 crore FDI, October 2011 2 M2 Presswire, Indian Mobile Phone Industry Foreign Players vs. Indian Players, October 2011
3 Asia Pulse, Indias telco dept plans for us$143 bln investment in next plan, August 2011 4 Ovum, Service provider revenue and capex forecast global, October 2010
5 Department of Industrial Policy and Promotion, FDI Statistics, April 2011 6 DNA, Telenor pares capex outlook for India, July 2011
The domestic investment situation, however, is more positive. Many home grown mobile handset manufacturers have emerged in the recent past, boosting investments in the sector. Their success has translated into aggressive expansion plans that would positively impact investments. The draft NTP 2011 suggests attractive incentives to local manufacturers and this too would spur domestic investments. For instance, a domestic handset manufacturer plans to invest INR 1.5 billion in this fiscal on product development, after-sales service centres and marketing.7
Most of the leading handset manufacturers worldwide are planning to expand their production bases in India. A leading equipment manufacturer has planned an investment of USD 75 million that will make the Indian centre one of its biggest manufacturing facilities in Asia.8 Another leading mobile handset manufacturer has announced a USD 70 million investment plan to expand its existing capacity by 24 million units per annum.9
Capex by service providers in the Indian telecom sector (2005-10)
Source: Ovum
7 Telecom Paper, Karbonn to invest INR 1.5 bln in product development, October 2011
8 The Statesman, Chinese handset firm plans unit in India, September 2011
9 Indian Business Insight, Samsung invests $70 million to expand noida mobile phone factory, September 2011
Areas of opportunities
Telecom equipment manufacturing
The Indian telecom sector has witnessed a tremendous growth over the last decade, creating a huge demand for telecom equipments including towers, mobile handsets and Customer Premises Equipment (CPE). In 2009-10, the demand for telecom equipment in India stood at INR 547 .7 billion, accounting for 5.5 percent of the global demand.10 However, the domestic telecom equipment manufacturing sector has not kept pace and contributed only 12-13 percent of the domestic demand in 2009-10.10 Thus, the equipment for expansion of the network is currently imported from other countries. Demand for telecom equipment in India is projected to grow to INR 1,080.9 billion and INR 1.7 trillion by 2015 and 2020, respectively.10 With the government focusing on domestic production of telecom equipment, the gap in domestic demand and supply presents a huge opportunity to be tapped by domestic and international players alike. the telecom sector too has been limited. The increasing demand for telecom equipment, coupled with limited domestic innovation, has forced service providers to import a significant part of their equipment needs. Strong R&D infrastructure, in addition to creating a large number of jobs, also increases competitiveness and creates intellectual property leading to self reliance in strategic sectors. The government, with the aim of promoting R&D in the country, has set up the Telecom Equipment and Services Export Promotion Council (TEPC) and the Telecom Testing and Security Certification Centre (TETC). A few major telecom equipment manufacturers have already set up their R&D centres in the country and a few others are also contemplating the idea. The TEPC has recommended that the government should provide long term credit at attractive rates to Indian telecom companies and creation of a fund, specifically for R&D and product development in telecom sector, with initial corpus of INR 1 billion from USOF It has also recommended for . the Minimum Alternate Tax (MAT) to be waived off for 5 years for Indian R&D or product development companies. Also, the limit of deduction from taxable income is recommended to be increased from the current 125 percent to 300 percent.12
Green telecom
An ever increasing demand for telecom services has led to a significant increase in energy consumption. Since demand for energy is largely met using nonrenewable resources, posing the challenge of larger carbon emissions from the telecom sector. Also, the expenditure on energy accounts for a significant part of the operational cost of these networks. To ensure that carbon emissions from telecom remain stable over the coming years, TRAI issued a consultation paper on green telecom in February 2011. More than 1,400 projects, as part of the Clean Development Mechanism (CDM), have been approved by the Indian government that could attract around INR 280 billion into the country by 2012 through sale of Certified Emission Reduction (CER) certificates.13 With more than 310,000 cell phone towers in India consuming about 2 billion litres of diesel per year, the shift from diesel to alternate sources of energy will reduce CO2 emissions by 5 million tons, generating millions of carbon credits. The move is also expected to result in savings of USD 1.4 billion in operating expenses.13
Technology and R&D

In India, only 0.8 percent of the GDP is spent on R&D, while most of the developed countries spend around 2 percent of their GDP on R&D.11 R&D in
10 TRAI, Recommendations on Telecom Equipment Manufacturing Policy, April 2011 11 Communications Today, Telecom sector attracting large foreign direct investment, February 2011
12 TEPC, Policy recommendations to increase domestic telecom growth and exports of telecom equipment & services, Accessed in October 2011
13 TRAI, Consultation paper on green telecommunications, February 2011
MVAS
VAS in India has significant potential. The governments agenda of financial and social inclusion through the mobile phone will be driven by innovative content and applications targeted at the masses. This will require significant investment in this sector. TRAI, in 2009, recommended service providers to provide fair access to telecom infrastructure to content providers.13 TRAI has also proposed to license the VAS providers and structure the revenue sharing agreements with the telecom service providers to promote transparent distribution of revenues.14 The potential of the MVAS market is also attracting PE interest. Good MVAS can lead to high levels of customer loyalty and this promise of a steady revenue stream is causing PE firms to show interest in MVAS companies.
Table 5: Some recent investment activity Date Partner 1 Spice Digital August 2011 (MVAS provider, India) Bharti Airtel Partner 2 MediaTek (mobile IC solutions provider, Taiwan) Rationale MediaTek invested USD 20 million in Spice Digital to develop MVAS services based on mobile Internet Bharti Airtel and SBI agreed to invest INR 1 billion to form a joint venture to offer banking and financial services through mobile phones. Vodafone and ICICI have agreed to collaborate on the development of m-commerce applications.
January 2011
State Bank of India (SBI)
January 2011
Source: KPMG research
Vodafone
ICICI
Table 6: Some recent Private Equity deals Date July 2011 May 2011 July 2010 February 2011
Source: Venture Intelligence
Company Astrid Sourcebits GENWI JiGrahak Mobility
Application Area Utility applications Application development Smartphone and I-Pad applications m-Commerce
Investor Nexus Ventures Sequoia Inventus Capital Helion
14 The Financial Express, Trai set to bring R12,000-cr VAS market under regulation, July 2011
The telecom investment climate in India

Economic factors
The Reserve Bank of India (RBI) continues to adopt a tight monetary policy to contain inflation. This effort to control inflation by increasing interest rates has increased the cost of capital. With increasing rates, interest rates in the country, the differential between rates in India and Euro markets widened, making external commercial borrowing (ECB) an attractive option. During April and August 2011, Indian companies raised USD 16 billion through ECB route.15 However, a sharp depreciation of the rupee since August has lowered the attractiveness of the ECB route. Moreover, due to the short term nature of foreign borrowings16, this depreciation in rupee has increased repayment pressure on external debt held by the players. Consequently, service providers and other players have either deferred the expansion plans or have curtailed the investments. The monetary policy with relatively stable interest rates over time would promote business confidence. Moreover, market forces with clarity about costs and expected return on investment are more likely to invest in the sector.
The draft of NTP 11 has MCIT is contemplating liberalising
recommended recognizing the telecom sector as an infrastructure sector that will enable players to avail tax benefits.17
NTP 11 also recommends
merger and acquisition norms that may lead to increased transaction activity in the sector.
A group within DoT estimates an
promotion of domestic production of telecom equipment to meet 80 percent of demand through domestic manufacturing with a value addition of 65 percent by 2020.17
TRAI, through recommendations on
investment of INR 6.5 trillion (USD 143 billion) during the twelfth five year plan (2012-17). This investment will help in supporting the growth in subscriber base, which is expected to touch 1,200 million subscribers by the end of the twelfth five year Plan.21
DoT envisages an investment of
telecom equipment manufacturing policy, advocates giving preferential market access to domestically manufactured products. Moreover, TRAI has proposed domestic manufactured product manufacturers with annual turnover of less than INR 10 billion to get subsidy for equity capital and working capital for a period of 5 years at 6 percent for IP manufacturers and 3 percent for IMP manufacturers.18
The recommendations on telecom
equipment manufacturing policy also propose setting up of a Telecom Manufacturing Fund (TMF) with an initial amount of INR 30 billion, for providing venture capital to Indian Product manufacturers in the form of equity and soft-loans.18
In the area of telecom equipment
INR 200 billion in the first phase of the proposed National Optical Fibre Network scheme22. The plan aims at providing broadband connectivity in villages across the country, which will give a significant boost to the Bharat Nirman II programme. The government, under the Bharat Nirman II programme plans to provide broadband coverage to 250,000 gram panchayats by 201223 and intends to provide 888,832 broadband connections in rural areas by 201424.
In the eleventh five year plan, the
Government initiatives
The GoI has always played a crucial role by assisting telecommunication sector take a leap forward and become a key driver for development. Since India is still a laggard in equipment manufacturing and telecom R&D, the role of government in promoting investments in manufacturing and R&D in the field of telecom has become vital.
manufacturing and provision of ITenabled services, 100 percent FDI is permitted.19

The Reserve Bank of India has
government had allocated a corpus of INR 99.31 billion to set up a National Telemedicine Grid.25 This helped in expanding the telemedicine network to various regions. For instance, Gujarat has so far expanded the reach of telemedicine services from 53 villages in 2008 to 453 in early 2011.26
liberalised investment norms for Indian telecom companies by allowing them to invest in international submarine cable consortia through the automatic route.20
15 Business Standard, High interest rates, slowdown hit funding in Apr-Sep, October 2011 16 CRISIL, Economy Insights, September 2011 17 Ministry of Communications and Information Technology, Draft National Telecom Policy 2011, October 2011 18 TRAI, Recommendations on Telecom Equipment Manufacturing Policy, April 2011
19 DoT, Indian Telecom Sector, Accessed in August 2011 20 Voice and Data, Submarine cables promise seamless mobile connectivity, May 2010 21 Asia Pulse, Indias telco dept plans for US$143 bln investment in next plan, August 2011 22 India Investment News, Indias village broadband expansion projects 1st phase investment seen at Rs 200 bln: Minister, July 2011
23 India Brand Equity Foundation (IBEF), Telecommunications sector overview, Accessed in June 2011 24 DoT, Annual Report, 2010-2011 25 Planning Commission, Eleventh Five Year Plan, 2007-2012 26 Business Standard, Gujarat to soon dial 104 for telemedicine, January 2011
CHAPTER 13
Regulatory and Policy Environment
The telecom sector has witnessed rapid growth over the last decade and has become the second-largest contributor to the GDP of India, accounting for 2.8 percent of the nations GDP in 2009-10.1 The positive regulatory framework has driven the rapid growth in the sector in the last decade and will continue to drive growth in the future. Transparency, focus on subscriber interests and a consultative approach in issue resolution are the principal features of the Indian telecom regulatory regime. The laws governing the telecom sector include the Indian Telegraph Act, 1885, the Indian Wireless Telegraphy Act, 1933, and the Telecom Regulatory Authority of India Act, 1997 .
Telecom regulatory bodies2

The key bodies that constitute the policy and regulatory framework for telecom in India are the following: Table 7: Telecom regulatory bodies in India Regulatory bodies The Ministry of Communications & Information Technology (MICT) Functions The MICT formulates policies with respect to telecom, post, telegraph and other means of communication. The key departments under MICT include the Department of Telecommunications (DoT), the Department of Information Technology (DIP) and the Department of Posts (DoP). The DoT is the central governing body of the telecom industry. It is entrusted with the task of formulating policies for the development of the sector and awarding telecom licenses. It is also accountable for spectrum management. The Telecom Commission, an exclusive policy-making function, is part of the DoT. It is responsible for licensing, wireless spectrum management, administrative monitoring of public sector undertakings (PSU) and R&D, among others. TRAI is the regulator of the sector and has both mandatory and recommendatory powers. It mandates in areas related to tariffs, interconnection and standards for quality of service and recommends in areas related to timing, terms and conditions and revocation of licenses, competition and facilitation. The TDSAT has been set up to resolve all disputes between a licensor and a licensee, two or more service providers, and between a service provider and a group of consumers. The WPC is assigned with the task of spectrum management. The GoT-IT takes care of ad-hoc issues. The TSO was set up in 2007 as a forum where subscribers can directly raise their complaints. The decisions taken are binding on service providers.
The Department of Telecommunications (DoT)
The Telecom Commission
The Telecom Regulatory Authority of India (TRAI)
The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) Wireless Planning Commission (WPC) Group on Telecom and IT (GoT-IT) Telecom Sector Ombudsman (TSO)
Source: DoT, Paul Budde
1 India budget, Services sector, Accessed in July 2011 2 Paul Budde Report, India Telecommunications regulatory overview, July 2010
Regulatory evolution
The Indian telecom sector has undergone three district phases of regulatory evolution since independence. Till 1984, the Indian telecom sector was entirely under government ownership. The actual evolution started in 1985, when the DoT was established. Between 19842000, the industry witnessed gradual de-regulation but after 2000, the actual phase of globalization and competition started taking effect.
Source: DoT, KPMG Analysis
In 2002, the Universal Service Support Policy came into effect and provided statutory status to the USOF The fund was introduced to provide access to . telegraph services to people in rural and remote areas at affordable prices. In May 2003, the Calling Party Pays (CPP) regime was introduced, making all incoming calls free of charge. During the same year, GoI introduced the Unified Access Service (UAS) licensing regime, which permitted an access service provider to offer wireline or wireless or both under the same license, using any technology.3
3 DoT, Regulations, Accessed in July 2011
In February 2004, the DoT issued guidelines for intra-circle merger of cellular mobile telephone service (CMTS)/UAS licenses. The GoI also introduced the Broadband Policy in 2004. In November 2005, new UASL guidelines were issued. The licenses were to be issued on continuous basis without any restriction on the number of entrants in a circle and applications were to be processed within 30 days of submission. In early 2005, the FDI limit in the telecom sector was increased from 49 percent to 74 percent. In February 2008, the DoT approved the sharing of infrastructure among wireless service providers. In March 2008, TRAI abolished the Access Deficit Charge (ADC), which covered the levy paid by wireless service providers to the state-run service provider, BSNL, for sustaining its rural wireline network. In July 2010, telecom towers were accorded Infrastructure Status by the RBI.4
National Telecom Policies

National Telecom Policy (NTP), 1994
The NTP was instituted in 1994 to initiate and sustain aggressive growth of the telecom sector and ensure on-demand access to a telephone for every Indian. The key objective was to establish telecom infrastructure across all remote locations of the country. It also encouraged privatisation of the telecom equipment industry to help India emerge as a telecom manufacturing hub. The NTP 1994, yielded mixed results. , The goal of 7 million phone lines was .5 exceeded in a few years, however, rural areas lagged behind in getting access to telecom services. Private sector investment also fell short of expectations.5
Build world-class telecom facilities in
India by encouraging privatisation and offering a level playing field Safeguard the national security of the country The policy included specific targets, which are as follows: Make available telephone on demand by 2002 and sustain it to achieve a penetration of 7 percent by 2005 and 15 percent by 2010 Encourage the development of telecom in rural areas Increase rural penetration from 0.4 percent to 4 percent by 2010, and provide reliable transmission media in all rural areas Achieve telecom coverage of all villages and provide reliable media to all exchanges by 2002 Provide Internet access to all district headquarters by 2000 Provide high-speed data and multimedia capability to all cities with a population greater than 200,000 by 2002.
NTP 1999 ,
A fresh round of reforms was introduced by the government in 1999, when it enforced the New Telecom Policy. The NTP 1999, aimed at making , India competitive in the global telecom market through growth in exports, FDI and domestic investment.6 The key objectives of the policy were as follows: To make available affordable telecom services to all Ensure coverage of all areas for universal services Set up a modern integrated infrastructure that would enable the convergence of IT, media, and telecom and consumer electronics
Licensing framework
For the purpose of licensing, the nation has been divided into four metros Delhi, Mumbai, Kolkata and Chennai and 18 telecom circles, which are roughly aligned with the states of India. At present, the license fee, excluding spectrum charges, is 10 percent of adjusted gross revenue (AGR) for metro service areas and Category A circles, 8 percent of AGR for category B circles and 6 percent of AGR for Category C circles.5
4 RBI, RBI circulars, Accessed in July 2011 5 DoT, Access and services, Accessed in July 2011
6 TRAI, Government Policy and Guidelines New Telecom Policy 1999, Accessed in August 2011
Addendum to NTP 1999 ,

A further addendum to NTP 1999, was , made in November 2003. The Universal Access Service License (UASL) was introduced, permitting an access service provider to offer either wireless or wireline services or both using any technology in a defined service area. The unified license for telecom services permitted the e to provide all telecom services covering various geographical areas using any technology.7
Draft NTP 2011

The draft NTP 2011 was released in October, 2011 and was an indicator of future growth shaping the Indian telecom sector. Although details on key issues, such as license renewal, spectrum pricing, spectrum re-farming and consolidation guidelines, are still awaited in the final version of the policy; the policy framework demonstrates
a directionally mature and optimistic approach. The key objectives of the draft policy were as follows: Adopt One nation-one license across the nation Provide infrastructure sector status to the telecom sector De-link license issuance from spectrum allocation Proposed future spectrum allocations at market valuations Allocated spectrum in 300 MHz band for IMT services by 2017 and in 500 MHz band by 2020 Permit the trading, sharing and pooling of spectrum Recognize the Right to Broadband as a basic right Promote convergence of voice, data, video, Internet and value added services.
The governments focus on making the mobile phone a preferred platform for promoting socio-economic development in the country has clearly emerged from the draft. The final policy document, expected to be released in the near future, will provide more visibility on what lies ahead.
7 Paul Budde report, India Telecommunications regulatory overview, July 2010
National Broadband Policy

The National Broadband Policy enunciated in 2004, recognised the potential of broadband services and their contribution toward m-governance, m-commerce, m-education and m-health, among others. The Broadband Policy, 2004, envisioned the creation of a framework through various access technologies, such as optical fibre, Digital Subscriber Lines (DSL) on copper loop, cable television networks, satellite media, terrestrial wireless and future technologies.
National Frequency Allocation Plan (NFAP)

The NFAP is the guiding policy for all spectrum allocation in India.8 At the time of the formulation of NFAP in 2000, it was recognised that the NFAP will be renewed every two years in line with the Radio Regulations of the International Telecommunication Union (ITU) to cater to newly emerging technologies as well as to ensure equitable and optimum utilisation of spectrum.
FDI Policy
India is the fastest growing telecom market across the globe. This makes the Indian telecom sector one of the most attractive investment destinations for global players. India has witnessed a considerable rise in FDI during the past decade. The telecom sector is among the leading sectors attracting FDI, accounting for 8.2 percent of the cumulative FDI equity inflows worth USD 129.8 billion, from March 2000 to March 2011.9 The well-defined regulatory policy has been the fundamental reason for the inflow of huge international investments into the Indian telecom sector.
Table 8: Telecom FDI guidelines in India Segment Basic and cellular, Unified Access Services, National/International Long Distance, VSAT, Public Mobile Radio Trunked Services (PMRTS) Global Mobile Personal Communications Services (GMPCS) and other valueadded telecom services. ISP with gateways, radio-paging, endto-end bandwidth. FDI cap/equity 74 percent (including FDI, FII, NRI, FCCBs, ADRs, GDRs, Convertible preference shares, and proportionate foreign equity in Indian promoters/ Investing company) Entry route Other conditions
Automatic up to 49 percent, FIPB beyond 49 percent
Subject to guidelines set out in the DIPP policy
74 percent
Automatic up to 49 percent, FIPB beyond 49 percent
Subject to licensing and security requirements as notified by the DoT Subject to the condition that such companies shall divest 26 percent of their equity in favour of the Indian public within five years, if these companies are listed in other parts of the world. The government revised its guidelines for ISPs in August 2007; the new guidelines provided for ISP licenses with 74 percent FDI only Subject to sector-specific requirements as set out by the DoT
a) ISP without gateway; b) Infrastructure provider providing dark fibre, right of way, duct space, tower (Category 1); c) Electronic mail and voice mail Automatic up to 49 percent, FIPB beyond 49 percent
100 percent
Manufacture of telecom equipment

Source: FDI Policy, DoT
100 percent
Automatic
8 DoT, Regulations, Accessed in July 2011 9 Department of Industrial Policy and Promotion, FDI statistics, March 2011
New and upcoming regulations

Voice over Internet Protocol (VoIP)
The growing telecom industry has necessitated the demand for low-cost domestic and international calls. VOIP allows exchange of Voice over Internet Protocol packet switches and requires high bandwidth. This technology can be used to effectively communicate between two personal computers, a personal computer and a conventional phone as well as between two conventional phones. Until late 2008, the provision of VoIP services in India was restricted, with only international VoIP services being permitted. For instance, service providers such as MTNL are offering international VoIP services since late 2007 TRAI permitted ISPs to offer . unrestricted IP telephony services in August 2008. As a result, NLD service providers were allowed to connect to public Internet services and provide unrestricted IP telephony.10
IPTV
In August 2008, the government approved a new policy framework for the IPTV sector, including guidelines for the down-linking of TV channels. Earlier, only broadcasters were authorised to transmit channels through analogue and DTH platforms, but IPTV providers can also use content from broadcasters under the new policy.11
Next-Generation Networks (NGN)

In January 2009, TRAI initiated the consultation process for the migration of services to NGNs. TRAI has emphasised on robust regulatory framework in order to assist service providers in the transition to newer infrastructure, while minimising some of the risks involved.12
10 BMI International, India Telecommunications Report Q3 2011, September 2011 11 TRAI, Recommendation on provision of IPTV services, August 2008
12 TRAI, Next generation network: Implementation and implications, January 2011
CHAPTER 14
International best practices in creating successful m-Powerment services
There are several examples of successful m-powering services around the world both in the developing and developed nations. The following are some examples: Table 9: Some successful m-Powerment services from around the world m-Services, Region CellBazaar, Bangladesh Type of service (delivery medium) Commerce (SMS, WAP IVR) , Key Success Indicators
1.5 million users 90,000 hits a day (avg) A registered seller base of
Key Success Factors

Provides alternate access to virtual
more than 50,000
marketplaces (inadequate access to e-marketplaces due to low Internet penetration) Accessible through the most basic mobile phones Standard SMS, WAP and voice rates. No premium charges Strong partnership with the largest and most trusted mobile network operator Provides banking services to the unbanked population Open model any operator, any bank Pay-per-use Available in all 11 official languages No bank account needed (unlike other competing services such as FNB) Wide network of banking agents
Wizzit, South Africa, 2004
Banking (USSD)
Over 50,000 customers
within 2 years of launch Started expanding in international markets (Rwanda, Zambia, Tanzania and Romania)
Osaifu-Ketai, Japan
Payments (NFC)
10 million users in less than 2 Provides quick and convenient purchases
years, 20 million users within Broad range of offerings 3 years, and 30 million users Operator-led, yet win-win ecosystem within 4 years of launch Usable in a large number of convenience stores and Tokyos large taxi fleet Promise of security 24X7 contact centre to address security incidents such as theft
Reaches 900,000 students Delivers educational infrastructure support Strong partnership between ecosystem
Text2Teach, the Philippines
Education (SMS)
and 1,400 teachers Available in 9 provinces Includes over 400 educational multimedia files
participants Innovative content delivery media such as videos and graphics Based on the hugely popular SMS service Generates better learning outcome
Source: KPMG Research
m-Services, Region m-parking, Estonia
Type of service (delivery medium) Payments (SMS)
Key Success Indicators

90 percent penetration
Key Success Factors

Offers convenient payment option for city
within ten years of launch
parking
Strong partnership between ecosystem
participants Cost savings for parking operators, convenience for drivers, ARPU for mobile operators Interoperable between telecom operators Ease of use SMS to park, no registration, no special account needed TXT CSC, the Philippines Governance (SMS)
Despite very little promotion, Offers citizens a convenient way to
it receives an average of 1,000 to 1,500 messages
communicate with the government Based on the hugely popular SMS service Low cost - A single TXT CSC SMS cost only P . 1 (USD 0.02) compared to P 2.50 (USD 0.05) charged by the Bureau of Internal Revenue to participate in m-Government services
Provides vital know-how in ante natal care Free to use Truly scalable private-public ecosystem
Text4baby, the US
Healthcare (SMS)
More than 190,000 users
within 1.5 years of launch More than 2.3 million messages delivered in 1.5 years
involving a network financial sponsors, mobile service providers, government entities, and implementation partners in all 50 states
Provides critical link between cultivation and
Dialog tradenet, Sri Lanka
Agriculture
WSA-mobile Winner in the
category m-Inclusion & Empowerment, 2010
sales No new software installations or high-end handsets required Available in English, Sinhalese and Tamil Only call and SMS charges apply Win-win ecosystem
Source: KPMG Research
Analysis of the key success factors of these services reveals a few common themes.
A strong and well coordinated ecosystem

All over the world, successful MVAS have been driven by a well established ecosystem. Not only are these ecosystems extended to include a large number of participants, each bringing some value to the offering, but they are also created in a manner that provides some clear incentives to each stakeholder. Even in the cases where one stakeholder enjoys more control of the ecosystem than the others, the revenue sharing is not unduly skewed in favour of the dominant stake-holder. CellBazaar in Bangladesh
Network operator: Increased SMS, Service provider: Multiple revenue
Wizzit in South Africa

Network operators: Increased ARPU,
streams (share from operator ranging between 5-50 percent depending on platform), advertising revenue1 Consumers: A convenient, affordable mobile marketplace. Osaifu-Ketai in Japan
Network operator: Increased ARPU,
reduced churn
Financial institutions: Increased
reduced churn
Merchants: Increased consumer
WAP and voice usage; share of revenue from transactions
spending stemming from ease of use, reduced bill queue times, access to data on purchasing behaviour of customers leading to more effective loyalty programs Consumers: Convenient payments
revenue from transactions, interest on deposits, and commission from third party service providers Field agents: Employment opportunities Consumers: Banking services which were not available earlier (Wizzit was the first m-banking service targeted at the unbanked population in South Africa).
1 LIRNEasia, 2009
MVAS designed to meet a compelling social need

Successful MVAS in developing countries are often driven by a compelling social need which is mostly exclusively met by these services. For example:
Text2teach in the Philippines
MVAS designed on the most popular VAS medium

The fact that most of the successful services listed above are delivered through SMS is a major factor contributing to their success. SMS is by far the most popular VAS platform in the world especially in the developing countries. Designing MVAS based on the most popular MVAS medium takes away some of the adoption risk. Since users are already comfortable using the platform, it is relatively easier to drive usage of a service designed on that platform. Similarly, many of the most successful MVAS in Japan are based on the NFC technology, which is highly advanced in Japan.
Strong branding
It is good practice to associate MVAS with a strong brand a brand that consumers already know and trust. This is especially true for services aimed at financial inclusion, where the trust factor plays a huge role in adoption. Example: m-PESA in Kenya is associated with the Saraficom brand, the most valued brand in Kenya. Similarly, mobile payments services in Japan are mostly associated with the brand of the incumbent operator and are backed by strong technology brands such as Sony another well trusted brand in Japan.
addressed the sub-optimal educational infrastructure in the country Text4baby attempts to address the high infant mortality rates in the US Dialog tradenet attempts to bridge the information asymmetry affecting the agricultural population in Sri Lanka Wizzit addressed the need for basic banking services in South Africa m-PESA addressed the need for mobile micro-remittance in Kenya TXT CSC addressed the high cost of delivering mass communication channels with the government in the Philippines
Low cost of usage

It is imperative to keep the cost of usage very low. This is especially true in the case of m-powering applications meant for the rural regions or those aimed at the relatively less affluent segment of the society. If the offering is compelling enough, users are ready to pay for airtime and basic SMS or IVR charges. However, the service or application per se needs to be made available for free. Although this affects the business model, successful MVAS operators have tried to overcome this challenge by offering a tiered pricing structure (such as m-PESA).
Conclusion
The Indian telecom market has traversed a long journey of growth and opportunities. Every 75 out of 100 people in India are now connected. Like in most other countries, in India too, use of the mobile phone as a communication medium has bypassed that of the landline. Mobile penetration in the urban areas has reached a high level and a little more than a third of Indias rural population comprise mobile phone users. Therefore, there exists significant opportunity for the government and the industry to bridge the rural-urban digital divide and foster financial and social inclusion through the mobile phone. MVAS can become a potent channel to deliver services to subscribers that lead to personal growth and empowerment. In urban areas, innovative MVAS modelled on entertainment, location-based services and advanced m-commerce will contribute to enhancing the quality of life. In the rural areas, targeted and customized MVAS will help in providing access to various empowering services healthcare, education, agriculture, banking, etc. through inexpensive and easy to use interfaces. On the whole, an empowermentdriven MVAS strategy will bring together consumers needs with significant business opportunities. Examples of successful MVAS in foreign markets both developing and developed indicate several key success factors. Best practices include an equitable and collaborative ecosystem, innovative services designed to meet users needs, and ease of use, to name a few. To tap the next big opportunity in the India telecom market after voice, India will need to explore and implement these industry best practices.
About KPMG in India

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 150 countries and have 138,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. Our Audit practice endeavors to provide robust and risk based audit services that address our firms clients strategic priorities and business processes. KPMGs Tax services are designed to reflect the unique needs and objectives of each client, whether we are dealing with the tax aspects of a cross-border acquisition or developing and helping to implement a global transfer pricing strategy. In practical terms that means, KPMG firms work with their clients to assist them in achieving effective tax compliance and managing tax risks, while helping to control costs. KPMG Advisory professionals provide advice and assistance to enable companies, intermediaries and public sector bodies to mitigate risk, improve performance, and create value. KPMG firms provide a wide range of Risk Consulting and Management Consulting that can help clients respond to immediate needs as well as put in place the strategies for the longer term. KPMG in India, a professional services firm, is the Indian member firm of KPMG International and was established in September 1993. Our professionals leverage the global network of firms, providing detailed knowledge of local laws, regulations, markets and competition. KPMG in India provide services to over 5,000 international and national clients, in India. KPMG has offices across India in Delhi, Chandigarh, Ahmedabad, Mumbai, Pune, Chennai, Bangalore, Kochi, Hyderabad and Kolkata. The firms in India have access to more than 5,000 Indian and expatriate professionals, many of whom are internationally trained. We strive to provide rapid, performance-based, industry-focused and technology-enabled services, which reflect a shared knowledge of global and local industries and our experience of the Indian business environment.
About Department of Telecommunications (DoT)

The Department of Telecommunications of the Government of India is responsible for telecom policy formulation, telecom licensing, wireless spectrum management, universal service obligation, promotion of International co-operation in telecommunications, promotion of private investments in telecom sector, standardization and research in the field of telecommunications and administration of: Indian Telegraph Act, 1885 Indian Wireless Telegraphy Act, 1933 Telecom Regulatory Authority of India Act, 1997
About Federation of Indian Chambers of Commerce and Industry (FICCI)

FICCI, set up in 1927 is the largest and oldest apex business organization of Indian business. With a nationwide membership of over 1500 corporates and over 500 chambers of commerce, FICCI espouses Indian businesses and speaks directly and indirectly for over 2,50,000 business units. FICCI maintains the lead as the proactive business solutions provider through research, interactions at the highest political level and global networking. FICCI organizes a large number of exhibitions, conferences, seminars and business meets for promoting business.
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Contact Us
Department of Telecommunications Ashok Nakra
Director (T) Room No.501, Sanchar Bhawan Ashoka Road, New Delhi -110 001 Tel: 91-11-23372575, 23036544 E-mail: dirt-dot@nic.in Website: www.dot.gov.in
The Telecom Regulatory Authority of India Mahanagar Doorsanchar Bhawan

Jawaharlal Nehru Marg New Delhi: 110 002 India Tel: 91-11-2321 1934, 2323 3466, 2322 0534, 2321 3223 Fax: 91-11-2321 3294 Website: www.trai.gov.in
Telecom Disputes Settlement & Appellate Tribunal

Room No.482 & Room No.478, Hotel Samrat Chanakyapuri, Kautilya Marg New Delhi - 110 021 India Tel: 91-11-2687 6882, 2687 3411, 2410 2563 Fax: 91-11-2410 5171, 2687 6882 Website: www.tdsat.nic.in
Telecommunication Engineering Centre

Gate No. 5 Khurshid Lal Bhavan, Janpath New Delhi 110 001 India Tel: 91-11-2371 7138 Website: www.tec.gov.in
Centre for Development of Telematics (C-DOT)

C-DOT Campus Mandi Road, Mehrauli New Delhi-110 030 India Tel: 91-11-2680 2856 Fax: 91-11-2680 3338 Website: www.cdot.com
Federation of Indian Chambers of Commerce and Industry Sarika Gulyani

Deputy Director Industrys Voice for Policy Change Federation House, Tansen Marg, New Delhi -110 001 Tel: 91-11-23738760-70, 91-11-23736190 E-mail: ficcitelecom@ficci.com Website: www.ficci.com
KPMG Sean Collins

Global Chair - Communications and Media seanacollins@kpmg.com Tel: 65-6213 7302
Romal Shetty
Partner and Head - Telecom romalshetty@kpmg.com Tel: 91-80-3065 4100
Jaideep Ghosh
Partner - Management Consulting jaideepghosh@kpmg.com Tel: 91-124-307 4152
2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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Acknowledgement KPMG report development team: Sutithi Chakraborty, Garima Kapoor, Gautam Jain and Ankit Gupta.
This knowledge document has been developed by KPMG in India and FICCI for providing an overview of the Indian telecommunications sector. It is meant to be used for the limited purpose of India Telecom 2011 only. It may not be considered, in any form, as a policy/legal document of the government, directly or indirectly.

Mpowering India 2011

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INDIA

1 | m-POWERING INDIA - INDIA TELECOM 2011

m-POWERING INDIA - INDIA TELECOM 2011 | 2

Location-based services (LBS)

Machine-toMachine (M2M) applications

3 | m-POWERING INDIA - INDIA TELECOM 2011

Growing and Empowered India

m-POWERING INDIA - INDIA TELECOM 2011 | 4

5 | m-POWERING INDIA - INDIA TELECOM 2011

The India growth story

Average decadal growth of GDP (%)

GDP annual growth (%) (2001-12F)

Source: CSO, KPMG Analysis

m-POWERING INDIA - INDIA TELECOM 2011 | 6

Key growth drivers

Components of Indias GDP growth (%)

Source: CSO, KPMG Analysis

7 | m-POWERING INDIA - INDIA TELECOM 2011

m-POWERING INDIA - INDIA TELECOM 2011 | 8

Source: CSO, KPMG Analysis

9 | m-POWERING INDIA - INDIA TELECOM 2011

Contribution of the telecom sector to GDP (1980-2010)

Source: CSO, KPMG Analysis

* Latest Available Data

Indians are earning more and spending more

Indias increasing per capita income

16 Edelweiss, India 2020 Report, March 2010

m-POWERING INDIA - INDIA TELECOM 2011 | 10

Telecommunications A key driver of growth

High demographic dividend

Working age population as a percentage of total population

Source: UN Population Statistics

A skilled and educated workforce

11 | m-POWERING INDIA - INDIA TELECOM 2011

Infrastructure investment (2007-16F)

21 Census of India, Provisional Population Totals, Accessed in August 2011

m-POWERING INDIA - INDIA TELECOM 2011 | 12

13 | m-POWERING INDIA - INDIA TELECOM 2011

The Global Telecom Market

m-POWERING INDIA - INDIA TELECOM 2011 | 14

15 | m-POWERING INDIA - INDIA TELECOM 2011

Growth stemming from data and mobile device sale

Global telecom market revenue by segments (2009-2015F)

1 Gartner, Market Trends: Global Telecommunications Market, May 2011

m-POWERING INDIA - INDIA TELECOM 2011 | 16

Global telecom market - share of segments (2010)

2 Gartner, Market Trends: Global Telecommunications Market, May 2011

17 | m-POWERING INDIA - INDIA TELECOM 2011

Mobile subscriber base continues to grow

Global wireless and wireline subscriptions

Source: Economic Intelligence Unit

Global wireless and wireline penetration (%)

Source: Economic Intelligence Unit

3 Economic Intelligence Unit, Data Tool, Accessed in August 2011

m-POWERING INDIA - INDIA TELECOM 2011 | 18

Emerging markets to drive wireless growth, witnessing surge in investments

Telecom investment in key markets (2007-10)

Source: Economic Intelligence Unit

19 | m-POWERING INDIA - INDIA TELECOM 2011

Focus on mobile data services to sustain growth

Global wireless ARPU comparison (2010)

Source: Economic Intelligence Unit database, KPMG Analysis