Presentation Plan

1 2 3 4 5 6

Telecom Industry Overview Telecom Investment Attracting Sector Regulatory Framework and Its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues

Presentation Plan

1 2 3 4 5 6

Telecom Industry Overview Telecom Investment Attracting Sector Regulatory Framework and Its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues

Introduction to Indian Telecom Industry

History
1851 Introduction of Telegraph services 1947 Foreign Telecom Companies nationalized to form PTT 1980s: The Beginning Tele-density in 1980-81: 0.3% Introduction of public pay phones Private Sector allowed DoT, MTNL and VSNL formed Early to Mid 90s: A Messy Affair Telecom policy 1994 - Basic telephony service to private operators - 49% FDI - 8 licensees began operations in Aug 1995

Introduction to Indian Telecom Industry Late 90s

Birth of a regulator: TRAI NTP 1999 (New Telecom Policy)

2000+

CAGR of around 85% since 1999 FDI: 74% (2005)

2007-2009

having the world's lowest call rates the fastest growth in the number of subscribers (45 million in 4 months), the fastest sale of million mobile phones (in a week), the world's cheapest mobile handset the world's most affordable colour phone

Introduction to Indian Telecom Industry

The Indian Telecom sector is third largest network in the world. Subscriber numbers already crossed 250 million. Average growth rate of over 40% in respect of subscribers. Monthly additions of above 7 million phones. Growth impetus from wireless segment with 84% wireless and 16% wired. National teledensity at 26%. Rural teledensity stands at 7%, while the urban at 57%. Further access is provided by 54 lakh PCOs and 5 lakh VPTs. 9 million Internet and 2.5 million broadband subscribers. More than a thousand cities have been provided with broadband connectivity out a total of five thousand cities

Indian Telecom Industry A Lucrative Option

Indian Telecom Industry
In recent years, the Indian telecom industry has witnessed phenomenal growth. A conducive business environment, favourable demographic outlook and the political stability enjoyed by the country have contributed to the growth of the industry. India achieved the distinction of having the world's lowest call rates (23 US cents), the fastest sale of million mobile phones (1 week), the world's cheapest mobile handset (USD 19) and the world's most affordable colour phone (USD 31).

Indian Telecom Industry Facts

 One of the fastest growing cellular markets in the world in terms of number of subscriber additions 261.07 million (March 2008) Expected to reach total subscriber base of about 500 million by 2010 (i.e., more than one phone for every household) Annual growth rate of the telecom subscribers 42 percent (200708) More GSM subscribers than fixed-line subscribers  Total telecom subscribers 300.49 million (March 2008 Cellular + Fixed Line ) Tele density 26.22 percent (March 2008) Number of new mobile subscribers added last quarter 27.62 million (March 2008) ARPU for GSM USD 5.28* (USD./sub/ month) Telecom equipment market USD 34,100 million (200708) Handset market USD 7,250 million (200708)

 

*USD=50

Data Source TRAI 2008 Report

Telephony services (mobile and basic) and Internet services dominate the Indian telecom services
The Indian telecom market generated revenues of approximately USD 32 billion in 200708. It registered a CAGR of approximately 32 percent from 200203 to 200708. The CAGR from 200808 to 201112 is expected to stabilise at 21 percent. Apart from mobile telephony services, other value-added services are also gaining importance. Revenues of Indian Telecom Industry: 200208 (USD billion)

Telecom Services India

The Indian telecom services can be divided predominantly into basic, mobile and Internet services. It also comprises smaller segments, such as radio paging services, Very Small Aperture Terminals (VSATs), Public Mobile Radio Trunked Services (PMRTS) and Global Mobile Personal Communications by Satellite (GMPCS). The growth witnessed in the mobile services and Internet services segments was much higher as compared to other services, such as basic services and radio paging services which are nominal in terms of numbers.

Various other services emerged by leveraging the telecom services industry

Radio Paging
In 1995, radio paging services emerged as a promising segment in India. However, this segment could not compete with cellular services in general and SMS technology in particular, and is currently shrinking. At present, only four radio paging service providers are present in the Indian market.

Public Mobile Radio Trunked Services

PMRTS have not grown to their expected potential in India. The high licence fee leaves a very thin margin for services providers; thereby, inhibiting its growth. About 31,000 subscribers are currently availing this service in India from 12 different operators.

GMPCS*
GMPCS services were launched in India in 1999. These services allow a subscriber to communicate from any point on earth through a handheld terminal. Moreover, the telephone number remains unchanged, irrespective of the subscribers location.

Other Telecom Services

Very Small Aperture Terminals (VSAT)

The market for VSAT services increased by 5.73 percent during the quarter ending in December 2006, and the segment had a total subscriber base of 55,070. HCL Comnet is the largest of the eight players functioning in the market.

* Global Mobile Personal Communication by Satellite

Private players account for highest subscriber base growth in the basic telephony services segment (Fixed Lines)
Market Share* of Basic Services Segments in India (200708)
WLL (F)

Basic Services  Basic services include fixed wireline and wireless in local loop (WLL-fixed). In 200708, basic services subscribers exceeded 60 million. Fixed wireline services hold a major market share of 83 percent in basic services. BSNL and MTNL are market leaders in this segment. Although the government-owned BSNL dominates the segment in terms of subscriber base and market share, private players have registered a notable growth.
*
In terms of Subscriber Base

Fixed 83%

Market Share* of Basic Service Operators in India (200708)

Mobile telecom services provide an unprecedented growth opportunity for companies

Mobile services have led to a spectacular growth in the Indian telecom industry. Currently, 12 players are active in this segment. The total number of wireless subscribers escalated to 261.07 million at the end of March 2008, with a monthly addition of more than 6 million wireless subscribers. Despite the decreasing ARPU*, the minutes of usage is on a rise, which provides impetus to the mobile services growth in India.

Minutes of Usage per Month Mobile Services

USA
838

India

461

Despite a low teledensity of approximately 19 percent, India has the second highest minutes of usage per month. This offers huge growth opportunity to telecom companies.

China

303

Russia

88

ARPU* in India Mobile Services The declining ARPU implies that India Inc. is tapping a large market at the bottom of the pyramid by reducing tariffs; thereby, enhancing affordability.
* Average
Revenues per User

Data Source TRAI 2008 Report

Number of mobile subscriber will propel the total subscriber base to 500 million by 2010
Telecom Subscriber Base and Teledensity in India

2 2 2

The telecom subscriber base has witnessed an explosive growth; the additions in the current year registered a growth of approximately 47 percent over the previous year. The subscriber base registered a CAGR of 40.4 percent for 200203 to 200708.

Subscribers (in million

  
2


22 2

2 2

2 
2  2

 
2 

2  

elecom Subscriber Base

eledensit

2   (As of June 2 

2   

Market Share* of Wireless** Operators (As of March 2008)

The state-owned BSNL was the second largest service provider after Bharti Airtel (23 percent) in the Indian wireless telecom market with a market share of approximately 19 percent for the year ending March 2008.

* In terms of Subscriber

Base

** Includes GSM, CDMA and W LL-F services

eledensit (in ercent

GSM surpasses CDMA in number of additions to subscriber base

Market Share* of Wireless Operators (as of quarter ending March 2008)
GSM surpasses CDMA segment by a large margin in terms of subscriber numbers.

Bharti Airtel dominates the GSM segment with a market share of approximately 32 percent for the year ending March 2008, followed by Vodafone with a share of approximately 23 percent subscribers.

# " M, 73 !

CDMA, 27 !

Reliance Communications and TTSL dominates the Indian CDMA mobile services segment. * In terms of Subscriber
Base

Market Structure for Wireless Service (GSM)

Divided into 22 circles 4 metros 19 circles Further divided into A, B and C category based on economic parameters and revenue potential
$
ammu & Kashmir Himachal Pradesh Punjab Haryana Uttar Pradesh W North Eastern States

Each circle has a licenses Four operators per circle are allowed
Rajasthan

DELHI Uttar Pradesh E Bihar Gujarat Madhya Pradesh W est Bengal

Licenses are saleable

Maharashtra MUMBAI Andhra Pradesh Karnataka

Orissa

KOLKATA

METRO Circles
CHENNAI Tamil Nadu Kerala

A Circles B Circles C Circles

Source :COAI & TRAI

GSM

GSM Subscriber Growth (in mn) The number of subscribers for the GSM services now stands at 172.23 million subscribers for the quarter ended December 2007 as against 153.99 million subscribers for the quarter ended September, 2007. The growth rate of the number of subscribers over the quarter has been at 11.85%

Compostion of revenue- GSM

CDMA

CDMA Subscriber Growth

The number of subscribers for the CDMA services now stands at 61.39 million subscribers for the quarter ended December 2007 as against 55.08 million subscribers for the quarter ended September, 2007. The growth rate of the number of subscribers over the quarter has been at 11.46%.

Compostion of revenue- CDMA

Broadband services to drive Internet penetration in India

Internet Subscribers: 19982008

The emergence of private players and new technologies have provided a strong impetus to the growth of Internet and broadband services. The quality and penetration of these services have undergone changes, with significant improvement in the telecom infrastructure. The Internet subscriber base registered a CAGR of 60 percent for the period 199798 to 200708.

BSNL and MTNL caters to more than two-thirds of Internet subscribers in India. The total no. of Broadband Subscribers of these 13 Service Providers have increased from 3.1 million to 3.82 million by adding 0.72 million (23.35%) subscribers in the quarter ending March, 2008. Private players are catching up fast due to increased penetration of Internet and broadband services in India. The telecom market will experience high penetration of Internet services with the support from government policies and introduction of novel technologies in India.

Presentation Plan

Telecom Industry Overview Telecom Handset Market

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Telecom Investment Attracting Sector Regulatory Framework and Its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues

Indian telecom handset market booming along with mobile services industry
 The Indian handset market grew at a phenomenal rate in 2006 with the sale of approximately 3035 million handsets. It is estimated that by 2011, sales of mobile handsets will reach 150 million units. Competitive pricing has triggered the growth of coloured handsets, which accounted for 75 percent of the market in 2006; whereas, the share of monochrome handsets has declined to 25 percent. Mobile phones are available at prices as low as USD 19 31. Camera phones currently occupy 15 percent of the sales volume. The CDMA category is growing faster than the GSM category. It captured 25 percent of the market volume in 200506 as against a 20.5 percent share in the previous year.
% %
USD M ll on

Mobile Handsets Market in India: 200407

5,000 4,000 3,000 2,000 1,000 0 1,610 1,966 3,231 4,750

200304

200405

200506

200607

Market Share of GSM and CDMA Handset Manufacturers: 200607

Haier 1% ZTE 4% Samsung 6% Huaw ei 1% Others 7%

Overall, Nokia has a market share of 53 percent; it dominates the GSM mobile handsets with a market share of approximately 73 percent.

Sony Ericsson 6%

Nokia 53%

LG 11% Motorola 11%

LG dominates in the CDMA handsets market with a market share of 60 percent.

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Telecom Industry Overview Telecom Investment Attracting Sector Regulatory Framework and Its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues

Increasing mobile subscriber numbers and low level of teledensity offers large opportunities to Indian companies
Large number of additions in telecom subscribers


Low teledensity (depicting large untapped potential)

Telecom Advantage

The telecom subscriber base has witnessed an explosive growth; the additions in year 200-08 registered a growth of approximately 52 percent over the previous year. The subscriber base witnessed a CAGR of 42 percent during 200203 to 200708. The impressive growth in the subscriber base has resulted in a significant increase in teledensity. In 200708, India has a teledensity of 26.22 percent, as compared to year 2006-07 figure of 18.23 percent, signifying a growth of percent.

 

Even though the Indian telecom industry has exceeded a subscriber base of 200 million, its teledensity is only 18 percent. Thus, the Indian market provides telecom service providers with a large untapped potential due to the countrys increasing population and its low teledensity. The government has plans to raise teledensity to 4045 percent by 2010; thereby, offering greater growth opportunities for service providers.

Data Source TRAI 2008 Report

Presentation Plan

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Telecom Industry Overview Telecom Investment Attracting Sector Regulatory Framework and its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues

Regulatory Framework provides level playing field for all operators

The Department of telecommunications (Government of India) is the main governing body for the industry. Telephone Regulatory Authority of India (TRAI) assists the Government of India (GoI) to take timely decisions and introduce new technologies in the country.

Indian Telecom Industry Framework

Indian Government Bodies

Independent Bodies

They formulate various policies and pass laws to regulate the telecom industry in India.

Wireless Planning and Coordination (WPC)

Handles spectrum allocation and management DoT Licensee and frequency management for telecom Exclusive policy making body of DoT Handles ad hoc issues of the telecom industry

They undertake various research activities and monitor the quality of service provided in the Indian telecom industry. They also provide various recommendations to improve the status of telecom operations in India.

Telecom Regulatory Authority of India (TRAI)

Independent regulatory body

Department of Telecommunications

Telecom Commission

Telecom Disputes Settlement and Appellate Tribunal (TDSAT)

Telecom disputes settlement body

Group on Telecom and IT (GoT-IT)

Important regulations and their impact on the Indian telecom industry

Unified Access Service License Regime (UASL)
Unified licensing marked the end of the license regime in the Indian telecom industry. It helped in aligning convergent technologies and services. The establishment of the Unified Access Licensing Regime (2003) eliminated the need for different licenses for different services. Players are now allowed to offer both mobile and fixed-line services under a single license after paying an additional entry fee. This does not take into account national and international longdistance services and Internet access services.

Cellular Tariff (INR per minute

Access Deficit Charges (ADC)

Number of Subscribers (millions) 16
Lowering of ADC

150
UASL, CPP

12 8
NTP 99 Telecom Tariff Order W LL

120 90 60 30 0

4 0

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Cellular Tariff

Total Cellular Subscribers

ADC makes it mandatory for a service provider at the callers end to share a percent of the revenue earned with the service provider at the receivers end in longdistance telephony. This subsidises the infrastructure costs of the service provider enabling access at receivers end, especially because rental for fixed-line services is low. Revision in the ADC regime is expected to be followed by further tariff reduction in telecom services. In a move to bring down telecom tariffs drastically, TRAI has phased out access deficit charges from this year.

Universal Service Obligation (USO)

The USO policy was laid along with NTP 99 to widen the reach of telephony services in rural India. All telecom operators are bound to contribute 5 percent of their revenues to this fund. This system was put in place to bridge the wide gap between urban and rural teledensity, bringing it down from the current 31 percent. Initially, only basic service providers were under the purview of USO. Later, its scope was expanded to include mobile services also. Although it increases the cost burden for the telecom companies, USO helps in building the telecommunication infrastructure in the rural areas.

Presentation Plan

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Telecom Industry Overview Telecom Investment Attracting Sector Regulatory Framework and Its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues

FDI and other M&A activities increasing in number

Major trends in the telecom sector is increasing M&A activity, de-regulation of telecom policies and growing interest of international investors. Recent Deals in Telecom Sector
The Indian telecom industry has a 74 percent FDI limit in the telecom services segment. The GoI has permitted 100 percent FDI in manufacturing of telecom equipment in India.

Vodafone purchased stake in Hutch from Hong Kong's Hutchison Telecom International for USD 11.08 billion. Reliance Communications Limited has sold a five percent equity share capital of its subsidiary Reliance Telecom Infrastructure Limited to international investors across the US, Europe and Asia. The deal was worth USD 337.5 million.

FDI in Telecom Sector

700 FDI (USD mi i 680 521 500 300 116 100 200304 200405 200506 200607 129

&

('

Telekom Malaysia acquired a 49 percent stake in Spice Communications for USD 179 million.

Maxis Communications acquired a 74 percent stake in Aircel for USD 1.08 billion.

Ericsson to design, plan, deploy and manage Bharti Airtel network and facilitate their expansion in the rural areas, under a USD 2 billion contract.

The Indian telecom industry has always attracted foreign investors. In fact, the cumulative FDI inflow, during the August 1991 to March 2007 period, in the telecommunication sector amounted to USD 3,892 million. It is the third largest sector to attract FDI in India in the post-liberalisation era. FDI calculation takes into account radio paging, cellular mobile and basic telephone services in the telecommunication sector.

FDI and other M&A activities increasing in number

Recent Deals in Telecom Sector

TTSL DoCoMo Deal.

Telenor-Unitech Deal
apanese carrier NTT DoCoMo acquired 26 per cent stake in Tata Teleservices (TTSL). The Tata DoCoMobranded GSM service has already started in Southern India and gradually will be expanded nationwide. DoCoMos international expansion plans have not always proven successful, with the firm historically preferring to take small stakes in firms and then try to influence their strategy. It has been less prepared to take majority stakes and impose its will, as other leading carriers have chosen to do. The difficulties faced by the firm in spreading its domestically successful i-mode service internationally typify the obstacles it has faced overseas. W ith Tata, DoCoMo had said participating proactively in TTSLs management by providing human resources and technical assistance to help realise improved network quality and the possible introduction of leading-edge, value-added services.

Norwegian Telecom major Telenor is in the process of acquiring controlling stake of 67.25% in Unitech wireless via equity infusion. The enterprise valuation of Unitech W irelsss is about Rs 10,900 crore. As per the deal, Telenor will infuse cash in four stages and at each phase, by increasing its stake in Unitech W ireless. In the first phase, they got 33.5% ownership in Unitech W ireless. In the second phase they completed the acquisition for a 49 per cent stake in Unitech W ireless by paying Rs 1,130 crore for a further 15.5 per cent stake in the company. The acquisition is expected to be completed by end of this quarte

Presentation Plan

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Telecom Industry Overview Telecom Investment Attracting Sector Regulatory Framework and Its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues

Major Players in different segments of Indian telecom industry

Basic Services Operators
BSNL Airtel MTNL Reliance Vodafone Idea TTSL Reliance BSNL

MOBILE SERVICES

GSM Services Operators

Internet Services Operators

BSNL

Tata docomo
MTNL Reliance Reliance

CDMA Services Operators

TTSL

Airtel

TTSL

MTNL Mahanagar Telecom Nigam Ltd. BSNL Bharat Sanchar Nigam Ltd. TTSL Tata Teleservices Ltd.

BSNL

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Telecom Industry Overview Telecom Investment Attracting Sector Regulatory Framework and its Impact Emerging Trends in Telecom Market Major Players in Telecom Sector Growth Avenues

India presents a host of opportunities for telecom companies

Infrastructure Sharing

Rural Telephony

Managed Services

Value-Added Services

Growth Avenues

Virtual Private Network

W iMax 3G

Enterprise Telecom Services

Virtual Private Network is a private data network that provides connectivity within closed user groups via public telecommunication infrastructure. Competition is likely to heat up in the VPN segment as DoT has relaxed the norms for private players. Enterprise Telecom Services includes key services, such as voice over Internet protocol (VoIP), dedicated telecom communication systems, IT infrastructure enabled unified communication services, etc. Telecom service providers are increasingly targeting enterprises by providing dedicated services and is expected to witness major developments in near future.

To reduce their network deployment costs, many service providers are considering infrastructure sharing offers the following advantages:  Improved service quality  Increased affordability for customers  Faster roll out of services in rural and remote areas  Significant reduction in initial set up costs  Increased environmental aesthetics  Lower operating costs for service providers Managed services is another segment that is attracting telecom companies. On account of the rapidly growing subscriber base, service providers find it difficult to manage their infrastructure and network management operations. In such cases, they completely or partially outsource their infrastructure or network management operations.

Emerging technologies 3G and WiMax to assist in penetration of telecom services in India

The Indian government had auctioned the spectrum for 3G services by inviting bids from domestic as well as foreign players, and creating a competitive environment that offers better services to consumers in January 2008. Therefore, the 3G spectrum is among the major investment opportunities and growth drivers of the telecom industry.  The immense potential for 3G is reflected by the 3040 percent annual growth in Value-Added Services.  Cell phone manufacturers are striving to develop USD 100 priced 3G handsets for the Indian market.  India expects to replicate its 2G growth in 3G services.  MTNL has soft launched its 3G service and calls it MTNL 3G Jadoo. WiMAX has been one of the most significant developments in wireless communication in the recent past. Since this mode of communication provides network access in inaccessible locations at a speed of more than 4 Mbps, it is expected to be a major factor in driving telecom services in India, especially wireless services. Thus, it will lead to the increased use of telecom services, Internet, value-added services and enterprise services. WiMAX is expected to accelerate economic growth and assist in providing better education, healthcare and entertainment services.  It is estimated that India will have 13 million WiMAX subscribers by 2012.  Aircel is the pioneer in WiMAX technology in India.  The state-owned player, BSNL, aims to connect 74,000 villages through WiMAX.  Bharti, Reliance and VSNL have acquired licenses in the 3.3GHz range to utilise the opportunities offered by this domain.

3G V/S WiMax 3G
Spectrum price To be auctioned

WiMax
Dot has recommended 25% of reserve price of 3Gspectrum simultaneous

Result
Advantage W iMax

Spectrum allocation For voice service

Simultaneous

Neutral Advantage 3G

Best technology Evolving technology

Equipment/ standard

Evolved over the years 15 mbps

New technology

Advantage 3G

Data download speed(fixed) Data download speed(wireless)

70 Mbps

Advantage W iMax Advantage W iMax

15 mbps

20 Mbps

Value-Added Services and Rural Telephony holds large market potential in India
Value-Added Services in India (200708)
Person to Application & Application to Person SMS, 15% Ringtone Dow nload, 35% Person to Person SMS, 40% Game & Data, 7% Others (MMS etc.), 3%

The VAS industry was worth USD 632 million in 200708. The industry is estimated to grow by 60 percent in 2008 09 and become an USD 1,011 million opportunity.

The VAS industry is currently focussing on the entertainment sector, such as the Indian film industry and cricket; however, there is scope for growth in other avenues as utility-based services, such as location information and mobile transactions. Urban Rural Teledensity in India
50 40 Teledensity (%) 30 20 10 0

Rural Telephony

As the government targets to increase rural teledensity from the current 2 percent to 25 percent by 2012, rural telephony will require major investments. This segment will boost the demand for telecom services, equipment, Internet services and other value-added services; thereby, offering great market opportunities for telecom players.

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
At Year Ending March Urban Total Rural

GPRS Handsets
Currently the penetration of GPRS enabled handsets are close to 26% in India as against 99% in South Korea and 76% in apan. Of the total mobile subscribers in India 65 million possess GPRS-enabled handsets. Of all those who posses GPRS enabled handsets only 20-25% of them have got the GPRS activated and only about 15% use it. Even in case of developed nations like South Korea and apan not more than 50% of the subscribers owning GPRS enabled handsets use it.

This clearly indicates that the consumer today engage more in text based services than the web based applications. Therefore for MVAS to grow to its full potential the handset manufacturers will have to look at ways to manufacture GPRS enabled phones which are affordable and user friendly. Moreover they would also need to increase its awareness and educate the consumers on how to use GPRS.

Mobile Number portability (MNP)

One of the most frequent definitions that prevail in the telecom circles for number portability is: "Number portability is a circuit-switch telecommunications network feature that enables end users to retain their telephone numbers when changing service providers, service types, and or locations."

Why mobile number portability (MNP)? W hen fully implemented nationwide by both wireline and wireless providers, portability will remove one of the most significant deterrents to changing service, providing unprecedented convenience for consumers and encouraging unrestrained competition in the telecommunications industry. In short, this is the best method to increase the efficiency of the service provider by increasing the competition, thereby ensuring better services in all respects. Singapore was the 1st country to implement MNP in 1997 followed by Hong Kong in 1999 and Australia in 2001

Composition Of Net Service Revenues

Revenues from SMS

Expected to grow in the next 2 years due to

Falling prices. Increasing mobile penetration. W idening user demographic. Increasing number of SMS based services.

conclusion
The Indian Telecom Service provider industry is gearing for a revolution. The customer is driving this revolution and will see more unique and sophisticated offerings coming his way. The 3G which will pave the way for 3.5G, 3.75G and the next big thing-4G and the VAS services will keep the customer asking for more. The rural areas which have remained untapped will see an insurgence of services. Also the easing of the regulations by TRAI ,the ease of spectrum licensing, the FDI influx will make the telecom space in India a must watch in the coming years.