PDF Sectorial Analysis Telecom

Sectoral Analysis (Telecom Industry)
12 March 2009
A PROJECT REPORT ON
Submitted by Submitted to
Nishant Bali
In fulfillment for the project given to us in
IBS – Ahmedabad
ICFAI University
12 March 2009
1
12 March 2009
Contents
EXECUTIVE SUMMARY………………………………………………………………………………….. 2
ECONOMY ANALYSIS……………………………………………………………………………………..
INDUSTRY ANALYSIS……………………………………………………………………………………… 4
OUTLOOK FOR THE SECTOR…………………………………………………………………………. 15
RURAL INDIAN- THE NEXT FRONTIER………………………………………………………….. 18
COMPANY ANALYSIS……………………………………………………………………………………. 26
1. Airtel………………………………………………………………………………………………….. 26
2. MTNL…………………………………………………………………………………………………. 27
3. Reliance……………………………………………………………………………………………… 28
4. Tata Communication………………………………………………………………………….. 29
5. HFCL…………………………………………………………………………………………………… 30
THIRD GENERATION (3G) TECHNOLOGY………………………………………………………. 32
2
12 March 2009
Executive summary:
India’s economic growth has slipped to around 9% in 2007-08, from 9.6% in 2006-07.
The dip in growth has further deepened the fears of a possible global recession and
rising inflation, and its overall impact on the Indian economy. According to the official
figures, industrial output growth has slipped to 8.6% in 2007-08, as compared with
11.6% in 2006-07. The agriculture and allied sector has grown a tad faster at 4.5% during
2007-08. The services sector is marginally upped, registering a growth of 10.7% in 2007-
08, as compared to 10.6% in 2006-07. India’s economic growth is expected to grow at
7.2% in 2008-09.
Service sector is one of the most significant sectors of the Indian economy, contributing
nearly 55% to the GDP in 2007–08. The total number of telephone lines was over 410 m
mark at the end of Feb 2009 second only to China (in Jan 09 new mobile phone
subscribers to reach 463.9 million subscribers).India’s number of cellular (GSM,
CDMA and WLL-Fixed) subscribers: 362 m (as on 31.1.09 and 39.42m were
fixed/landline subscribers. Number of broadband subscribers: 5.65 m (as on
31.1.09) Number of GSM cellular subscribers: 277.2 m (as on 28.2.09) Number
of CDMA cellular subscribers: 80.6 m (as on 30.11.08) Overall teledensity: ca
345/1000 inhabitants (as on 31.1.09). The Indian mobile market which is thriving
even under these harsh economic conditions adds an approximate 10 million
subscribers per month, as against China’s addition of 8 million subscribers monthly. The
latest report by the Telecom Regulatory Authority of India states that India has a
teledensity of 34.5% as of January 2009, up from 33.2% in December last year.
According to research, estimates the Indian mobile market will expand to 637 million
subscribers by 2012. In terms of projected revenues, such a huge subscriber base is
expected to generate more than $37 billion by 2012 growing at a CAGR (compounded
annual growth rate) of 18%. This growth potential offers enough incentive to overseas
telecom companies to vie for their share of the pie. Investor-friendly regulations by the
government, allowing up to 74% holding in a domestic entity by a foreign company, is
an icing on the cake.
The global economic recession and slowdown seems to have no effect on the mobile
usage in India as the country adds 9.18 million GSM (The Global System for Mobile)
3
12 March 2009
Communications) subscribers in the month of February to its subscriber base, taking the
total to 277.1 million subscribers at the end of February09. Airtel remained the market
leader with 31.3% (as on Jan 09) of market share, net addition of 2.73 million
subscribers in February 09 and ending the month with 91 million subscribers in total.
Vodafone Essar, 22.09% GSM market share, net addition of 2.5 million subscriber taking
total to 75 millions. BSNL came third with as it gained 1.5 million subscribers in
February taking the total subscriber base to 44 million. Following came Idea Cellular
with 12.45% market share which added 1.5 subscribers and present holds a subscriber
base of 41 million. Meanwhile, in the CDMA (Code Division Multiple Access) segment,
Reliance Communications is still the undisputed leader with 56.71% market share
followed by TTSL at 35.58%. The wire-line segment is still led by PSUs. BSNL dominance
in the fixed line remained intact with a market share of 82%, followed by MTNL at 9%.
With over 15 million 3G handsets, and 30 per cent of all future handsets sale expected
to be 3G enabled, India is set to roll out 3G to provide an effective communication
environment. The 3G policy has gained importance because it is expected to earn the
government revenues $10 billion to $12 billion (Rs 43,000 crore to Rs 52,000 crore),
For the purpose of inter-firm comparison, six companies were taken across the industry
for analysis. Airtel’s revenue is estimated to touch Rs 96.33 billion in January 09 and may
grow at 35% from Jan 08. Reliance is expected to ramp up revenue to Rs 58.53 billion. In
terms of profits, Bharti Airtel is likely to be the leader with EBDITA and PAT at Rs 39.45
billion and Rs 21.59 billion in January 09.
With an average 7-8m subscribers added every month, the country is witnessing frenetic
activity in the telecom industry. Now the estimate is 500m subscribers by 2010. The
mobile population is expected to hover between 400m to 484m by end of 2009. With an
estimated population of 1.136 billion, only 2% (16m) of the rural population have access
to mobile phones; the next growth segment is the rural areas. So still a high untapped
sector for the telecom companies.
4
12 March 2009
Economy ANALYSIS:
This is the first and most important part in any analysis. Because the word ECONOMY is
itself such a big word that, the entire thing gets covered. Why India became such a hot
and favorite destination in the eyes of foreigners? Because of 3 reasons: Growth Rate,
Increase in living of standard and Efficient Govt. So for the telecom giants also Indian
market is highly attractive.
Companies, who want to set up their business in some other countries, study the
following things: Growth Rate, Inflation, Employment etc. now we will Analysis each and
every part separately:
1. Growth Rate: This is the first and important element to notice. Indian economy is
growing at a very good rate compare to other developing countries. Graph below
makes us understand more clear.
GROWTH RATE (% YoU)
9.40% 9.60%
9.00%
8.50%
7.80% 7.50%
7.30% 7.30%
6.50%
5.90% 6.00% 5.80%
5.30% 5.10% 4.80%
4.40%
3.80%
1.30%
FY 91 FY 92 FY 93 FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08
Sources: www.rbi.com
From the above chart we can notice that, from last five years Indian Economy is growing
at an average of 9% p.a. This has attracted many foreign players and Indian companies
also swelled during this tenure.
5
12 March 2009
2. Inflation: Inflation is another one of the important factor, because as inflation

raises and breaches the limit then it creates havoc in the economy and it reduces
the purchasing power of the citizens, and this lead to led demand.
Inflation
Inflation
6.94
5.04 5.1 5.7 5.77 5.6
3.95 3.56 3.23
2.6 2.79
Sources: www.inflation.com
From the above chart we can conclude that Indian Inflation Rate was under
control from last 10 years. This is also one important reason which entice the
companies to enter and for local players this is like a boon.
3. Employment: This is another important aspect, because if the countries

unemployment rate increases faster than the usual rate, then it mean there is no
demand in that country, this creates a negative image in the eyes of other
countries.
Recently U.S rate of unemployment has touched 8.5% of its population, which is
very high. And the reason we all know that the lack of demand. So the good
employment rate is also gives invitation to the countries in the economy.
4. Budget Deficit: It means when the Govt. expense >than income. Now how this
will be beneficial for any country to enter or for the existing firms? Let’s see from
the economic angle, if the expense >income then the Govt. will abridge this
expense by increasing the tax rates and interest rates. So this will decrease the
spending power of the people and this leads to decrease the demand.
5. Sentiments: Sentiment means, the attitude of the people in that country. SO this
again important for the companies because if the attitude of the people is
negative then this would create loss for the companies
6
12 March 2009
Industry Analysis:
Indian Telecom industry is one of the fastest growing telecom markets in the world. In
telecom industry, service providers are the main drivers; whereas equipment
manufacturers are witnessing growth and decline in successive quarters as sales is
dependent on order undertaken by the companies. Airtel, Reliance, Tata and Vodafone
are some of the companies that are expected to spur the growth in 09, as compared to
08. According to Cygnus estimates, telecom industry is expected to grow by 25% in
AMJ08 as compared to AMJ07, in terms of sales. EBDITA and PAT are expected to grow
by 32% and 34% respectively in AMJ08 as cost expenses are being control by major
companies like Airtel and Reliance. The major booster is the wireless mobile subscriber
base; crossing over 261m in March 2008. Other services like Internet subscriber base
has also provided significant impetus with its subscriber base reaching over 11m in
March 2008.
Industry Aggregate (Rs in m)
Particulars March (o8)

Net sales
Change
EBITDA
Change
Depreciation
Interest
Other Income
PBT
TAX
Tax Rate
PAT
Change
Source : BSE India
Note: The aggregate consists o f six companies for industry aggregate calculation:
Bharti Airtel, MTNL, TATA Teleservices, Reliance Communications, Vodafone, and Idea
7
12 March 2009
Cost Structure-Equipment Manufacturers

from 31/3/08 To 28/2/09
31st March 2008 28th Feb 2009
60.58
50.97
15 15
12 11
9 9
1.63 2 2 2 4 3
1
Stock in-4.69
trade Raw meterial Traded item Staff cost Other Depriciation Interest Tax
expenditure
Cost Structure-Service providers

% of Net Sales 31st march 2008 % of Net Sales 31st dec 2009
15 15 15
14
13 13
12
10 10 10
9 9
8
7
6
5 5.00 5
4
1
Source: BSE India
8
12 March 2009
For the month Feb 09, stock in trade for equipment manufacturers is expected to
fall from 1.63% of sales in March08 to -4.69% in Feb 09.
Raw material cost is expected to rise to 60.58% of sales in Feb 09.from 55.17% in
March08.
Other expenses, Interest and Tax are also likely to increase in Feb 09, as
compared to March08, for the equipment manufacturing companies.
Service provider companies are expected to show improvements in staff costs,
Network operations, Interconnect charges, and interests.
License fee and sales and marketing expenses of service providers are likely to go
up in Feb 09 as compared to March08.
Segmental performance:
Telephone segment
Mobile Services
Wireless subscriber base in the country is witnessing strong growth and it is one of the
major driving forces in telecom industry. Wireless segment has added total 109.96m
(95.96+14) subscribers in FY08 and 14m till Feb 09. Bharti Airtel added maximum
number of subscribers - 27.84m followed by Reliance with 19.78m, Vodafone 19.19m,
Idea 10.99m, BSNL 9.89, Tata Tele 8.31m and six other small players together added
another 7.55m in FY08 ,till Feb 09.
9
12 March 2009
Subscriber In Millions
(FROM 04-Feb 09)
Subscriber In millions
360
255
151
100
48 50
FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 (Feb)
Sources: www.Trai.com
GSM (The Global System for Mobile)
The total GSM subscriber base reached 277.70 million in the month of Feb 09, as against
192.23 million at the end of the previous quarter March 08. The growth of 50.70% from
March 08 to Feb 09. Bharti, with 91 million subscriber base, remains the largest GSM
mobile operator followed by Vodafone with 74.13m, BSNL with 44.21m and Idea with
40.00m.
10
12 March 2009
% Market share of GSM players

Bharti Vodafone BSNL Idea Aircel Reliance MTNL BPL
2% 1%
4%
6%
32%
12%
19%
24%
CDMA (Code Division Multiple Access)
The total CDMA Subscriber Base reached 73.37 million during in the month of Feb09 as
against 67.39 million at the end of March 2008. The yearly growth of8.39% during the
period March o8 to Feb 09. Reliance remains the largest CDMA mobile operator
followed by Tata Teleservices and BSNL with subscriber base of 38.78m, 24.33m and
4.58m respectively. BSNL in Kolkata & Punjab reported negative growth.
11
12 March 2009
% Market share of CDMA players

Reliance Tata Tele BSNL HFCL MTNL Shayam
2% 1% 1%
6%
33%
57%
Wire Line
The total subscriber base of Wire line services stood at 39.42 million as on 31st
December 2008. The incumbents BSNL and MTNL have 80.05% and 9.33% market share
respectively in the subscriber base, while all the five private operators together have
10.62% share. Wire line subscriber base has been declining in the last few years.
Subscriber base for some of the companies like Bharti, Tata (Tele & Communications),
MTNL and Reliance increased marginally.
12
12 March 2009
% Market share of wireline players

BSNL MTNL Others
11%
9%
80%
13
12 March 2009
India Telecoms: Changes in2009(E)

Industry Assumptions
2010 (E) 2011(E)
TOTAL SUBS(MILLION)
NEW 408 520 621.6
OLD 408 511.5 599.1
CHANGE 0% 1.8% 3.7%
Wire line Subs (Million)

NEW 39.8 40.1 40.3
OLD 39.8 40.1 40.3
CHANGE 0% 0% 0%
Wireless Subs (Million)

NEW 368.2 480.5 581.2
OLD 368.2 471.4 558.2
CHANGE 0% 1.4% 4%
Wireless Subs Net Add (Million)

NEW 8.9 9.4 8.4
OLD 8.9 8.6 7.3
CHANGE 0% 8.8% 15.2%
GSM Subs (Million)

NEW 276.2 380 475
OLD 276.2 361.5 438.5
CHANGE 0% 5.1% 9.5%
CDMA Subs (Million)

NEW 92 100.5 106.1
OLD 92 109.9 125.0
CHANGE 0% -8.6% -15.1%

14
12 March 2009
GSM Net Add P/m (Million)

NEW 6.96 8.66 7.92
OLD 6.96 7.11 6.02
CHANGE 0% 21.7% 31.4%
CDMA Net Add P/M (Million)

NEW 1.97 0.71 0.47
OLD 1.97 1.49 1.26%
CHANGE 0% -52.5% -62.6%
Industry Average ARPU

NEW 278 228 200
OLD 281 255 241
CHANGE -1% -10.7% -16.87%
Sources: Morgan Stanley research
15
12 March 2009
Indian Telecoms: New Weight age Average Cost of Capital
Bharti R Comm. Idea
Risk free assets (Rf) 6.0% 6.0% 6.0%
Market Premium (Rm) 6.0% 6.0% 6.0%
Assumed Beta 1.00 1.80 1.30
Cost of Equity (Ke) 6.0% 16.8% 13.8%
Equity % 95.0% 70.0% 85.0%
Cost of Debt (Kd) 10.0% 15.0% 11.0%
Tax Rate 22.5% 22.5% 22.5%
After Tax (Kd) Kd(1-t ) 7.8% 11.6% 8.5%
Debt% 5.0% 30.0% 15.0%
WACC 11.8% 15.2% 13.0%

Other Telephone services
Public Call Offices
During the MAP08, 2,83,883 new PCOs have been added. Total number of PCOs in the
country, as on 31st October 2008, is 63,85,904. The share of BSNL is 22,51,518 i.e. 34%
of the total PCOs. The share of MTNL and other private operators combined are
2,43,335 (6%) and 38,99,051 (60%) respectively.
16
12 March 2009
Village Public Telephones
There are 5,93,485 villages in India, as per census 2001 reported by BSNL. During the
OND07, there were 5,30,127 VPTs in the country whereas by the end of OND08, the
total number of VPTs reached to 5,89,503. Thus, 59,376 VPTs increased during the
OND08. BSNL reported increase of 2,547 VPTs during the OND08. All the five private
operators together added of 32,829 VPTs during the JFM08. The total number of
villages, left uncovered, are 33,982 as on 31st March 2008.
Internet services
Wire line Internet subscriber
The growth trend of Wire line Internet Subscriber indicates a slight increase in the
market share of operators owned by PSU. During the AMJ08, private ISPs captured only
32.06% market share as against 33.96% in the preceding JFM07. ISP market share,
owned by PSU, increased from 66.04% to 67.94% at the end of March 2008.
Leased Line Connectivity
The number of Internet Leased Line connections is 24752 at the end of November 2008,
as compared to 21858 at the end of December 2007, registering a growth of 13.09%.
Broadband Connectivity (>=256 Kbps):
The number of Broadband subscribers (with a download speed of 256 Kbps or more) is
3.90m at the end of September 2008. Out of these, 3281012 are DSL based; 376200
Cable Modem; 107128 Ethernet LAN; 50739 Fibre; 39051 Radio customers; Leased Line
16494 and 3555 Others.
Value Added Services

Public Mobile Radio Trunk Service (PMRTS):
The subscriber base of PMRTS increased from 34825 in December, 2007 to 39240 in
September, 2008, registering a growth rate of 12.06%.
VSAT Services:
In JAS08, there was an addition of 14900 new subscribers. The total number of
subscribers increased from 67409 in OND07 to 82390 in JAS08, registering a growth of
22.75%.
*JAS=July, August, September
17
12 March 2009
Outlook for the Sector:

Going by the number of mobile phone subscribers, India has become the world’s fastest
growing region. With almost 7-8m subscribers added every month, the country is
witnessing exciting times in the telecom industry. This growth has outpaced predictions
of reaching 400m by 2009. Now the estimate is 520m subscribers by 2010. The mobile
population is expected to hover between 325m to 350m by end of 2008. And an Indian
telecom companies have the capacity to make total 620m-650m subscribers by 2012.
Additional spectrum to service providers
India is on the brink of full-fledged rollout of 3G and WiMAX services across the country.
The regulators and the government are in deep discussions on spectrum allocations. It’s
decided to have Additional spectrum to be allocated to service providers, based on their
existing subscriber base. This will provide the foundation for next generation mobile
services in the country. However, as TRAI proposing to hike spectrum charges from 4%
to 5% of the revenues generated by the service providers, mobile operators may have to
shell out a higher percentage of their annual revenues towards spectrum charges.
Service providers need to improve rural penetration
Out of the total population of about 1.136 billion in India, only about 28% live in urban
areas and the rest 72% live in rural areas. But however, only about 3% (17m) of the rural
population has access to mobile phones. It is a high time for the companies to invest in
these rural areas, too. Driven by a significant addition in rural telephony, overall
population coverage in the country is expected to increase from 65% to 80%.
Low ARPU: cause for concern
Despite the high penetration in urban areas, the ARPU (Average Rate Per Unit) is quite
low, one of the lowest in the world and continues to fall steadily. For operators, this is
offset by increased subscription. However, profit margins are decreasing and to stay in
good shape operators will have to leverage on larger economies of scale. One trend
seen in this direction is the sharing of towers and base station location sites among
operators.
Mobile commerce to become the next big thing
18
12 March 2009
Mobile commerce is expected to penetrate further. The urban customers will of course
be introduced to new services in this area. But its impact will be felt most distinctly in
the rural areas, where it will help strengthen the rural microfinance projects. Money
transfer over the mobile and m-commerce are tipped to be the next best thing to
happen after SMS and Hello Tunes. This would enable millions of Indians working
abroad to easily transfer money to their families back in India via their mobile phones.
Mobile number portability to become a reality soon
Indian mobile users will soon have the option to switch their service providers without
changing their mobile numbers. Number portability is a very important and effective
tool for ensuring competition in the telecom services market. Implementation of mobile
number portability would motivate and stimulate the service providers to constantly
endeavor to further improve their quality of service in order to retain existing customers
and attain new subscribers.
19
12 March 2009
Rural India – the next frontier:
While rural consumption spend per capita is around half that of urban spend, it is
growing faster, especially with respect to spending on consumer services. In fact, rural
India already accounts for a sizeable portion of demand for many consumer goods and
services companies, and nearly half of the country’s GDP. It is thus natural that rural
India offers large potential for telecom services as well.
However, mobile penetration into rural India has lagged urban India with current rural
penetration at the same level as urban penetration in 2002. However, as urban
penetration saturates, the mantle of growth could now shift to rural India. In recent
quarters, the rural contribution to wireless net additions is almost one third.
A large population in rural India ensures that the market size remains formidable.
Indeed, rural GDP accounts for over 48% of India’s US$1 tn economy. While spending
per subscriber could be low, the relative size of rural GDP implies that rural telecoms
spending potential could be similar to urban.
A look across operators shows that some like Bharti, Vodafone and BSNL have already
displayed a strong focus on the rural markets. In particular, Bharti accounted for a third
of all rural customers added between October 2007 and October 2008.
Rural demand potential cannot be ignored:
Rural India accounts for 70% of India’s population. Further, the population in rural areas
is younger than that of urban areas.
Age wise split on India’s population
Age group (years) Rural Urban
0-15 38.3 34.1
15-35 32.4 36.8
35+ 28.8 28.2
20
12 March 2009
So from the above table we can notice that, there is not much age difference between
Urban and Rural.
We also note that a significant portion of the rural population migrates to urban areas
every year. For instance, 7.5% of India’s urban population as of 2001 had migrated from
rural areas during the preceding decade (Census 2001). Thus, targeting the rural
population is important not only for spending in rural areas but also to capture spending
by these migrants.
Focus charts:
% of Population Use Following Items

79% 75%
60% 56% 51% 51%
40%
33%
25% 22%
10%
Source: NCAER
Mobile spend constitutes ~7% of family income

<3% 3-6% 6-9% 9-12% 12%+
12%
8% 33%
12%
35%
21
12 March 2009
Source: Credit Suisse estimates
From the above chart, we can notice that Rural population spends 7% of their family
income on telecommunication.
So there has been a still large untapped market (Rural) for the telecom companies. And
this spending will reach to 12% in the year 2009, according to TRAI
Network coverage is the biggest factor in rural

subscribers choosing an operator
% of total
46.50%
20.90%
9.30% 9.30%
2% 2.30% 2.30%
Signal/Lower Lower call Famous The only Gifted Feels good No particular
Coverage rates among friends available reason
Good operator
Source: National Sample Survey
From the research it came out that rural subs are more sensitive to network quality than
prices. This has led to: 1) a monopoly/duopoly in most villages with the better network
taking most subs and 2) a low churn rate for customers.
22
12 March 2009
Rural India – Six-year CAGR of per-capita consumption spending (FY02-08)
10.30%
9.10% 8.70%
7.80%
6.70%
6.20%
4.60% 4.50%
3.40%
2.40% 2.10%
Urban India – Six-year CAGR of per-capita

consumption spending(FY02-08)
9.40% 9.40%
7.20%
5.70% 5.40% 5.20% 4.90%
4.40%
3.80%
2.90%
1.60%
Source: National Sample Survey
From the above two charts we can make conclusion that, on the basis of Compounded
Annual Growth Rate (CAGR) of per capital consumption, of both Urban and Rural there
23
12 March 2009
is not any much difference, both are going hand in hand. So Rural sector would create a
huge opportunity for the telecom companies.
Rural India – the next frontier for wireless growth:
Wireless penetration has already crossed 63% in urban India. This could imply that
further growth potential for urban India could be limited. In addition, the issuance of
more mobile licenses by the Indian government implies higher competition, and most of
that could be limited to urban India in the beginning.
Rural as % of total subscriber base
25% 26%
24%
21% 22%
20% 20%
Mar o7 Jun o7 Sept o7 Dece o7 Mar o8 Jun o8 Sept o8
Source: TRAI
From this we can observe that the % of Rural wireless subscriber is increasing quarter by
quarter. From March 07 to September 08 it increased by whopping 30%. Rural
customers now comprise around 26% of the country’s mobile subscriber base. We can
say that the, Rural India is still a large untapped and opportunity for the telecom giants.
Teledensity in India
The tele-density in India means— “the number of telephone lines for every 100 people”.
Graph below shows the total teledensity of Rural, Urban.
24
12 March 2009
Urban and rural teledensity in India (%)

80%
70%
60%
50%
Urban
40%
%
Rural
30% Total
20%
10%
0%
Mar oo Mar o1 Mar o2 Mar o3 Mar o4 Mar o5 Mar o6 Mar o7 Mar o8 Feb o9
Source: TRAI
This figure shows the teledensity of Urban is keep on increasing year on year (Y.O.Y).
Urban teledensity low at the initial years but, later it also picked up the pace. So this
also shows a good signal the telecom companies to grab this untapped market.
Not everyone is focusing on rural India
Among operators, government-owned BSNL, with its larger social objectives, already has
over a third of its customers from rural India. Bharti, Vodafone and Aircel (not listed)
remain the other three operators with a significant proportion of their subscriber base
coming from rural India.
Table below shows the prominent telecom companies and their % of their Total and
Rural Market Share.
25
12 March 2009
Subscriber market share of operators

Overall Mkt Share Rural Mkt Share
27%
24%
21% 20%
18% 17%
14% 15%
11% 10%
9%
4% 5%
2%
Bharti Relaince Vodafone BSNL Idea Tata Aircel
Source: TRAI
From the above table we can notice that, Bharti, Vodafone, and BSNL are trying to grab
the Rural market. Their Rural Market share is higher than their overall Market share.
Significant proportion of income spent on mobile:
On the basis of research found out that, a median monthly mobile expense of Rural
India population is of Rs200, which compares with a national ARPU of Rs270-330 for the
listed telecom operators.. However, with these data points one should not be misled
into believing that rural capacity to spend on mobile phones is low. In fact, wefound an
average of 7% of monthly family income going on mobile services alone.
The chart below, shows the median ARPU of the Rural population
26
12 March 2009
Monthly spending on mobile phones (Rs/month, % of total

population
0-100 101-200 201-400 401-600 600+
13%
25%
11%
24%
27%
Source: Credit Suisse estimates
From this chart we can came up that majority of the Rural population spends between
0 -400 i.e. 75%. And this figure is above the National APRU.
27
12 March 2009
COMPANY ANALYSIS:
1. Airtel
Year End Net Sales PAT EPS P/E ROE ROCE

(Rs m) (Rs m) (Rs)
March 2,57,035.10 62,442.00 32.92 25.10 31% 29%
08(A)
March 3,69,552.99 92,062.30 48.53 17.02 32% 32%
09(E)
March 4,97,168.83 1,23,356.53 65.03 17.02 43% 32%
10(E)
From the above table we can notice that the, Airtel’s PAT was, Rs 62,442.00m in March
08 and after that it expected to increase by approx by 35% Y.O.Y by 2010. It’s EPS
(PAT/No. of Eq shares) was Rs 32.9m in March 08, it’s also expected to increase in the
same pace. From the above position we can say that that Airtel is having a good earning
and bright future ahead.
28
12 March 2009
( Rs million)
March 08 (A) March 09 (E) March 10 (E)
Net Sales 2,57,035.10 3,69,552.99 4,97,168.83

Change 44% 44% 35%
EBITDA 1,05,010.30 1,55,212.26 2,08,810.91
Change 48% 48% 35%
Depreciation 32,806.30 46,933.23 63,140.44
Interest 4,837.10 6,651.95 9,446.21
Other Income 2,358.60 3,325.98 4,474.52
PBT 69,725.50 1,04,953.05 1,40,698.78
TAX 7,283.50 12,890.75 17,342.25
Tax Rate 10% 12% 12%
PAT 62,442.00 92,062.30 1,23,356.53
Change 55% 47% 34%
In FY08, Bharti’s sales jumped by 44% compared with FY07 and are expected to grow
strongly in coming years. As we can see that the PAT in year 08 was Rs 62,442.00m and
the expected PAT Rs 92,062.30m, the change of 47% and this further reduced to 34% in
the year 10, it might be because of the slow in demand and the stagnant growth in the
urban area. But Airtel is expected to add subscribers at the rate of more than 6m
customers every quarter. So the further years would be beneficial for Airtel and its
investors.
2. MTNL

(Rs m) (Rs m) (Rs)
March 47,287.51 5,073.23 8.05 11.99 4% 7%
08(A)
March 46,671.01 4,720.42 8.05 12.89 4% 7%
09(E)
March 46,436.43 4,685.54 7.44 12.89 4% 7%
10(E)
29
12 March 2009
( Rs million)
Net Sales 47,287.51 46,671.01 46,436.43

Change -4% -1% -1%
EBITDA 8,257.32 8,245.42 8,203.98
Change -7% 0% -1%
Depreciation 7,071.82 7,497.25 8,203.98
Interest 29.61 28.00 28.40
Other Income 6,790.91 6,983.25 7,874.57
PBT 7,946.80 7,703.42 7,846.17
TAX 2,873.57 2,983.00 3,160.63
Tax Rate 36% 39% 40%
PAT 5,073.23 4,720.42 4,685.54
Change -4% -7% -1%
From the above chart we came up a conclusion that, MTNL was decreased by -4% during
the period between 07 to 08. And it’s expected to decrease further also but at less pace.
This fall might be because of the high competition from the private players and high
technology. We can notice that change in PAT is much higher in the year 09, because of
the slowdown and less demand.
3. Reliance Communication

(Rs m) (Rs m) (Rs)
March 134161.90 25864.50 12.53 40.56 253% 7%
08(A)
March 158292.73 34962.03 16.94 30.00 342% 10%
09(E)
March 196096.93 43512.52 21.08 30.00 426% 12%
10(E)
30
12 March 2009
( Rs million)
Net Sales 1,34,161.90 1,58,292.73 1,96,096.93

Change 49% 18% 24%
EBITDA 48,824.60 63,734.16 78,438.77
Change 36% 31% 23%
Depreciation 18,436.60 22,944.30 28,237.96
Interest 4,451.70 5,730.46 6,546.39
Other Income 104.60 142.00 156.00
PBT 26,040.90 35,201.40 43,810.43
TAX 176.40 239.37 297.91
Tax Rate 1% 1% 1%
PAT 25,864.50 34,962.03 43,512.52
Change 30% 35% 24%
From the above chart we can notice that, Reliance EPS increase Y.O.Y, this is because of
the high PAT and one more thing that P/E ratio (MPS/EPS) is also decreasing, I was
because of the high denominator so this also shows the robust position of the company.
One interesting fact to notice that its high ROE (Return on Equity) PAT/Eq share capital,
this again because of the high PAT and high borrowing, this decreases the base and thus
it increases the ROE. Since Reliance is present in both CDMA and GSM technology, it is
fast catching up with Airtel and is second largest company after Airtel in terms of
subscriber base.
4. Tata Communication

(Rs m) (Rs m) (Rs)
March 38,468.50 8,632.30 30.29 16.96 14% 14%
08(A)
March 41,612.23 8,916.04 31.28 16.42 14% 13%
09(E)
March 42,512.23 12,025.84 42.20 16.42 18% 16%
10(E)
31
12 March 2009
( Rs million)
Net Sales 32,883.00 41,612.23 42,512.23

Change -19% 27% 2%
EBITDA 5,996.10 12,207.04 14,834.84
Change -35% 104% 22%
Depreciation 3,013.10 3,395.00 5,861.67
Interest 236.10 243.00 3,236.00
Other Income 1,755.10 1,860.00 1,921.00
PBT 4,502.00 10,429.04 13,519.84
TAX 1,455.20 1,513.00 1,256.00
Tax Rate 32% 15% 9%
PAT 3,046.80 8,916.04 12,025.84
Change -39% 193% 35%
Like MTNL, Tata Communications is another company, which is facing stiff competition
from likes of Reliance in CDMA platform. In FY08, the company’s sales declined by 19%
to Rs32,883m compared with FY07. But in the coming years, the company’s sale is
expected to increase steadily as it reaches out to new customers in the rural areas. Year
2010, would be tough for the Tata Comm, because of the tough competition by the
other foreign players and their high technology.
5. HFCL

(Rs m) (Rs m) (Rs)
March 3495.92 -1505.50 -3.40 -5.57 -38% -1%
08(A)
March 3677.00 -1118.27 -2.53 -7.50 -28% -1%
09(E)
March 3924.00 -869.38 -1.96 -7.50 -22% -1%
10(E)
32
12 March 2009
( Rs million)
Net Sales 3,495.92 3,677.00 3,924.00

Change -69% 5% 7%
EBITDA -552.16 -342.27 -110.88
Change -127% NA NA
Depreciation 271.62 272.00 286.00
Interest 693.73 518.00 485.00
Other Income 16.46 19.00 22.00
PBT -1501.05 -1113.27 -859.88
TAX 4.45 5.00 9.50
Tax Rate 0% 0% -1%
PAT -1505.50 -1118.27 -869.38
Change NA NA NA
33
12 March 2009
Third generation (3G) TECHNOLOGY:
Third Generation or 3G is a generic term used for the next generation of mobile
communication systems
3G is that technology which helps users quickly accesses a range of multimedia services,
including video telephony, e-commerce and television, on mobile devices like handsets,
smart phones and palm-tops.
Networks supporting 3G would have the potential to support data transfer speeds of up
to 3 Mbps while the average 2G networks allow for 144 Kbps. Simply put, it means that
a song in MP3 format of 3 minutes’ duration would take 15 seconds to download over a
3G network but would take 8 minutes over existing networks.
In the near future, mobility will become a fundamental aspect of many services. We
would expect high-speed access to the internet, entertainment, information and
electronic commerce services wherever we are — not just at our desktop computers.
Analysts estimate that by 2010, the two dominant 3G technologies, CDMA2000 and
Wideband CDMA (WCDMA), will account for 1.2 billion subscribers, representing 41 per
cent of the global subscriber base.
In urban India, there is a spectrum crunch and 3G can treble voice capacity and can
solve the spectrum issue.
For rural India, 3G will be a boon for e-governance and specific applications for farmers,
fishermen and small traders.
How 3G WILL BE BENIFITED?
With over 15 million 3G handsets, and 30 per cent of all future handsets sale
expected to be 3G enabled, India is set to roll out 3G to provide an effective
communication environment.
It will bridge the difference between urban and rural and enable the rural Indian
to avail of facilities such as telemedicine, e-education and e-governance will
substantially improve their quality of life.
34
12 March 2009
The other advantage of 3G policy is that, it expected to earn the government

revenues $10 billion to $12 billion (Rs 43,000 crore to Rs 52,000 crore), which
would help balance expenditure on welfare programmes like the Rs 71,600 crore
farm loan waiver scheme.
3G policy will help the customers most, because many telecom companies are
going to bid for the spectrum, each one will try to entice the customers in their
own style. At last the customers would be get benefitted.
Rules of 3G spectrum (Future)

However, winning foreign bidders will have to set up a joint venture with an
Indian partner to start operations, the country's Department of
Telecommunications (DOT).
The foreign bidder can hold up to 74 percent of the equity in the company
providing the 3G (third-generation) service. If the foreign equity in the joint
venture is more than 49 percent, the joint venture will also require clearance
from the country's Foreign Investment Promotion Board (FIPB).
Besides spectrum for 3G, the government also plans to auction spectrum for
broadband wireless access (BWA) two days after the completion of the 3G
auction.
Although foreign bidders are allowed to bid for BWA spectrum, they will have
to set up joint ventures to offer services, in which foreign equity will be limited
to 74 percent, the DOT said.
The government is auctioning blocks of spectrum in the 2.1 GHz band for 3G
services, and in the 2.3 GHz and 2.5 GHz bands for BWA, in a number of service
areas across the country.
However one block of spectrum in each of the service areas has already been
reserved for use by two government controlled telecommunications companies
-- Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone Nigam (MTNL). The
government said that these companies would, however, have to pay a license
fee for the spectrum at the highest bid in each service area.
35
12 March 2009
36

PDF Sectorial Analysis Telecom

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

PDF Sectorial Analysis Telecom

Uploaded by

Copyright:

Available Formats

Sectoral Analysis (Telecom Industry)

Sectoral Analysis (Telecom Industry)

In fulfillment for the project given to us in

OUTLOOK FOR THE SECTOR…………………………………………………………………………. 15

RURAL INDIAN- THE NEXT FRONTIER………………………………………………………….. 18

THIRD GENERATION (3G) TECHNOLOGY………………………………………………………. 32

GROWTH RATE (% YoU)

2. Inflation: Inflation is another one of the important factor, because as inflation

3. Employment: This is another important aspect, because if the countries

Industry Aggregate (Rs in m)

Particulars March (o8)

Cost Structure-Equipment Manufacturers

Cost Structure-Service providers

Source: BSE India

GSM (The Global System for Mobile)

% Market share of GSM players

CDMA (Code Division Multiple Access)

% Market share of CDMA players

% Market share of wireline players

India Telecoms: Changes in2009(E)

OLD 408 511.5 599.1

CHANGE 0% 1.8% 3.7%

Wire line Subs (Million)

OLD 39.8 40.1 40.3

Wireless Subs (Million)

OLD 368.2 471.4 558.2

Wireless Subs Net Add (Million)

OLD 8.9 8.6 7.3

CHANGE 0% 8.8% 15.2%

GSM Subs (Million)

OLD 276.2 361.5 438.5

CHANGE 0% 5.1% 9.5%

CDMA Subs (Million)

OLD 92 109.9 125.0

CHANGE 0% -8.6% -15.1%

GSM Net Add P/m (Million)

OLD 6.96 7.11 6.02

CHANGE 0% 21.7% 31.4%

CDMA Net Add P/M (Million)

OLD 1.97 1.49 1.26%

CHANGE 0% -52.5% -62.6%

Industry Average ARPU

OLD 281 255 241

CHANGE -1% -10.7% -16.87%

Sources: Morgan Stanley research

Indian Telecoms: New Weight age Average Cost of Capital

Bharti R Comm. Idea

Risk free assets (Rf) 6.0% 6.0% 6.0%

Market Premium (Rm) 6.0% 6.0% 6.0%

Assumed Beta 1.00 1.80 1.30

Cost of Equity (Ke) 6.0% 16.8% 13.8%

Equity % 95.0% 70.0% 85.0%

Cost of Debt (Kd) 10.0% 15.0% 11.0%

Tax Rate 22.5% 22.5% 22.5%

After Tax (Kd) Kd(1-t ) 7.8% 11.6% 8.5%

Debt% 5.0% 30.0% 15.0%

WACC 11.8% 15.2% 13.0%

Sources: Morgan Stanley research

Other Telephone services

Public Call Offices

Village Public Telephones

Leased Line Connectivity

Broadband Connectivity (>=256 Kbps):

Value Added Services