India - A Potential 3G Market

A Feasibility Study

Arnab Sinha Sudipta Ray

Indian Institute of Technology, Kharagpur

3G SERVICES & INDIAN MARKET

Market Trends

Service Promotion

Cost Structure

Existing Market Competition

Technology Requirements Business Base

Evaluation of Policies

3G SERVICES & INDIAN MARKET

Market Trends

Service Promotion

Cost Structure

Existing Market Competition

Technology Requirements Business Base

Evaluation of Policies

Market Trends
PROJECTED SUBSCRIBER POPULATION

subscriber population in milli

440 400 360 320 280 240 200 160 120 80 40 0

05 07 05 06 06 ov -0 5 ay ov -0 7 ov -0 6 -0 6 -0 7 -0 5 08 07 eb eb eb N N ug ug ug M M M N eb M F F F A A A F ay ay ay 08

Expected Usage in 2007: 111 million (from CAGR of 94%)

subscriber population (millions)

Poly. (subscriber population (millions))

50 0 40 5 40 0

49 6 3 94 3 94 30 5 30 5

A P (R /m n R U s o th)

Cheaper Infrastructure Cost

30 5 30 0 20 5 20 0 10 5 10 0 5 0 0

De c-0 M 4 ar -0 Ju 5 n-0 Se 5 p0 De 5 c-0 M 5 ar -0 Ju 6 n-0 Se 6 p0 De 6 c-0 M 6 ar -0 Ju 7 n-0 Se 7 p0 De 7 c-0 M 7 ar -0 Ju 8 n-0 8

3G SERVICES & INDIAN MARKET

Market Trends

Service Promotion

Cost Structure

Existing Market Competition

Technology Requirements Business Base

Evaluation of Policies

Existing Market Competition Stake in Existing Market : BHARTI (10%) Technology relied upon : GSM (Larger service range in India) Total Investment : 1.5 billion USD Analyzing the predicted Market Revenue Trends, expected Break Even Period for Vodafone February 2008 Our Target Break Even before
Vodafone Break Even

3G SERVICES & INDIAN MARKET

Market Trends

Service Promotion

Cost Structure

Existing Market Competition

Technology Requirements Business Base

Evaluation of Policies

Business Base Current Position of Reliance in market - 20.3 % of the subscriber population - Largest CDMA provider in India Collaboration with Reliance! Customer Base
Population Count in 2006(millions)
4% 9% 20% 7% 10% 0-4 5to14 15-19 20-24 25-34 35-44 11% 16% 10% 55-59 60&above 45-54

13%

- 54% of the population is below the age of 241 - Estimated youths annual spending US$10.5 billion1

Targeting the Youth Section! Launching the service on Valentines Day!

3G SERVICES & INDIAN MARKET

Market Trends

Service Promotion

Cost Structure

Existing Market Competition

Technology Requirements Business Base

Evaluation of Policies

Technology Requirements
Increased talk time Superior Power Control Lowest radiation level Hi-Speed Internet Access
India has less than 0.4% penetration CDMA1x handsets (140 kbps)

Most successful 3G Tech

CDMA2000 controls 85% of the Worlds 3G market Adds 15 million new users per quarter Worldwide

Better Voice & Consistent Quality Advanced platform supporting innovative applications GSM 3G evolution relies on CDMA Hence CDMA choice for the 3rd generation!

3G SERVICES & INDIAN MARKET

Market Trends

Service Promotion

Cost Structure

Existing Market Competition

Technology Requirements Business Base

Evaluation of Policies

Cost Structure
Total Reliance Revenue = Young Reliance Reliance Subscriber Normal Revenue +Avg Packet Estd. 3G Revenue Customers Accessing Internet Consumption Packet wise perCharge (C) month (APC)

Billing

Cost Structure
Total Reliance Young Reliance Revenue = Estd. Subscriber RelianceAvg Packet Customers Normal Revenue + 3GInternet Accessing Revenue Consumption

Packet wise Charge (C) per month (APC) billing

D ec 07

F eb 06

50p for Following Reliance Customer Target 54%1 Billing 5 Japans estimate Young Customer Base 20.3% of each 128 Structure = D e c 7= 7.82 APC=8192(1MB) 38.54.22 0million Mn Mn Bytes 6packet A R P U ( t ) v p o p ( t ) .d t  C v A P C v 0 . 3 6 v p o p ( t ) .d t
F eb 06

Target Break even December 2007

COMPUTATION STEPS

Estimated Breakup of Expenses

Large Profit Margin
Estimated cost for infrastructure, planning services, site civil works (based on other countries statistics)14

106.4 billion INR

Licensing fees, sales and marketing cost (26%15 of the acquired revenue)
Feb, 2006

7.49 Dec, 2007

billion INR

Total Expense (Approx)

Estd. Revenue Earned 143 billion

115 billion INR

3G SERVICES & INDIAN MARKET

Market Trends

Service Promotion

Cost Structure

Existing Market Competition

Technology Requirements Business Base

Evaluation of Policies

Service Promotion
Utilities as per demand
Communication Entertainment Information Services Agro-business Optional Commercial Services

Attractive Rate

Handset Cost

ARPU 1475 INR only

Advertisement

Average Handset Price 19, 448 INR

3G SERVICES & INDIAN MARKET

Market Trends

Service Promotion

Cost Structure

Existing Market Competition

Technology Requirements Business Base

Evaluation of Policies

Evaluation of Policies
Largest CDMA Reliance Provider Wider Estd. Adaptive to Profit margin Market Forces
Survival of Competition

Early Start

Appeasement Beneficial of Utilities Government

Defeat Vodafone Target Break Lucrative Offers Even Dec07 after Dec07

Service Promotion

Market Trends

Cost Structure

Existing Market Competition

Thank You!
Technology Requirements

Evaluation of Policies

Business Base

References
1. Statistical Outline of India 2002-03 2. http://www.indiadaily.com/editorial/5826.asp,Dec 7, 2005 Media Release 3. http://www.stylusinc.com/internet_potential_india.htm 4. http://www.hardwaresecrets.com/article/151 5. http://ojr.org/japan/wireless/1084495929.php 6. http://www.indiadaily.com/editorial/5826.asp,Dec 7, 2005 Media Release 7. http://shopping.yahoo.com.au/ 8. http://www.umtsworld.com/umts/faq.htm#f3 9. http://blogs.zdnet.com/ITFacts/?p=9065 10. http://www.w2forum.com/item/us_wireless_market_reach_neartotal _saturation_2009 11. http://www.mouthshut.com/review/GSM_Mobile_Technology_Vs_ CDMA_Mobile_Technology-34613-1.html 13. http://www.businessworldindia.com/sep2004/news08.asp 14. http://www.umtsworld.com/umts/faq.htm#f36 15. www.auspi.org/presentation/AUSPI-press-conference.ppt

Backup Slides

World-Market Share

178-570

others 27%
NOKIA 34% siemens 8% Sony Motorola Ericsson 5%Samsung 15% 215-420 $990 190-279 11%

Source: Gartner, 2003

The Average International Market Price of 3G mobile Handsets =

7 World market share x Avg. handset cost x conversion factor

i

= 19,448 INR

Back

Computation Steps under Packet-Wise Billing

   

Current Internet User Count=38.5million2 Reliance Subscriber Count=20.3%of 38.5=7.82million Targeted Youth Population=54%of 7.82=4.22million Customer Base for Reliance=11.65million(data provided)

 Ratio for Target Customer for 3G= 4.22/11.65 = 0.36  Considering this ratio remaining constant, Revenue earned within the breakeven period limits:: Revenue earned by telephony Revenue earned by internet usage

Computation Steps cont..

Revenue earned by telephony: ARPU(t)xsub.population(t) = Area under the Revenue Curve
150000 140000 130000

Plot Depicting [ARPU(t) x population(t)]

revenue collected in millions

120000 110000 100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0
Ju n05 Au g05 Ju n06 Au g06 Ju n07 Au g07 5 6 O ct -0 6 De c06 Fe b07 Ap r07 O ct -0 7 De c07 ec -0 5 5 b0 ct -0 b0 rFe Ap Fe Ap O D r06 05

= 1485.76 billion INR

Revenue earned by internet usage: =Charge per packet ( C ) x Avg.Packetconsumption (APC) x Ratio of Target Customers x Sub.population(t) = 0.5x8192x0.36x{Area under the Subscriber Poplulation Curve} =5558.501 billion INR

75572

38951.5

20574.68 22572.26

P lot De pic ting

Su bcribe r P o p lu a tio n (t)

su bscriber p o p u latio n in m illio

440 400 360 320 280 240 200 160 120 80 40 0

5 7 06 6 07 5 5 -0 5 6 -0 6 -0 7 -0 7 8 -0 M ay eb -0 bN ov bM ay M ay M ay Au Au N ov N ov eb g Fe ug Fe F g A F -0 -0 -0 -0 -0 -0 8

215.92

111.29 57.29 52.22

Total Revenue =7044.26billionINR

Computation Steps cont.

D ec 07 eb 06

Total Revenue = 7044.26 billion Total Reliance Revenue = 20.3% of 7044.26 = 1429.99 billion If acquired a 10% stake, Returns to the company = 10% of 1429.99 143 billion >> 115 billion (investment cost)
Back

D ec 07

( t ) v pop ( t ).dt 

v 0.36 v

pop ( t ).dt

eb 06

Vodafones Returns: Computation steps for the Breakeven

1800 1617.24

Based on the Plot Returns(t) = Area Under the Plot = 10667.93 +89.71 t2 +833.56 t (billions) Returns till Breakeven period = 1.5 billion USD = 63000 million INR*

1600 1400 1200 1000 800 600 481.9 400 200 0 440.3 483.04 833.5

Vodafone's returns (millions INR)

Vodafone's returns 481.85717 440.29815 483.04636 833.5621 1617.2408

Solving for t: t =19.95 months 20 months By February 2008.

*Exchange rate =Rs 42/Back

De c-0 Ma 4 r-0 5 Ju n-0 5 Se p0 De 5 c-0 5 Ma r-0 6 Ju n-0 Se 6 p06 De c-0 Ma 6 r-0 7 Ju n-0 7
12/1/04 3/1/05 6/1/05 6/1/06 6/1/07

Aiming the technology

Source: CDG, AUSPI, TelecomWatch,COAI, TRAI

Wireless Technology trends

2005 2004 2003 2002 2001

Tariff fall andteledensityincrease

5 4 3 2 1 0 4 8

44 34 25 14 5 64 39
No. of networks.

84 79

3.5 2 1.5

6.5 6 2.8
1 4 2 0 Teledensity(percentage) Teledensity(%)

71

Tariff(Rs/min)

CDMA GSM

4.6

0.5
Tariff(Rs/min)

2001 2002 2003 2004 2005

Wireless growth after introduction of CDMA4:

Subscriber growth in GSM: CAGR of 74% * Subscriber growth in CDMA: CAGR of 205% * Increase in Teledensity: 6% * Decrease in tariff: 75% *

Indian Market Feasibility

Indian Market Feasibility MOU per m onth ARPU($)

35 33 30 25
ARPU (US$)

350 287 236 300 250 200 150 93 12 8 100 50 0

Australia Singapore China India Minutes of Usage (min/month)

32

239

20 15 10 5 0

TARGETED CUSTOMER : THE YOUTH?

Population Count in 2006(millions)
4% 9% 20% 7% 10% 0-4 5to14 15-19
Population(millions) 250 200

Trends in population

20-24 25-34 35-44

156.6
150 100 50 0

170.6 122.4 108.5 20-24 2005 25-34

190.8 120.8 117.4

13% 11% 16% 10%

105 90.2 15to19 2001

45-54 55-59 60&above

2010

54% of the population is below the age of 24 Estimated youths annual spending US$10.5bn with growth rate of 12%1 55% of young India opts for career in web related activities3 Demand for internet access (38.5 Mn currently) may shoot up to 100 Mn in 2 years.