Political:
• Governments in emerging markets understand the far reaching benefits from a thriving communications sector both as a job creator as well as an enabler for other industries such as IT & ITES. Low cost and universal access to communications will go a long way in improving the labor productivity of emerging markets. This has led to increased government activity in this sector: a) De-regulate b) Increase competition c) Incentivize rural connectivity. Therefore Telecom industry in emerging markets find a ‘willing’ partner in their respective governments which puts them on a strong footing as far as political will is concerned. This phase for emerging markets could be considered similar to the 90s and early 2000s for western countries where government interest led to de-regulation and rapid development. Therefore, while MNCs in western countries have already reaped the benefits of government interest, players in the developing countries are just starting to do so indicate good growth in the near future.
Economic:
• The last decade has been a tremendous growth phase for emerging markets which GDPs growing at a scorching pace. In principle this has had two impacts on the economic pyramid 1) Increase disposable incomes 2) Fatten the middle class. Together this has led to an increased demand for communication services across the board, be it data, video or basic voice as is evident from the net subscriber additions of wireless players across emerging markets. Fact: India added 113.2 million subscribers in 2008, the largest globally.
• The enormous growth potential of the Telecom sector is evident that even with the increased subscriber additions the overall tele-density in india for example is at 33% and 36% in China. Therefore a lot of growth has yet to come and globally most investors are bullish on this sector. Fact: According to CRISIL research India will attract $350 billion in investment by 2012.
Social:
• Demographics – Most of the emerging markets are characterized by a large and growing population in the 15-40 age group indicating a large captive market with increasing earning potential, disposable incomes and aspirations - Exactly the mix that any industry would want to see in its consumer base.
• Growth at the base: With the governments turning their attention to rural population and several “Base of the Pyramid” initiatives underway, rural connectivity has been incentivized. Rural families in most emerging markets are characterized by some family members working far away in cities and communication until now has been a big problem thanks to lack of investment and government apathy. However this latent demand is now being fulfilled by private players with huge success. Fact: By 2012, India is likely to have 200 million rural telecom connections at a penetration rate of 25 per cent. And according to a report jointly released by Confederation of Indian Industry (CII) and Ernst & Young, by 2012, rural users will account for over 60 per cent of the total telecom subscriber base. source: www.ibef.org
Technology:
• Telecom players in emerging markets have the advantage of hindsight and the opportunity to pick the technologies which have already been successful in the west. This vastly improves their ROI on capital expenditure.
• Telecom players in emerging markets are not loaded with legacy technology or infrastructure which puts them at an advantage in terms of cost, technology selection and capacity addition.
• Telecom players in emerging markets have the huge advantage of scale and volume due the size of domestic markets which helps them a) keep prices low 2) Faster adoption 3) Quicker ROI
The above factors puts Telecom players in emerging economies on a strong footing on each of the following areas:
- Size of market & availability of several large sub-segments
- Growth in demand
- Technology adoption
- Public policy
- Investment
