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Telecom Sector May2011

Telecom Sector May2011

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  • India Telecoms Sector
  • Show me the data!
  • Data to add 500 bp to industry CAGR
  • The bottlenecks are easing
  • Integrated players can benefit from the entire value chain
  • Bharti Airtel Ltd
  • Painting a blue-sky scenario
  • Idea Cellular Ltd

23 May 2011 Asia Pacific Equity Research Telecommunication Services

India Telecoms Sector
Research Analysts Sunil Tirumalai 91 22 6777 3714 sunil.tirumalai@credit-suisse.com

THEME

Data ... is here and now!
Figure 1: Expect data to drive over half of incremental revenues over next three years
R s bn 2,500 2,000 1,500 1,000 500 F Y 3 /0 8 F Y 3 /1 1 F Y 3 /1 4 I n d i a n te l e c o m i n d u s t r y r e v e n u e s O v e r F Y 1 1 - F Y 1 4 , d a t a c o u l d c o n t r i b u te : 5 1 % o f i n c r e m e n t a l re ve n u e s 5 0 0 b p s to r e v e n u e C A G R D a ta V o ic e

Source: Company data, Credit Suisse estimates

On the verge of data revolution. We believe that in the current decade, data will transform the Indian telecom industry the way voice did in the previous decade. Over the next three years, data could more than double in size to a US$14 bn industry, contributing over half the incremental industry revenue and add 500 bp CAGR to an otherwise slowing voice industry. Recent experience from China and datapoints from India, which we analyse in this report, indicate to us that the data story is set to become a reality sooner than current investor expectations. Supply chain problems falling in place. We analyse the entire data access supply chain to identify critical areas of shortage that have so far prevented India from experiencing the Internet/data uptake seen in other parts of the world. Encouragingly, we see signs of easing in almost all these ‘bottlenecks’. As the 3G ecosystem develops, we expect all the missing parts to fall into place and trigger data uptake in India. Looking at the China experience and recent datapoints from India, we increase our near-term 3G estimates, leading to a 0–5% increase to the EPS of Bharti and Idea. Bharti/ Idea could benefit most. We see Bharti and Idea – with their higher quality subscriber bases – benefiting the most from the impending data revolution. Further, Bharti, with its integrated business model, can benefit from being present in all parts of the data access supply chain. While the companies have gained in recent months from the benign competitive environment in India, the coming quarters could see greater excitement in these stocks as data revenues start contributing materially to the overall business. Our new target prices imply 20% (Rs450) and 40% (Rs95) potential upside, respectively, for Bharti and Idea. We reiterate our OUTPERFORM rating on these stocks. We also look at a blue-sky valuation scenario for Bharti of Rs500 (implying 35% potential upside).

DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

■ ■ ■

23 May 2011

Focus charts and table
Figure 2: Data contribution to Indian telecom industry revenues is unsustainably low
Non voiceas % of telecom industry revenues 60%
52% 50% 43%

Figure 3: Internet penetration in India is far behind world average
Worldwide internate usage penetration 100%

50% 40% 30% 20% 10% Japan Singapore

Shaded bars are EM telcos
41% 37 % 36% 33%

80% 60% 40%
18%

83% 81% 79% 78% 77%

69% 65%

33% 32% 29%

29% 12% 10% 10% 6%
Ind ia

20% 0%
UK SK ore a Ge rma n y Ja pa n US

US

Malaysia

UK

Korea

China

India

Fr anc e M a lays ia World C hin a Nig e ria World Ind one sia P ak a ve ra ge avera g e (ex-Ind ia)

Ke nya

Source: Company data, Telecom regulators, Credit Suisse estimates

Source: ITU, Credit Suisse estimates

Figure 4: History shows India can quickly adopt new technology

Figure 5: We see a number of bottlenecks in data supply chain easing (like terrestrial optic fibre bandwidth)
Tot al national bandwidth(GB)

60% 50% 40% 30% 20% 10% 0% 1996 1997 1998 1999 2000

Mobile penetration

600
C hin a

500
1 y ea r

2.3x increase in bandwidth over the last 12M

400 300

Ind ia 5 y ea r s

200 100

2001

2002

2003

2004

2005

2006

2007

20 08

2009

Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10

Source: Company data, Credit Suisse estimates

Source: Company data, Credit Suisse estimates

Figure 6: China has shown the impact of data – 84% of incremental revenues in past three years came from data
1,400 1,200 1,000 800 600 400 200 2 006 2007 2008 2009 2010 2011E 2012E 2013E 2014 E 201 5E 3G la unch Dat a acco unted for 84 % of in cremental revenues last 3 yrs RMB bn And expected to contribute 74% to next three yrs incr. 2007-2010 revenue CAGR: With Dat a: 6.4% Without Data: 1.4% 2010-2013 revenue CAGR: With Dat a: 7.3% Without Data: 2.9%

Figure 7: We expect India to follow suit. Data could add 500 bp to the industry revenue CAGR over three years
2,500,00 0 Rs mn ind ustry revenu es And e xpected t o co ntribu te 51% to next 3 yrs incr. reven ues Retail da ta D ata accou nted for 3 3% o f increme ntal re venu es last 3 yrs FY0 8-FY11 C AGR: With Da ta: 12 .4% Withou t Data: 10.1% FY1 1-FY14 C AGR: With Da ta: 13 .2% Withou t Data: 8.5% E nterprise data F ixed line d ata 3G launch Mobile da ta - dongle Mobile da ta - handse t F ixed line voice Mobile vo ice FY3 /08 FY3/0 9 FY3 /10 FY3/11 FY3/1 2 FY3/13 FY3/ 14

2,000,00 0

1,500,00 0

1,000,00 0

Wireless Data - large screen Wireless Data - small screen Wireless Voice Wireline Data Wireline Voice

500,00 0

Source: Company data, Credit Suisse estimates

Source: Company data, Credit Suisse estimates

Figure 8: Bharti – changes to 3G estimates
Old Total 3G subs (mn) As % of total subs 3G ARPU 3G contribution to mobile EBITDA (%) Consol EPS (Rs) Stock fair value (Rs) Source: Company data, Credit Suisse estimates 5.6 2.8 79.6 1.6 26 418 12.3 5.6 78.8 2.4 34 20.2 8.6 78.1 4.4 42 8.9 4.5 119.5 4.4 26 448 New 25.2 11.5 94.6 5.8 36 42.0 17.9 74.9 8.5 43 % change 60.0 50.0 -0.4 7.2 103.9 20.0 3.0 108.3 -4.0 4.6 FY3/12E FY3/13E FY3/14E FY3/12E FY3/13E FY3/14E FY3/12E FY3/13E FY3/14E

India Telecoms Sector

2

23 May 2011

Show me the data!
The data/broadband story in India has always remained just a nice story. While the telecom industry in the rest of the world obtains 35-50% revenues from non-voice services, India derives only 18% of sales from non-voice/ data services. We see a number of key factors of the data supply chain falling in place and believe India is on the verge of a data revolution. Data growth could help offset the slowdown in voice revenues for the industry, by adding 500 bps to revenue CAGR over the next three years. We believe Bharti and Idea could benefit most from the impending data revolution. Our target prices for these companies rise 9% and 12%, respectively, implying upside of 20% and 40% from current levels. We reiterate our OUTPERFORM ratings on these stocks. The data story is set to become a reality sooner than current investor expectations, in our view

Data to add 500 bp to industry CAGR
Encouragingly, China presents a recent emerging market example of how this could happen. Over the past three years, data contributed 84% incremental revenues and 500 bps to revenue CAGR for the Chinese telecom industry. While India is currently six years behind China in Internet penetration, history shows that the country can quickly catch up on new technology adoption. Further, we note that India launched 3G only two years after China. We believe that we are at the start of a similar ‘data revolution’ in India, and expect data to add 500 bps to the industry revenue CAGR over the next three years – offsetting slowing voice revenues. We see Bharti and Idea as best positioned to capture this opportunity. India has earlier displayed a potential to adopt new technologies quickly

The bottlenecks are easing
While the data potential of the Indian telecom market has always been appealing, we believe that it is only now that the right set of factors are falling in place to enable strong data uptake. This is not just about the launch of 3G services. We identify a number of supply constraints across the data value chain in India – which we believe have hindered broadband/data growth in the country so far. Compared to the average Chinese Internet user, an Indian user has a third of international bandwidth access, faces 2x higher access tariffs, 5x higher device prices – and has virtually nil locally relevant content. While these constraints are significant, we also see encouraging signs of improvement in some of them (especially over the past 12 months), and expect the rest to fall in place as the overall 3G ecosystem develops. Indians have long suffered from weak data access infrastructure – now this is changing

Integrated players can benefit from entire value chain
Our current 3G estimates are quite conservative, going by China’s experience and recent datapoints from India. We thus build in a stronger ramp-up in 3G near term, causing 3G’s contribution to mobile EBITDA to rise to 9-13% (from less than 5%) by FY3/14. Idea Cellular, being fully leveraged to the mobile business, is obviously more sensitive to these changes. However, we believe that integrated operators like Bharti can tap into even those parts of data supply chain that pure-play mobile firms cannot. Our changes lead to 0-5% EPS increases for Bharti and Idea over the next three years. While the benign competitive environment is helping incumbents, such as Bharti and Idea, to continue to consolidate their revenue market share, we believe that further upside from data is not being factored in by investors. We reiterate our OUTPERFORM ratings on Bharti and Idea. Bharti and Idea, with higher quality subscribers, could take headstart in data revenues

India Telecoms Sector

3

23 May 2011

Sector valuation table
Figure 9: Asian telecoms valuation summary
Close 20 May 11 AIS AXIATA Bakrie Bharti Airtel China Mobile DiGi Excelcom FarEasTone Globe Idea Cellular Indosat LGT Maxis M1 NTT DoCoMo PT Telkom RCOM SKT SmarTone StarHub TAC Taiwan Mobile Average Ticker ADVANC TB AXIATA MK BTEL IJ BHARTI IN 941 HK DIGI MK EXCL IJ 4904 TT GLO PM IDEA IN ISAT IJ 032640 KS MAXIS MK M1 SP 9437 JP TLKM IJ RCOM IN 017670 KS 315 HK STH SP DTAC TB 3045 TT Ccy Bt RM Rp INR HK$ RM Rp NT$ P INR Rp W RM S$ ¥ Rp INR W HK$ S$ Bt NT$ price 94.0 5.0 375.0 373.9 69.3 28.6 6,500.0 44.0 853.0 67.5 5,350.0 5,740.0 5.4 2.4 146,000.0 7,650.0 83.9 167,500.0 12.9 2.8 55.8 75.0 Mkt cap (US$ bn) Rating 9.2 13.9 1.3 31.5 178.7 7.4 6.5 5.7 2.6 4.7 3.4 2.7 13.4 1.8 78.3 17.6 3.8 12.5 1.7 3.8 4.4 9.9 N O U O N O O N O O Target 100.0 6.3 205.0 450.0 86.0 29.6 7,200.0 40.0 930.0 95.0 Norm. P/E (x) 11.3 14.3 255.6 14.5 9.2 17.0 14.0 17.0 13.2 15.4 24.3 7.0 17.4 13.4 11.8 12.0 6.3 7.6 14.6 15.2 13.6 15.2 12.2 10.6 12.8 218.5 10.5 9.1 16.0 12.2 16.2 12.3 10.1 14.2 6.4 17.2 12.5 11.5 11.1 4.9 7.2 12.4 14.2 15.9 14.6 11.3 EV/EBITDA (x) 5.4 6.8 8.9 7.9 3.5 8.6 6.1 5.5 4.9 6.4 5.1 3.2 10.2 7.4 3.7 5.5 5.2 3.8 8.9 8.2 4.9 10.8 4.9 5.3 6.1 8.3 6.2 3.2 8.2 5.4 5.3 4.6 5.1 4.3 2.8 10.1 7.0 3.5 5.1 4.2 3.5 7.2 7.8 5.2 10.4 4.5 P/B (x) 6.7 2.2 2.1 2.6 2.0 16.5 4.7 1.8 2.4 1.6 1.6 0.7 4.7 7.2 1.3 2.7 0.4 1.1 4.8 -472.9 1.9 3.3 -1.9 6.8 2.0 2.0 2.3 1.8 16.4 3.9 1.8 2.4 1.4 1.5 0.7 5.3 6.5 1.2 2.4 0.3 1.0 4.8 -224.6 1.9 3.2 0.2 price FY3/12E FY3/13E FY3/12E FY3/13E FY3/12E FY3/13E

O 7,900.0 N 6,600.0 O 6.1 N 2.7 N 150,000.0 O 9,750.0 N 120.0 O 201,000.0 U 12.0 U 2.3 N 50.0 O 69.0

Source: Bloomberg, Company data, Credit Suisse estimates

India Telecoms Sector

4

India lags the emerging world. Data uptake in India is low by global standards Globally.). The rest of revenues (35-50%) comes from non-voice services (SMS. taking India closer to world averages – especially given the recent launch of 3G services in the country. India derives only 18% of sales from non-voice/ data services. across various indicators of data penetration. Figure 10: Data contribution to Indian telecom industry revenues is unsustainably low Non voice as % of telecom industry revenues 60% 52% 50% 43% Globally. VAS etc. Further. and data revenues should start picking up. India seems an outlier with less than 18% of telecom industry revenues coming from non-voice services. While the telecom industry in the rest of the world obtains 35-50% of revenues from non-voice services. China presents a recent emerging market example of how this could happen. history shows that the country can quickly catch up on new technology adoption. We believe this is an unsustainable position. Revenue contribution to both mobile and integrated telcos lower than world average Low data contribution to mobile revenues is well known – before the launch of 3G services there was no real mechanism to offer a reasonable data experience to mobile subscribers. the telecom industry obtains only 50-65% of its revenue from plain voice services. data contributed 84% incremental revenues and 500 bps to revenue CAGR for the China telecom industry. country telecom regulators. the telecom industry obtains 35-50% of its revenue from non-voice services. Encouragingly. Credit Suisse estimates Going deeper. We see Bharti and Idea as best positioned to capture this opportunity. While India is currently six years behind China in Internet penetration. retail and corporate data. However. For India this is less than 18% 50% 40% 30% 20% 10% Japan Singapore Shaded bars are EM telcos 41% 37 % 36% 33% 18% US Malaysia UK Korea China India Note: The non-voice revenues above includes enterprise/corporate data services Source: Company data. this is true even of EMs like China and Malaysia. and expect data to add 500 bps to industry revenue CAGR over the next three years – offsetting slowing voice revenues. Over the last three years.23 May 2011 Data to add 500 bp to industry CAGR The data/broadband story in India has always remained only a nice story. As seen in the Figure 10 below. we note that India launched 3G only two years after China. This manifests in the form of low Internet/ broadband penetration. We believe that we are at the start of similar ‘data revolution’ in India. Internet. We believe these levels are not sustainable and expect a strong growth in data revenues for the sector. India Telecoms Sector 5 .

the broadband industry remains a poor cousin of its mobile voice counterpart. Figure 12: Traditional integrated telcos have 30-50% data revenues. what is often missed is the low contribution of data to even integrated telcos. Credit Suisse estimates However. In fact – given its size – India is actually helping pull down the world average by around 400 bps. Internet penetration in India is struggling to reach even 10% So ftb an k( J M ax apa n is Ma ) la Vo y da sia fon eU Ve r iz K o Te lko n U ms S e C h l In d Vo ina o da Mo fon e G b ile er m an SK y Te Vo Am le co da fon e ric m a e EM M o (e vil M x-O ne In di a MT S in g ) ap Nor So e ut hA fric AI S Th a ail Bh and ar ti A ir t el 52 % 51% 47% 43% 33% Shaded bars are EM telcos 33% 2 9% 1 8% 1 6% India Telecoms Sector 6 . Internet penetration is struggling to even reach 10% – a third of the world average of 29%. China Unicom and China Telecom to obtain an overall integrated industry view.23 May 2011 Figure 11: Indian telcos are yet to enjoy the data revolution of other emerging markets Non-voice revenue s as % of sales for mobile operato rs 60% 50% 40% 30% 20% 10% 54% 42% 39% 34% 34% Shaded bars a re EM telcos 31% 31% 28% 25% 21% 20% 19% 19% 15% Source: Company data. Source: Company data. but not in India Non-voice revenues as % of sales for integrated telecom operators 60% 50% 40% 30% 20% 10% SingTel Optus Singapore Australia AT&T US Maxis PT Telkom China * Malaysia America Movil Bharti Airtel (exAfrica) BSNL * The China data above is the cumulative of three operators – China Mobile. This implies low data penetration even into the enterprise/ corporate segments. Credit Suisse estimates Low Internet/ broadband penetration Unlike the rapid uptake in mobile voice telephony by India in recent years (penetration 68%).

The contribution is significant even if we focus only on the wireless business – with over 50% incremental revenues in recent years coming from data. Figure 14: Broadband is yet to take off in India Broadband connections / 1 00 population 30% 29% 27% 22% 20% 21% 21% 21% 10% 9% 7% 0. We refer to experiences from China throughout the report at various points. The contrast is even starker when we consider the broadband penetration.000 bps in three years).7% 0% SKorea US UK Japan Germany France China World average India Source: ITU.23 May 2011 Figure 13: Internet penetration in India is far behind the world average Worldwide internate usage penetration 100% 80% 60% 40% 20% 0% UK SKorea Germa ny Ja pan US France Malaysia World Chi na Nigeria W orld Ind onesia P ak a verage ave rage (ex-Ind ia) Kenya India 83% 81% 79% 78% 77% 69% 65% 33% 32% 29% 29% 12% 10% 10% 6% Note: Based on ITU’s definition of Internet user – those having used Internet at least once Source: ITU. Data has contributed to over 84% of incremental telco revenues over last three years in China India Telecoms Sector 7 . Credit Suisse estimates Chinese experience shows the surge can be quick It has been a little over two years since China Mobile launched commercial 3G services in April 2009 (with other operators launching within the subsequent six months). TRAI. with data contributing to over 84% of incremental industry revenues over the last three years. Growth in non-voice revenues in China has been strong in recent years. We believe a close look at the progress of data revenue in China could provide a number of clues on the possible path ahead for India. Internet Worldstats. Data revenues now account for 33% of sales for the China telecom industry (up 1. Credit Suisse estimates.

revenues 2007-2010 revenue CAGR: With Dat a: 6.000 900 800 700 600 500 400 300 200 100 2 006 2007 2008 20 09 2010 2011 E 2012E 2013E 2014E 2015E 3G launch Wireless Dat a .small screen Wireless Voice Data accounted for 50% of incremental re venues last 3 yrs RM B bn And expected to contribut e 64% to next three yrs incr. 4% 2010-2013 revenue CAGR: With Dat a: 7.large screen Wireless Da ta .4% Without Data: 1.400 1.large screen Wireless Dat a . 9% Source: Company data. India Telecoms Sector 8 . India is at least six years behind China on Internet penetration.3% Without Data: 2. 0% W it hou t Data: 5.200 1. Credit Suisse estimates India has shown it can catch up fast on new technology As shown in Figure 17.6 % Source: Company data. Credit Suisse estimates Figure 16: A chart similar to the above.7 % 2010-2 013 revenue CAGR: W it h Data: 10.small scree n Wireless Voice Wireline Data Wireline Voice Data accounted for 84% of incremental reve nues la st 3 yrs RMB bn And expected to contribute 74% to next three yrs incr. focusing on the mobile industry alone 1. re venues 2007-2 010 revenue CAGR: W it h Data: 11.23 May 2011 Figure 15: Data accounted for 84% incremental revenues over past three years for the China telecom industry 1. 2% W it hou t Data: 7.000 800 600 3G launch 400 200 2006 2007 2008 2 009 2010 2011E 2012E 201 3E 2014E 2015 E Wireless Da ta .

TRAI.23 May 2011 Figure 17: India is six years behind China on Internet penetration levels 35% 30% 25% 20% 15% 10% 5% 0% 1996 1997 1998 1999 Internet user penetration China India 6 years 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Worldbank Database Credit Suisse estimates However. Expect data to add 500 bp to the industry’s CAGR over next three years One could argue that the data revolution has already started in India in some way. experience from the mobile penetration trend indicates India is capable of catching up quickly. However. Figure 18: Despite late start. The gap behind China in terms of mobile penetration shrunk from five years to one year between 2005 and 2009. we expect true data services to contribute meaningfully to growth. with revenues from non-voice services contributing 33% to the industry’s incremental revenues over the last three years (CS estimates). Further. we note that India is only two years behind China in the launch of 3G services. this is largely on the back of 2G nonvoice revenue streams like SMS and VAS. Credit Suisse estimates Importantly. Source: Company data. as the penetration in India beyond this point is coloured by a surge in duplicate SIMs. With the launch of 3G services. We expect data to account for 51% of incremental revenues for the industry over the next three years. While data added 230 bp to the industry CAGR over the last three We expect data to account for 51% of incremental revenues for the industry over the next three years. India caught up quickly with China on mobile penetration Mobile uptake showed that India can catch up quickly on new technology adoption 60% 50% 40% 30% 20% 10% 0% 1996 1997 1998 1999 2000 Mobile penetration China 1 year India 5 years 2001 2002 2003 2004 2005 2006 2007 2008 2009 Note: The chart stops at 2009. a younger population in India (versus China) lends itself to a better adoption of new technologies. India Telecoms Sector 9 .

China Unicom has guided to ~37 mn 3G China Unicom and China Telecom have 11-16% of subscribers on 3G within 1823 months India Telecoms Sector 10 .han dset Fixed line voice Mob ile voice FY 3/12 FY 3/13 FY3/14 500. Nielsen.5% 3. the coming years could likely see data add nearly 470 bp to industry CAGR – offsetting a slowdown in voice growth. Credit Suisse estimates 3G – encouraging signals from China Numbers from China show that despite a slow start in the initial months of 3G launch.6% US China 25.0 00 1. The other two operators (which use commercially stronger WCDMA/ EVDO) have achieved 11-16% 3G conversion within 18-23 months. While the overall industry’s 3G penetration at 7% total subs two years after launch is discouraging. we believe most Indians will experience the Internet for the first time through their mobile phones.2% 3. TRAI. Figure 20: China has circumvented PC/wireline shortage through wireless access 100% 80% 60% 40% 20% 0% 79. In fact.6% 26.7% 65. the uptake is picking up rapidly.0 00 FY3/0 8 FY3/0 9 FY3/1 0 FY3/1 1 Source: Company data.0% 49. Figure 19: Data to contribute to more than half of incremental revenues for the industry 2.000.5 % En terprise da ta 2. where mobile access is the primary means through which Indians talk.000.0 00 3G laun ch Fixed line dat a Mob ile d ata .3% 5.23 May 2011 years (over and above voice CAGR of 10%). reven ues Ret ail d ata Data accoun ted for 33 % of incremental re ve nue s last 3 yrs FY08-FY 11 CAGR: W it h Data: 12.2% India ? PC penetration Wireline penetration % of internet users who use mobile access 2009 Source: World Economic Forum. this number is dragged down by China Mobile’s constraints of technology – TD-SCDMA is patronised by no other operator in the world – thus impacting the overall ecosystem (for further details.500. Credit Suisse estimates Retail data – wireless to drive growth Similar to the path followed in voice telephony. 1% FY11-FY 14 CAGR: W it h Data: 13. please read Colin McCallum’s Chinese Telecoms Sector: Tipping point published on 15 April 2011).0 00 1.4% W it hout Data: 10.500.2% W it hout Data: 8.don gle Mob ile d ata .0 00 Rs mn in dustry revenues And expe ct ed to con tribu te 51% to next 3 yrs incr. China has recently shown the sustainability of this path.

6 116 58 66 China Unicom’s 3G ARPU nos.23 May 2011 subscribers by December 2011 (i.4 115 55 77 Mar-11 10. Credit Suisse estimates 3G will drive growth through both small screen and large screen access So far we have been quite conservative in our 3G estimates for Indian telcos.pricing power to return soon published on 28 March 2011). of 3G subs 1. initial datapoints and comments by managements indicate good uptake among subscribers. Figure 21: China Unicom and China Telecom have seen good 3G conversion rates among subscribers 20% 15% 10% 5% 0% -5% 3G subscribers as % of tot al subs China Unicom Dec-11 gu idance China Telecom China Un icom China Unicom launch China Telecom launch China Mobile launch China Mobile Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Source: Company data. We note that China Unicom reduced the minimum monthly commitment on its 3G packages from the initial Rmb66 to Rmb46 in December 2010.2 1. Figure 23: Recent datapoints on 3G uptake in India Operator Tata Bharti Idea Aircel No. 26 months from launch).1 Other comments by management Incremental ARPU of US$3-4 Expect 30% conversion in 3-4 years Media articles talk of 9 mn 3G subs in India within four months Source: Company data. which would work out to ~19% of total subscribers as per CS analyst Colin McCallum’s estimates. Credit Suisse estimates Additional details on 3G ARPU (provided only by Unicom as of now) indicate a reasonably high level of ARPU from the initial subscribers. Bharti management indicated incremental 3G ARPUs of $3-4 at the CS AIC (refer to our note Bharti Airtel: Notes from AIC . The 3G ARPU is 2x regular 2G ARPU even after crossing the 10% 3G conversion. Figure 22: China Unicom 3G operating metrics (Rmb) China Unicom 3G subs as % of total China Unicom 3G ARPU China Unicom 2G ARPU China Mobile Blended ARPU Source: Company data. Recent media reports (Business Line) indicate over 9 mn 3G subscriptions countrywide in four months of launch.2 140 59 69 Jun-10 4..e. Credit Suisse estimates Mar-10 3. Media articles.7 1.5 mn as of Mar-11 2 mn within 45 days of launch 1 mn within one month of launch % of subs base 1. are encouraging Positive datapoints on India 3G uptake While it is still early days of 3G in India. building: India Telecoms Sector 11 .8 128 57 74 Sep-10 6.5 124 57 73 Dec-10 8.

three years from launch).23 May 2011 only 15% subscriber conversion three years after launch in 3G spectrum circles. India Telecoms Sector 12 .4) for the early high-end customers who would convert (and falling off sharply as more customers convert – we build 40% ARPU erosion in two years versus 5% earlier). and Rs80 incremental data ARPU (less than US$2). no inter-operator roaming arrangements in circles where there is no spectrum – hence no 3G services in these circles. these assumptions are clearly conservative. Even here. gaining over the wireline and CDMA 1x options available. we expect 3G-based dongles to grow in market share. starting at Rs110 (US$2. FY3/11 0 0 FY3/12 6 5 3 80 40 FY3/13 12 10 6 79 40 FY3/14 20 15 9 78 40 ■ ■ ■ Figure 24: Old estimates for 3G uptake – Bharti Airtel Bharti 3G subscribers (mn) As % of subscribers in 3G circles As % of total subscribers Incremental data ARPU (Rs) As % of 2G blended ARPU Source: Company data. the PC-based large screen market could also continue to grow.e. While the mass market data/Internet uptake is expected to be through handset-based access.. We also increase near-term 3G ARPU estimates. including an assumption of inter-operator roaming arrangements starting FY13. Credit Suisse estimates Considering the China experience and early indications/comments from India. owing to its inherent advantages over the small screen devices. We revise our estimates and now expect ~18% of industry subscribers to start subscribing to 3G services by March 2014 (i.

9 -0.510 15 17.997 10.).9 450.0 50.0 30.0 54.302 8 15.2 7.1 43.0 0.567 2.0 0.3 4.5 488 25. Loop.5 21.7 317 9.5 16 -1.0 47.560 32 10 9.2 29.3 21.0 160. Vodafone and Idea have ARPUs significantly ahead of the industry’s average level.849 0 8 16. Idea and RCOM score high in terms of revenue market share.889 11.3 133.6 35.4 463 -5.0 44 4.0 0.4 10 16. On this metric.1 225 -20.073 0.0 272.469 1.008 14 9 10.0 54.1 159.4 18 20. Bharti.2 21. Scale of operations: At the same time.1 21. operators with scale can leverage this to provide better services (ex.3 22 22.3 184.6 17. In the table below.0 3.2 16 -6.269 195.2 FY3/10 FY3/11 FY3/12E FY3/13E FY3/14E FY08-11 CAGR (%) FY11-14 CAGR (%) 16.577 0.2 206. Operators with scale and higher paying subs should benefit ■ ■ India Telecoms Sector 13 .758 42 5 12.3 352 -20.7 138.2 102.2 0.9 110 80.0 254 -20. indicating a more lucrative subscriber base. Credit Suisse estimates 8 18.0 0.2 8.0 16 -1. we see that Bharti. Vodafone.7 4.2 5.330 31.2 134.499 5.7 18.0 18 -21.0 0.5 203 -20.696 11.778 80.916 116 12.0 30 29.23 May 2011 Figure 25: Retail data revenue breakdown for India telecom industry (by access technology) FY3/09 Small-screen access SMS+VAS ARPU (Rs) % YoY Revenues (Rs mn) % of mobile revenues % YoY 3G handset based Subs (mn) As % of total mobile subs Incremental data ARPU as % of blended mobile ARPU Revenues (Rs mn) % YoY Large-screen access PC penetration – households (%) 3G dongle based Subs (mn) As % of PCs in India ARPU (Rs) % YoY Revenue (Rs mn) % YoY Fixedline DSL Subs (mn) As % of PCs in India ARPU (Rs) % YoY Revenue (Rs mn) % YoY Others (Cable modem.882 1.0 0.919 0 9 11.4 16.9 369. better negotiation with content providers etc.4 22 86.1 186 18.793 0 8 13. Dial-up) Subs (mn) As % of PCs in India Revenue (Rs mn) % YoY Total retail data market Rs mn Of which 3G % Source: Company data.0 53.813 7.6 21.0 0.970 8.534 52.4 1.6 Potential winners We believe that two factors could determine which operators take the lead in 3G conversions: Higher paying subscribers: operators with higher paying subscribers would see quicker 3G conversions in their subscriber bases.0 5 6.432 220.0 0.3 282 -20.3 14 18.2 6.3 21.425 9.0 88.506 11.2 69 51.0 36.5 0.3 175.0 9.6 440 -5.7 5.333 -1.083 -1.035 42.8 17 -3.0 29.0 87 64.8 10.

published on 15 April 2011) Further. with our improved 3G expectations in this note.0 16.4 4.6 21. This could be different from numbers reported to shareholders in some cases.0 Rank on RMS 1 8 2 3 14 11 5 7 6 4 10 9 13 12 Subscriber market share (%) 20. we compare India’s overall enterprise data spend as a percentage of nonagricultural GDP with other countries – which shows India clearly lags.23 May 2011 Looking at the above results.3 11. Credit Suisse estimates Where would RIL fit in? We continue to retain our view (please refer to our 8 July 2010 note.0 11.4 16. Below.6 11. Figure 26: Potential winners in the 3G race CY2010 ARPU (Rs) 226 198 190 180 147 120 114 110 100 97 76 45 44 23 151 Rank on ARPU 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Revenue market share (%) 31. Source: TRAI.0 Rank by subscriber mkt share 1 11 3 5 13 14 6 7 4 2 9 8 12 10 Operator Bharti Loop Vodafone Idea Etisalat HFCL TTSL Aircel BSNL/MTNL RCOM Sistema Shyam Uninor S Tel Videocon Industry Note – to maintain uniformity across operators.1 8. we expect further impetus from the overall growth in Internet/broadband uptake in the consumer market. Vodafone and Idea (in that order) could be best positioned on the 3G opportunity. While the momentum of growth in this segment should continue.7 0.8 0. Enterprise data – India still playing catch-up India’s enterprise data market has seen a strong ~25% CAGR over the past three years. we believe that Bharti. Further. we are reminded of China Mobile’s handicap of having weak 3G technology while competitors with commercially strong 3G technologies are enjoying a significant headstart in the data market – RIL has no 3G operations (for further details.0 0. we see little possibility of the launch happening within two years’ time.2 13. the ARPU here is derived from the revenue and subscriber figures that operators report to TRAI on a quarterly basis.8 12.6 8.0 0.0 0. please see Colin McCallum’s Chinese Telecoms Sector: Tipping point. In the meantime.6 bn in FY10).5 0.3 0.000 corporates India Telecoms Sector 14 . we expect the enterprise data market in India will grow to over US$4 bn by FY3/14 (from US$1. Note that this would still imply that less than 3% of the ~900.1 0. However.8 1.9 100.0 0.0 6. in our models (which we describe later) we exclude any upside for the companies from the dongle market – an area we believe will be the primary area of operation for RIL in the initial years of its launch. Growth in e-commerce and Internet awareness could encourage corporates to adopt new-age communication techniques. we believe that the penetration of digital connectivity in our corporates is still low.1 100. while an entry by RIL would definitely be large scale.1 0.5 0. Indian Telecom Sector: the night is darkest before dawn) that RIL’s impact could be limited – given it is a late entrant and does not have a 2G business as of now.1 0. given the low penetration. Building the revenue CAGR to remain at 25% over next three years.2 2.

with the top-three players accounting for a 50% plus market share. legacy infrastructure being the incumbent fixed-line operator 11 Wide presence across ~2.1 FY3/13 145. We India Telecoms Sector 15 . in our view. Bharti Airtel Reliance Comm.3 FY11-FY14 CAGR (%) 25. We believe Bharti Airtel. and (increasingly) managed services capabilities.23 May 2011 registered with the Indian Ministry of Corporate Affairs would have taken a 100Mbps line at current BSNL rates. We believe that with the peak of competition well behind us.657 24.13 % Source: Company data.6 FY3/10 75.270 26.2% 0 .224 25. second-largest NLD fibre network (190.169 23.5 FY3/11 93.000km).5 Source: Company data. Figure 27: Enterprise data spend in India is below global levels Ent erprise data spen d a s % o f no n-agricultural GDP 0 .33% 0. FY3/12 should be the first full year of rebound for the industry.6 FY3/12 115. and the top-five players having a 75% plus share. Ofcom. are access to international and national fibre connectivity. 20% 0.27 % 0.6 FY3/14 184.512 24. third largest NLD fibre network (~126.358 24. Credit Suisse estimates Voice business – recovering from competition.1% 0 .3% 0 .0% Ma la ysia UK Ja pan USA In dia FY3 /14 (CS) India FY3/1 0 0 .000km.39% 0. US FCC. Credit Suisse estimates Figure 28: Enterprise segment growth to sustain Enterprise data services Revenues (Rs mn) % YoY FY3/09 60. fibre connectivity to over 1 mn buildings across 44 cities in India 14 Largest NLD fibre network of ~615. but still slowing down We do not change our expectations on the voice business in this report.4% 0 . Figure 29: Key players in the enterprise data services market Operator Tata Comm. RCOM and Tulip Telecom have the right strengths as seen in the table below.000km) and last-mile presence in ~90 cities 14 International connectivity (FLAG). as penetration rates mature. BSNL Tulip Telecom Others FY3/10 enterprise data market share (%) Strengths 21 Leading market share in international connectivity 17 Strong presence in international connectivity (access to seven submarine cable systems worldwide). The key success factors.3 8% 0.000 cities through a mix of both fibre and wireless last mile. followed by gradually falling growth rates. Credit Suisse estimates Potential winners The enterprise data services market is quite concentrated. CIA World Factbook.9 FY08-FY11 CAGR (%) 24. Tulip Telecom. Tulip Telecom. good last-mile presence.5% 0 . leader in managed services and MPLS/VPN 23 Source: Tulip telecom presentation.

340 13.036 2.0 35 86.828 -12.3 1.6 -8. Figure 30: Voice business growth rates to slow down further Mobile voice Subscribers (mn) Net adds / month (mn) Penetration (%) ARPU (Rs) % YoY Revenues (Rs mn) % YoY Fixed-line voice estimates Subscribers (mn) Revenues (Rs mn) % YoY Total industry voice Revenues (Rs mn) % YoY 1.476.5 1.3 37 108.077.416.1 -12.6 1.511 9.049.5 968.7 118 -1.646 -8.024 5 82.311.4 Source: Company data.3 1.794 -8.2 FY08-FY11 CAGR (%) FY11-FY14 CAGR (%) 13.346 -8.726 -13.157 7.055.5 FY3/14 1.804 5.6 121 -6.5 38 117.0 1.1 8.23 May 2011 expect the mobile voice industry to deliver a 10% CAGR over the next three years.0 FY3/13 964 5 78.501 21.0 34 75.3 1.8 10.046 4.6 239 931.2 1.4 FY3/10 581 16 49. as shown below.242 -12.4 1.6 33 66.7 FY3/09 390 11 33.6 129 -22.0 FY3/11 782 17 65.8 120 -1.340.0 FY3/12 902 10 74.409.399 9.4 166 -30.2 10.226 8.155.690 4.224.707 26.0 36 99. Credit Suisse estimates India Telecoms Sector 16 .0 1.614 16.

80 0. However.94 1. the amount of time people talk on their phones). data can add to profitability in many ways: Segmentation: Unlike with a plain voice service where it is difficult to provide different gradations of service and packages – data renders itself very well to segmentation to target-specific customer groups. As shown in the simplistic GSM-GPRS calculation below for incremental carrier additions. data services could help sustain growth rates for operators. even beyond the revenue-level trade-off shown above. Figure 31: Revenues from voice and data from incremental unit capacity GSM Voice Capacity of one channel Unit tariff Revenues per second per channel 1 call 1 p/sec 1. India Telecoms Sector 17 . We believe that it will not be too long before data tariffs fall to bridge this gap and then the trade-off could disappear. Once the country reaches mature penetration levels. However.36 ■ ■ Figure 32: 3G data tariffs of Bharti highlights the ability to segment offerings Pack amount (Rs) 8 61 101 201 450 750 Beyond download limit Source: Company data.23 May 2011 Topic of interest #1: Can data revenues increase profitability? Current prices allow greater revenues to be made from data than from voice for a given capacity. download speeds etc. Source: Company data. Below.4 kbps 30p / 20 KB 1. Credit Suisse estimates However. Credit Suisse estimates Growth sustainability: There is a limit for voice volumes (i.80 0.0 p GPRS Data 9. Note that the smaller sized packages – which could become the most popular – are also the most profitable.e.37 15. The segmentation could be in the form of size of packages. Download limit (MB) 10 65 100 250 600 2.01 0.. the amount of data downloaded by a user could continuously rise as bandwidth requirements of applications increase (the user may still be spending the same time on his phone/laptop). data tariffs have not seen the kind of price erosion in voice over the past few years. As long as Indian telcos do not offer unlimited download plans (and they have shown this discipline so far on 3G).048 At 30p per 20 KB Validity (days) Revenue per MB (Rs/MB) 1 3 30 30 30 30 0.75 0.8 p Note: This calculation represents a decision made at the point of adding an incremental carrier of 8 channels to an existing cell site. voice revenues may not grow by much. data provides 80% more revenue per unit capacity than voice at current pricing. is a summary of data tariffs offered by Bharti to its 3G customers.

3G happens to be only a part of the data access supply chain. Credit Suisse estimates The key takeaway from this illustration is that 3G is not synonymous with data growth. We extend this thought further in the following chapter. So. Figure 33: China mobile data growth has happened without much help from 3G China Mobile data revenues as % of total 45% 40% 35% 30% 25% 20% 15% 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E Data surge t ook off in 2006 it self 3G launched only in 2009 3G conversion less than 5% even aft er two years Source: Company data.23 May 2011 Topic of interest #2: So how did China Mobile pull it off? An interesting observation from the previous section is that China Mobile has seen strong growth in data revenues. and hence are unlikely to be the cause of continued growth in data. We have discussed the company’s issues concerning 3G technology earlier. We see below that the surge in data revenues for China Mobile started at least three years before 3G was commercially launched. 3G subscribers form less than 5% of overall mobile subs. how did China Mobile see such growth in data? GPRS played the role of providing last-mile data access for China Mobile. Even now. despite low 3G uptake. The entire supply chain needs to develop in order for data growth to take place. India Telecoms Sector 18 .

we also see encouraging signs of improvement in some of them (especially over the past 12 months) and expect the rest to fall in place as the overall 3G ecosystem develops. we believe that it is only now that the right set of factors are falling in place to enable strong data uptake. However. We identify the five key parts of the data access supply chain in the chart below. While these constraints are significant. Figure 34: The data access supply chain Supply constraints are glaringly evident across the data services supply chain Source: Company data. this is a very narrow view of the industry.23 May 2011 The bottlenecks are easing While the data potential of the Indian telecom market has always been appealing. and explore India’s current standing on these parts versus global levels. Encouragingly. faces access tariffs 2x higher and device prices 5x higher – and has virtually zero locally relevant content. the release of 3G spectrum and the subsequent launch of services are considered a panacea for all ills plaguing data uptake in India. Credit Suisse estimates India Telecoms Sector 19 . We identify a number of supply constraints across the data value chain in India – which we believe have hindered broadband/data growth in India so far. Compared to the average Chinese Internet user. in our opinion. an Indian user has a third of international bandwidth access. Hence. Supply constraints exist across the data supply chain – but these are easing Popular perception is that the lack of last-mile access was the key hurdle that telcos were unable to cross in order to drive data/broadband penetration. Our analysis below shows that supply constraints are glaringly evident across the data services supply chain. we note that the supply bottlenecks seem to be easing in recent years. This is not just about the launch of 3G services.

As the chart shows below. The comparison is even worse compared with other emerging markets. SKorea Source: World Economic Forum (2009).000 400. such as Brazil and Malaysia.23 May 2011 Bottleneck #1: International connectivity The part of the data supply chain that is farthest from the user is the submarine cable connecting a country to the rest of the world. Credit Suisse estimates India Telecoms Sector 20 .000 600.000. US China internet penetration Source: China Internet Network Information Center. India’s international connectivity is significantly below global levels. Credit Suisse estimates While China’s bandwidth capacity is 3x.000 b and width mbps Int ern ation al bandwidth up 3 x in the last three years penetra tion % International outlet bandwidth (mbps) Malay. We can compare the availability of international bandwidth across countries by looking at bandwidth per unit of population. But that in no way makes it the least important part of the supply chain. UK Japan Germ. A person accessing the Internet in China has more than 3x the international bandwidth at his disposal compared to a person in India.000 800. as seen above. Figure 35: India's international connectivity is abysmal compared to other countries Int ernational bandwidth (Mbps/ 10000 pop) 450 400 350 300 250 200 150 100 50 397 294 A person accessing the Internet in China has more than 3x the international bandwidth at his disposal compared to a person in India 257 113 61 58 51 21 Brazil 7 China 4 Kenya 2 India 1 P ak Nigeria 35% 30% 25% 20% 15% 10% 5% 0% 2002 2003 2004 2005 2006 2007 20 08 200 9 Fra. Bandwidth capacity in China was similar to current Indian levels just three years ago. The extent of international bandwidth available determines the usage experience of Internet/data users in a country – and is especially relevant in countries where cross border data/Internet access is high.000 200. corporate networks etc). Figure 36: China’s international connectivity has grown hand-in-hand with Internet penetration 1. we note that this is a recent surge in capacity. International connectivity is essential for international voice telephony and cross-border data access (Internet.

km as a measure of penetration of fibre optics in the country. the mobile backhaul is provided through microwave and fixed-access backhaul is through fibre/copper. On this metric. we have data on the number of route kilometres of cables installed in countries. India’s fibre-optic penetration is 10% behind China’s and roughly half of the penetration in the US. due to limited data. Figure 37: Recent surge in international bandwidth as per TRAI data Total International bandwidth (GB) 700 600 500 400 300 200 100 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 2. this does not seem like a significant bottleneck. In limited cases.23 May 2011 What is changing? Data from TRAI shows a surge in new submarine capacity investments out of India – with bandwidth going up more 2x in the past 12 months.4 Mbps/10. in-country fibre-optic network (both core and backhaul). This is reminiscent of the surge in international bandwidth in China in the run-up to the rise in Internet penetration. India Telecoms Sector 21 . it is important that fibre backhaul is provided even in the mobile networks. The core network is usually in the form of fibre. Hence. Traditionally in India. An updated bar in Figure 35 would show a value of 5. To adjust for the differences in population and land areas. This determines the bandwidth available from the mobile tower to the core network of the operator and beyond.2x increase in bandwidth over the last 12M Source: TRAI. we could use cable km / mn population / mn sq. Thus. Quantifying the fibre-optic bandwidth in a country is a difficult exercise. it may prove a bottleneck if there is a pick-up in data traffic on mobile networks. the amount of fibre-optic bandwidth in a country indicates core/backhaul capacity. While microwave as backhaul technology for mobile networks was sufficient in a 2G/voice environment. Compared to China.000 population for India. Credit Suisse estimates Bottleneck #2: Core network/Backhaul fibre bandwidth The next leg of the data supply chain is the terrestrial.

3x increase in bandwidth over the last 12M TRAI data shows that the national bandwidth has been rising sharply recently – up 2.3x in the past 12 months Total national bandwidth (GB) 600 500 400 300 200 100 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 2.3x in the past 12 months as seen below. Bottleneck #3: End-user devices We now move closer to the end user – to be precise – into their hands. However. Credit Suisse estimates In addition. Credit Suisse estimates The limitation of this metric is that all terrestrial optic fibre cables may not be of the same bandwidth – they could range from a single pair of fibres to a cable of 96 pairs. in our view. the government. Figure 39: National terrestrial bandwidth has gone up 2. Availability of affordable devices. is drafting the national broadband plan with the intention to roll out optic fibres to all habitation centres with a population of 500 plus over the next three years. India Telecoms Sector 22 .23 May 2011 Figure 38: Terrestrial fibre-optic penetration In-la nd fib re installed (rout e km / mn pop / mn sq km) 60 0 50 0 40 0 30 0 20 0 10 0 In dia Ch ina US 269 3 03 527 Source: Company data. What is changing? Similar to the surge in international fibre. While these targets seem aggressive. TRAI data shows that the national bandwidth has been rising sharply recently – up 2. is the third factor we consider in the supply chain. even a partial achievement on these targets could help improve the terrestrial fibre infrastructure in the country. Source: TRAI. at a cost of US$13-14 bn (largely funded from the Universal Service Obligation Fund). which are capable of providing a good browsing/data usage experience.3x in the past 12 months. our discussion within the telecom industry indicates that for large countries the average bandwidth in the cable works out to 48 pairs of fibre (true even in the case of India).

full value (i.0% Telmex launched PC financing scheme with t wo year PC financing.0% 2. an entry-level 3G handset for an Indian consumer is 5x more expensive than for his Chinese counterpart. Almost 100% of PC sales also generated Internet subscriptions Figure 41: Mexico: Private sector financing is helping PC sales 25. given the lower income levels in India.0% 10.0% 20.0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Mexico internet penetrat ion Source: Forbes.2% US In don esia Malaysia Thaila nd Note: We have taken the retail. 3% UK 0. Case study: Mexico in 2000 Private telcos have addressed the problem of affordable devices by offering easy credit facilities to customers.6 % 0. Credit Suisse estimates Singapore Ind ia Chin a India Telecoms Sector 23 . reasonably priced PCs with low-cost financing.0% 5. Figure 40: India does not enjoy cheap device ecosystems like other emerging economies Ent ry level 3 G ha ndset ASP/GDP per capita 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 8. subscription to broadband optional Nearly 100% of PC sales also generated internet subscriptions 15.0% 0. no credit card is required. Optional int ernet connection at 25% discount Service positioning: Instant credit approval. Source: Company data.1% 3 . Wherever data is hard to obtain.5% 1.e non-contract) price of the cheapest 3G handset available in a country to prepare the chart below.23 May 2011 Based on our analysis. Credit Suisse estimates We believe that a comparison of retail prices for entry-level PCs/notebooks would also have a similar pattern as above – since the manufacturing ecosystem for both the categories of devices is weak in India. 8% An entry-level 3G handset for an Indian consumer is 5x more expensive than for his Chinese counterpart 3 .4 % 0. The features included instantaneous credit approval and low finance costs. we have relied on the inputs from CS analysts in these countries.

5% 0. there is no common 3G technology in China and globally accepted standards like WCDMA are not used by the dominant leader.000 (US$200).0% 0. We thus see that in the context of lower income levels. In addition. With usage surprising on the upside.0% 0. Bharti Teletech. an Indian consumer’s data download costs twice as much as his Chinese counterpart’s.4% 0. While 3G handsets start at Rs4.1% 0. Lava) working on low-priced tablet PCs (priced Rs10. India Telecoms Sector 24 . This could stimulate the dongle market.500 (US$100) and Smartphones start at Rs9. Our estimate of 44 mn WCDMA subscribers in India within a year of launch is higher than the 37 mn guidance of China Unicom (the only operator using WCDMA in China) two years after launch. One metric to compare across countries is the cost of downloads expressed as a percentage of GDP per capita.000) to be launched by September 2011. Karbonn. It is likely that with India adopting a common WCDMA platform. Credit Suisse estimates We note that Indian mobile operators who launched 3G services have largely matched the pricing of the prevalent wireline DSL and wireless CDMA dongle tariffs. in our view. Figure 42: Data downloads are twice as expensive in India as in China Cost o f 1G d ata / GDP pe r ca pita 3% 3% 2. the dominant market leader) helping reduce prices of GSM handsets globally. we compare the cost of a 1GB download in a basic 3G tariff plan as a percentage of GDP per capita across countries. the cost of connection should also be within affordable limits of the end user.23 May 2011 What is changing? Our industry meetings indicate that 35% plus of handsets sold today are 3G enabled.000-20. recent media articles (Business Standard) talk of Indian handset vendors (like Spice Mobiles. An important point to note is that India has enjoyed low prices in the GSM handset ecosystem because the GSM market in China had grown to scale already (GSM was the technology followed by China Mobile. However. Below.0% An Indian consumer’s data download costs twice as much as his Chinese counterpart’s S haded bars are EM telcos 2% 2% 1. The tariffs used here are currently offered by the market leading mobile operator in each country. What we expect to change We believe that the introductory 3G offers where operators have matched existing fixed line/CDMA tariffs are testing grounds for operators. the related handset industry could benefit from scale too. these prices are falling and Smartphones at US$100 are expected in about 1218 months.0% 1% 1% 0% India Ch ina Malaysia Indonesia Japan UK US 0. The WCDMA handset ecosystem could benefit from the scale that India is expected to offer Bottleneck #4: Last mile In addition to the affordability of devices.0% Singap ore Source: Company data.

The largest English newspaper by circulation has less than a quarter of the circulation of the largest Hindi newspaper. a similar look at the top websites in India shows a completely different picture. For this. and there is only one English daily in the top 20 (Times of India). only two (#9 and #10 in the table below) are homegrown (also in English). On the other hand. eight out of the top-ten popular websites accessed by Chinese Internet users are homegrown Chinese websites. Figure 43: Top print newspapers by circulation in India Name Dainik Jagran Dainik Bhaskar Amar Ujala Hindustan Lokmat Daily Thanthi Dinakaran Ananda Bazaar Patrika Rajasthan Patrika Eenadu Times of India Malayala Manorama Daily Sakal Punjab Kesari Dinamalar Punya Nagari Mathrubhumi Gujarat Samachar Vijay Karnataka Bartaman Source: Indian readership Survey 2009. Credit Suisse estimates Language Hindi Hindi Hindi Hindi Marathi Tamil Tamil Bengali Hindi Telugu English Malayalam Marathi Hindi Tamil Marathi Malayalam Gujarati Kannada Bengali Readership (mn) 55 34 29 27 21 20 17 16 14 14 13 13 11 11 10 10 9 9 9 8 There is almost nil local language content for Indians However. However. Bottleneck #5: Content Finally. we build 3G ARPUs to fall by 40% plus over the next two years. India Telecoms Sector 25 . Of these. All the top-ten websites accessed by Indians are in English. In our 3G models. All the top-ten newspapers by readership in India are in local languages. we would point to the readership pattern of Indian newspapers as an indicator of language preferences of India’s population.23 May 2011 we would not be surprised to see operators lowering tariffs. we would argue that the presence of locally relevant content in native languages is important to encourage people to go online. we come to the part of the supply chain which is the key reason for the user to access data services in the first place – content. The perceived large size of the Englishliterate population in India could make one believe that the global content is sufficient to encourage Indians to go online.

com Sohu.org In fact. India seems to be only large economy where Internet users have almost zero local language content.com Google.com Taobao.com Indiatimes. We believe that a similar content explosion is required for India.23 May 2011 Figure 44: Top-10 popular websites China Baidu.com Youku.com Sina.com Google HK 163.com US Google Facebook Yahoo! Youtube Amazon Wikipedia Blogspot Twitter eBay Craigslist. Credit Suisse estimates China saw an explosion in local language Internet content accompanying its Internet penetration surge.com QQ. India Telecoms Sector 26 .com Soso.com Source: Alexa India Google India Google Facebook Yahoo! Youtube Blogspot Wikipedia Twitter Rediff. to encourage voice subscribers to try accessing the Internet on their phones. Figure 45: Distribution of web pages viewed by language Source: comScore.

the government also offered easy PC financing schemes to retailers.23 May 2011 Figure 46: China’s Internet usage surge was accompanied by a local content explosion 3. 0% 300 2005-06: Govt. In 2005-06.93% of federal tax filings done online in 2002 30.By 2002. We believe that with the growing Internet ecosystem around 3G services.000 500 200 2 2003 2004 2005 2006 20 07 200 8 2009 A n explo sion of Chinese websites attracted new internet use rs No. the government gave a massive push to e-governance – making this an anchor content for Internet penetration.000 2. causing an increase in PC penetration. web sites in China ('000s) China interne t penetration Source: China Internet Network Information Centre Case study: Brazil In Brazil. over 70% of government services and 93% of all tax filings were conducted on-line. 0% Some stores saw 400% increase in PC sales 10. 70% of government services to population provided online .000 1.000 apps found on Bharti’s ‘Airtel App Central’.500 1. Credit Suisse estimates What we expect to change This is probably the weakest link in the entire data supply chain for India – and suffers from the classic ‘chicken-and-egg’ problem (content versus Internet penetration). India Telecoms Sector 27 .500 2.'s easy PC financing program to retailers . 0% 35. By 2002. 0% within 2 weeks of launch of t he program 5. Chinese websites ('00 0s) penetration % 35 % 30 % 25 % 20 % 15 % 10 % 5% 0% No. 0% 20. more content developers would be attracted to develop locally relevant native language content. Figure 47: Brazil: the government provided anchor content for Internet access 350 Individual credit (BRL bn) penetration % 40.500 3.0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 250 200 150 100 Credit for individuals (BRL bn) Internet penetration Source: Central Bank of Brazil. 0% 15. We note here that the telecom operators have tried to stimulate demand through various mobile applications – we sample below some of the ~100. 0% 25.0% 0.

we are also seeing some app developers bringing out apps which do not require either 3G or GPRS: Last week.000 books Music store with over 100. GPRS usage will pick up as well. using only SMS as access technology. If this happens.. Bharti launched an USSD-based service to access Facebook. but a significant number could be GPRS capable. Orkut. some premium features (posting on friends’ walls. Twitter Daily exercise guide with illustrations and instructions Practice tests and solutions for the CAT (for admission to Indian B-schools) Road navigation tool Source: Company data. It is highly likely that with the evolution of the 3G/data ecosystem. which can be used by subscribers with 2G-only phones (no GPRS). some of the handset vendors intending to bring out low-priced tablets (which we discussed in an earlier section) plan to have localised applications on these tablets to suit Indian needs. ■ ■ India Telecoms Sector 28 . Twitter etc. While the basic service is free. This can be used by any subscriber with a feature phone. is offering text-based apps for portals like Facebook. The GPRS usage in India has been largely dormant so far – and each of the five bottlenecks in India described above were equally applicable to GPRS as they are for 3G. We are not building these upside possibilities into this note.000 songs Suite of social networking and lifestyle portals. And not to forget good old GPRS Until the foreseeable future. finding and adding friends etc) will be charged Rs1. including Facebook. We have earlier seen from the Chinese example that GPRS is a viable last-mile alternative in emerging economies.23 May 2011 Figure 48: Sample Apps from 'Airtel App Central' Name of App Wattpad Spice Sangeet Snaptu Stretch on the go Pearson CATGuru Smart Pilot Cost (Rs) Features Free Free Free 25 50 199 eBook community of readers with over 100. Credit Suisse estimates Further. Simultaneously. a large proportion of handsets used by Indian subscribers may not be 3G ready. Shorthand Mobile Inc. this could turn out to be a far larger ecosystem than 3G in the near term.

■ ■ - Figure 49: Data versus voice trade-off is the worst in India Cost of 1MB data / cost of 1min call 2 1. the voice calls in mature markets are relatively more expensive.11 0 . they do consume bandwidth which is paid for.08 0 . our European telecoms team (Justin Funnel. In a recent survey. Credit Suisse estimates In addition to low data tariffs.04 0.68 2 1 1 0 0 . due to the following reasons: Regulations do not allow VoIP calls originating in India to terminate on another phone in India (PC-to-PC calls are fine). while VoIP-VoIP calls are seemingly free. is a real threat that Indian telcos should be aware of over the longer term. In future. voice revenue cannibalisation from new communication streams like VoIP. Further.23 May 2011 Topic of interest #3: Will VoIP spell doom for traditional telcos? Over the long term. All the above issues could change over the long term – it is reasonable to expect: 1) data tariffs to fall (faster than voice tariffs) and 2) smartphones to become cheaper. Thus. This impact is already being felt by some of the western telecom operators. the restriction may be relaxed but the government will always be wary of security issues with respect to tracking of calls.10 0.01 India Malaysia China US UK Indonesia Japan Singapore Based on entry level monthly 3G data packs offered by leading mobile operators in these countries Source: Company data. leading to a favourable trade-off towards data communication. data-based communication technologies can threaten the regular voice revenues of traditional telcos. Paul Sidney in their 31 March 2011 note Mobile survey: More evidence of voice cannibalisation) found that 40% of European telcos were seeing cannibalisation of voice revenues by data-based smartphone communication technologies.62 Shaded bars are EM telcos 0.62 0. we believe that this is not an immediate concern in India. But that gives telcos enough time to cultivate the data habits of their subscribers so that any loss in voice revenues is overcome by data revenue growth. we also need to see the availability of affordable VoIP capable smartphones ■ India Telecoms Sector 29 . As we show below. messaging etc. However.

RCOM may benefit from integrated operations A look at the revenue profile of telcos under our coverage shows that Idea is the most leveraged to wireless data revenues (13% of consolidated sales) and hence its earnings could have the highest upside from rapid data uptake. as we see below.a n. We reiterate our OUTPERFORM rating on Bharti and Idea. going by the experience of China and recent datapoints from India. This leads to 0-5% EPS increases to EPS estimates. have significant presence across the key parts of the supply chain which could indirectly benefit from the growth in overall industry data revenues. is obviously more sensitive to these changes. we expect 3G data revenues to contribute a meaningful 9-13% of mobile EBITDA – up from less than 5% expected earlier.TRAI. the data access supply chain is not restricted to the last mile alone. Correspondingly our DCF-based fair value for the stocks go up by 7-8%.23 May 2011 Integrated players can benefit from the entire value chain Our current 3G estimates are quite conservative. causing 3G’s contribution to mobile EBITDA to rise to 9-13% (from less than 5%) by FY3/14. However. By FY3/14.000 15 11 circles n. as we have seen in the previous section. We thus build in a stronger ramp-up in 3G near term. Figure 50: Data exposures and infrastructure capabilities of telecom operators % revenue contribution Wireless voice Wireless data Wireline voice + data Others (including non-India businesses) Infrastructure capabilities 3G spectrum NLD fibre (km) ILD bandwidth (market share of installed bandwidth) (%) 13 circles 126.. we believe that Bharti and RCOM – with their integrated business models – can tap into the parts of data supply chain that pure-play mobile firms cannot. Credit Suisse estimates Increasing near-term 3G estimates As discussed in earlier sections.a Nil 40. to continue to consolidate their revenue market share.357 48 13 circles 190. Bharti. Idea cellular. India Telecoms Sector 30 .000 32 Bharti 50 9 8 33 RCOM 75 6 12 6 Idea 87 13 0 0 TCOM 0 0 18 82 Idea has most exposure to mobile business and hence could have highest upside Note: 1) The long-distance segment revenues have been included in ‘Others’ for Bharti (3% of sales) and RCOM (6%). While the benign competitive environment is helping incumbents. 2) ILD bandwidth market shares are as per TRAI 2007 data Source: Company data. However. we believe that our current 3G estimates for operators are conservative and hence we increase our near-term 3G subscriber and ARPU estimates as shown below. we believe that further upside from data is not being factored in by investors. such as Bharti and Idea. The split between data and voice revenues in this segment are not available. being fully leveraged to the mobile business. Our changes lead to 0-5% EPS increases for companies over the next three years. Operators like Bharti and RCOM.

4 2. upgrading to 3G would involve only a software upgrade leading to negligible incremental capex.4 16 4.1 2.3 7.6 3.3 9.0 2.0 50.0 5.0 60.0 0.8 4.5 3.4 102.changes to 3G estimates Old 3G subs in 3G-spectrum circles (mn) As % of total subs in 3G spectrum circles 3G subs in non 3G-spectrum circles (mn) As % of total subs in non 3G spectrum circles Total 3G subs (mn) As % of total subs 3G ARPU 3G contribution to mobile revenue (%) 3G contribution to mobile EBITDA (%) 3G Fair value per share Rs (including spectrum fee) Consol EPS (Rs) Stock fair value (Rs) Source: Company data.0 20. published 28 March 2011).0 8.0 8.0 15.4 5.0 0. Given that it had earlier indicated a plan of launching 3G services in 400 cities by March 2012.0 20.9 bn in India 892 FY3/11: Rs30 bn (US$666 mn) Bharti guidance of $1.0 15.2 What about capex? Bharti management has given a guidance of US$1.9 bn for India capex for FY3/12.0 6.7 CS estimates will be published after 4Q11 results 50.7 15.0 33.0 279 -0.6 12.3 6.0 0.3 20.0 5.769 983 FY3/13E 1. Credit Suisse estimates Upgrade TP.4 8. we see in this report that these two companies are well positioned to make the best of the impending India Telecoms Sector 31 .9 18.0 4.3 20.587 FY3/12: US$1. Credit Suisse estimates New % change FY3/12E FY3/13E FY3/14E FY3/12E FY3/13E FY3/14E FY3/12E FY3/13E FY3/14E 5.0 3.4 34 78.5 2.6 12.8 5. Figure 53: Capex estimates in our models build buffer for 3G overflows US$ mn Bharti (ex-Africa) Idea FY3/12E 2.9 25.0 10.0 -4.2 42.3 11.1 1.1 60.3 5.23 May 2011 Figure 51: Bharti – changes to 3G estimates Old 3G subs in 3G-spectrum circles (mn) As % of total subs in 3G spectrum circles 3G subs in non 3G-spectrum circles (mn) As % of total subs in non 3G spectrum circles Total 3G subs (mn) As % of total subs 3G ARPU 3G contribution to mobile revenue (%) 3G contribution to mobile EBITDA (%) 3G Fair value per share Rs (including spectrum fee) Consol EPS (Rs) Stock fair value (Rs) Source: Company data.5 7. We believe that the US$900 mn buffer in capex over and above guidance for Bharti that we build here is sufficient to capture any 3G overflow.3 7.6 8. Further.1 0.0 15.0 251. Reiterate OUTPERFORM on Bharti.880 821 FY3/14E Management guidance 1.3 13.4 42 119. In particular.5 43 50. Idea In India’s benign competitive environment.9 79.4 5.9 108.9 5 4.6 Figure 52: Idea .9 6.8 5.0 50. we believe strong incumbents like Bharti and Idea can consolidate revenue market share and grow margins.3 86 67.7 8.4 1.9 60.6 12.8 CS estimates will be published after 4Q11 results 68.0 103.7 1.8 4.0 15.0 20.9bn for FY12 already builds in a fairly aggressive rollout Source: Company data. we note that on the newer 2G base stations.9 4.5 11.6 1.4 43 26 448 94.5 26.7 4.8 36 74.1 60. we believe that management guidance already captures a fairly aggressive roll-out (please refer to our note Bharti Airtel: Notes from AIC – pricing power to return soon.0 7.4 93 80.0 0.3 5.0 0.1 5.9 5.2 8.7 2.6 4.0 0.4 7.0 10. Credit Suisse estimates New % change FY3/12E FY3/13E FY3/14E FY3/12E FY3/13E FY3/14E FY3/12E FY3/13E FY3/14E 3.2 8.0 7.6 11 26 418 78.5 17.8 1.2 1.0 0.0 76.2 3.1 4.3 2.

India Telecoms Sector 32 . We raise our target price for Bharti to Rs450 (20% potential upside) and Idea to Rs95 (40% potential upside). We retain our OUTPERFORM ratings on these stocks.23 May 2011 data growth in the market.

48 4. Margin improvement over the past two quarters (250 bps) has been based on pure cost control and we expect these to continue. -41.00) 450. our EPS for Bharti rise 0-5% over the next three years. Easing competition to help.8 4.4 97.988. While the assumptions driving our target price are realistic. Credit Suisse estimates.00 *Stock ratings are relative to the relevant country benchmark. Data uptake to play to strengths of integrated model Best positioned to capture data demand. the benefits from the outsourcing contracts and volume growth (scale benefits) are yet to kick in.672.0 35. we believe that India’s benign competitive environment should help a strong incumbent like Bharti to continue to gain revenue market share and improve margins over the next two years.419. ¹Target price is for 12 months.76 -0.2 283. 3G business now contributes nearly 10% to our fair value at Rs43 per share.2 86. (Rs mn) 1.5 2. Further.7 2.4 43.9 107.4 Market cap.5 4.10 Jan-11 The price relative chart measures performance against the BOMBAY SE 30 SHARE SENSITIVE index which closed at 18326. 33 .941.9 11.015.981.4 3M 12.75 .4 8.057.0 224.6 18.3 3/13E 845.3 349.3 10.7 2.5 134.7 29.a.23 May 2011 Asia Pacific / India Integrated Telecommunication Services Bharti Airtel Ltd (BRTI.664.09 Sep-09 Jan-10 May-10 Sep. We expect the India business to deliver ~20% EBITDA CAGR over FY11-FY14. Thomson Reuters.2 2.8 14.682. We retain our view that Bharti should comfortably achieve management revenue and EBITDA targets for FY3/13.00¹ Chg to TP (%) 20.598.4 21.1 25.6 32. n.2 168.com Share price performance Price (LHS) 600 500 400 300 200 May.8 37. Rs) 373.797.777.70 Target price (Rs) (from 415.2 85.4 405.0 25. We reiterate our OUTPERFORM rating.5 4.6 6. 3/11A 594.2 2. Africa business on track to meet management targets.778 Number of shares (mn) 3.0 27.615. In the voice business. adding 9% to mobile EBITDA.0 199.6 52-week price range 386. Our DCF-based target price increases to Rs450. and we outline a blue-sky valuation of Rs500 (35% potential upside) for the stock. We believe that Bharti’s strengths of having an integrated business model and market leadership in the mobile segment should position it strongly.0 97.8 7.BO / BHARTI IN) Rating OUTPERFORM* Price (20 May 11.036.3 22.9 12.058.4 27.tirumalai@credit-suisse.717.87 n.4 5. We now expect 18% of company’s subscribers to take up 3G services by FY3/14.255.3 23.9 10. giving 20% potential upside.95/US$1 Rebased Rel (RHS) 120 100 80 60 40 Performance Over Absolute (%) Relative (%) 1M -1.) (Rs) Change from previous EPS (%) Consensus EPS (Rs) EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%) Source: Company data.762.a.6 13. we believe that more upside is possible from the India mobile and Africa businesses.5 273.137 Enterprise value (Rs mn) 2.2 12M 43.0 0.033.6 119.2 65.3 164.09 on 20/05/11 On 20/05/11 the spot exchange rate was Rs44.52 3.2 3/14E 943.4 Research Analysts Sunil Tirumalai 91 22 6777 3714 sunil. Reiterate our OUTPERFORM: With higher 3G uptake estimates.53 Free float (%) 32.0 52.9 3/12E 728.202.5 India Telecoms Sector ■ ■ ■ ■ Financial and valuation metrics Year Revenue (Rs mn) EBITDA (Rs mn) EBIT (Rs mn) Net income (Rs mn) EPS (CS adj.

we continue to build a buffer on capex to accommodate any capex over-run – with an annual capex estimate of ~US$1.1 0.5 1.0 -13. For this we model an additional US$500 mn capex over the next three years (to accommodate an additional 9% 2G network capacity to carry the extra data traffic).2 bn.5 26.264 0.8 5.1 1.070 1.5 bn.220 443.0 1.0 India Telecoms Sector 34 .716 37.3 13. the fair value for the mobile segment (ex.3 4.508 1.193 588.181 494.9 0.2 Blue-sky case % difference FY3/12E FY3/13E FY3/14E FY3/12E FY3/13E FY3/14E FY3/12E FY3/13E FY3/14E 13. Figure 54: Base-case and blue-sky scenarios Base case India 2G mobile – GPRS uptake scenario 2G data (SMS/GPRS/VAS) as % of 2G revenues 2G ARPU (voice only) (Rs) 2G ARPU (voice + data) (Rs) 2G subs/2G BTS 2G revenues (Rs mn) 3G incremental data revenues (Rs mn) Total mobile revenues (Rs mn) Mobile EBITDA margin (%) Bharti ex.1 5.1 0.0 2. In our blue-sky scenario.6 -8. we believe that the Zain Africa acquisition could be fair value neutral (negative Rs24 earlier).457 1.0 439.513 12.5 37.1 1.472 1. and hence our FY3/12 capex number of US$1.397 529.9 -9. With these assumptions. We outline these below and the possible upsides for each.7 4.0 3.0 3.3 13.0 -13. Africa EPS (Rs) Mobile segment (2G only) fair value (Rs) Africa – lower capex scenario Africa EBITDA (US$ mn) Capex (US$ mn) Africa DCF fair value per share (Rs) Consolidated impact Consol.861 558.203 12.4 3.2-1.5 43. This could happen without necessarily cannibalising our 3G data assumption – these would be from non-3G customers who are still over 80% of subscriber base even by FY14.3% currently to 17.759 1.345 1. as shown below If the dormant GPRS usage picks in a improving data ecosystem.070 1.5% over three years (the contribution to incremental revenues going up from 13.3 bn levels.8 448 35.5 1.742 531. GPRS usage could also take place.289 2.4 0.880 33 6.677 42 1.0 45.5 173 171 169 173 171 169 199 197 195 201 203 205 1.422 1. We envisage a blue-sky fair value of Rs500 (35% potential upside): GPRS uptake We have earlier discussed that GPRS has been dormant due to a weak data supply chain / ecosystem in the country.264 -8. Africa capex (US$ mn) Bharti ex. With the year well under way we believe management’s capex visibility could be quite high.3% to 25%) and steady thereafter.4 11.769 26 339 5.758 19.758 19.23 May 2011 Painting a blue-sky scenario Our base-case estimates for Bharti incorporate a level of conservatism at various points.074 561. Recently. Credit Suisse estimates 25.2 4. fair value per share (Rs) Source: Company data.4 2.332 30.6 bn could prove aggressive.9 7. Africa EBITDA (US$ mn) Bharti ex. However. Conversely.723 1.1 37.524 1.899 2.2 15.639 509.4 1.3 11.203 451.3 14.4 498 36. we see an additional Rs26 per share addition to fair value Africa – realistic capex We showed in our 2 March 22 report (Bharti Airtel: Fortune favours the bold) that we are comfortable with management targets on revenues and EBITDA for FY3/13.4 36.8 39.524 1. if the data supply chain improves in a 3G environment. 3G) goes up by Rs26 per share.9 5. EPS Consol. we build 2G data revenue contributions from 13.801 1.422 1.9 Our current Africa capex estimates are significantly above management guidance 1.5 0. Bringing annual capex to US$1.423 456.0 4.350 2.4 3.412 1.587 40 4.938 514.0 0. management issued guidance for FY3/12 capex of US$1-1.348 1 2.969 3.086 27 365 5.287 1.944 33 6.0 39.389 1.565 -24 2.0 -4.332 30.9 17.

23 May 2011 Figure 55: Summary financials Year-end 31 Mar (Rs mn) Consolidated income statement Revenue EBITDA Depreciation EBIT Finance expenses (net) Other income (net) Profit before tax Provision for tax Profit after tax Share of profits from associates Minority Interest Net income EPS (Rs) Consolidated balance sheet Cash and short-term investments Receivables and other current assets Total current assets Gross fixed assets Net fixed assets Goodwill due to Zain Investments and other assets Total assets Total current liabilities Total long term liabilities Other liabilities Total equity Minority interest Total liabilities Consolidated cash flow statement Net income Adjusted for: Depreciation Other items Change in working capital Cash flow from operation Capex Other items Cash flow from investing Change in debt and liabilities Change in equity reserves Interest expenses Change in minority interest Cash flow from financing Change in cash 84.043 -165.405 896 178.759 84.768 62.598 29.672 199.598 97.385 81.982 98.489 97.686 202.517 1.179 168.809 917.698.424 28.066 97.5 FY09 FY10 FY11 FY12E FY13E FY14E Source: Company data.418 380.711 23.921 -175.548 42.977 534.120 303.240 1.074 28.297 52.379 144.410 -20.428 1.947 77.087 50.733 710.703 -16.533 26.903 28.698.079 603.437 894.597 164.807 130.510 0 -91.8 845.261 96.947 137.832 104.821.995 -9.938 1.686 -48 1.067 -984.054 421.932 12.472 167.275 233.453 91.524 -39.668 -471.776 104.145 113.711 -60.581 104.915 618.801 178 516 105.9 728.818 535.565 137.831 -155.203 132.940.063 -186.350 -58 122.856 17.742 25.625 224.811 59.479 2.015 41.850.699 22.327 -143.947 217.327 409.704 603.581.243 329.615 151.608.923 301.988 43.762 25.006 80.738 -3.339 -11.412 -46.370 603.753 514.469 20.264 164.701 169.613 5.066 116.341 33.705.940 487.474 593.5 943.615 87.709 251.776 168.761 89.297 628.625 46.558 174.684 0 98.777 125.280 691.260 -29.998 142.468 15.622 628.717 114.705 6.185 53.284 21.910 -513.941 46.639 917.633 62.563 27.350 0 -57.675 -62.479 0 -133.487 1.000 107.981 405.527 -41.444 -144.985 60.662 -21.768 23.097 11.498 0 10.938 1.714 347.444 -3.405 0 -102.090 1.138 331.940 1.057 134.665 4.664 102.057 46.001 276.187 48.253 9.940.376 136.187 273.171 -713 1.475 60.285 28.682 125.058 283.519 912.614 119.3 418.762 114.098 621. Credit Suisse estimates India Telecoms Sector 35 .363 5.940 1.210 129.321 542.517 1.602 913.581 14.054 202.250 60.537 1.668 545.821.945 10.986.972 153.685 124.832 36.142 63.988 132.054 202.273 0 -1.736 445.699 83.685 17.287 -40.982 98.790 59.227 -178 12.782 -19.182 575.786 6.665 1.516 -46.468 102.066 -74 -1.870 89.823 -166.993 18.841 -147.468 37.171 1.279 -152.581.537 1.232 -16.699 47.380 366.982 98.025 -136.873 344.139 13.210 369.613 1.244 557.718 2.509 60.394 134.736 710.857 16.559 137.777 35.071 76.093 449.036 349.982 30.362 -20.302 93.7 594.677 47.741 194.904 24.

9 9.3 69.6 16.4 42.7 27.4 26.10 0.1 6.93 -5.9 -32.9 11.8 33.9 490 3.0 36.0 206 0.8 Mar-14 11.1 73.7 195 -1.1 3.23 May 2011 Figure 56: Key ratios FY09 Margins (%) EBITDA margins EBIT margins Net profit margins YoY growth (%) Revenue growth EBITDA growth EBIT growth Net profit growth Return ratios (%) ROE (average) ROIC Turns ratios (x) Working capital turns Fixed asset turns Other ratios (%) Net debt/ equity Gross debt/ equity Interest cover 19.7 0.3 7.4 17.92 -7.00 0.7 457 -0.1 20.7 15.6 FY3/10A 131.42 -5.74 15.1 27.4 0.4 36.2 26.0 Mar-13 16.9 FY3/16-3/25 4.1 61.6 13.5 23.22 0.4 31.8 8.7 19.6 37. Credit Suisse estimates Figure 57: Mobile segment key assumptions FY3/09A Subscribers (mn) % YoY ARPU excluding 3G (Rs/sub/month) % YoY ARPU including 3G (Rs/sub/month) % YoY Revenue per minute (ex-3G) (Rs/min) % YoY MoU (min) % YoY 94.7 30.3 0.84 -5.2 18.2 13.0 28.3 24.8 25.4 21.9 FY3/11A 167.2 197 -1.4 3.0 323 -12.2 13. Credit Suisse estimates Figure 58: Consolidated DCF assumptions Revenue growth (%) EBIT margins (%) Tax rate (%) NOPAT margins (%) Invested capital turns ROIC (%) WACC (%) Mar-12 22.2 22.0 48.7 28.19 24.9 28.1 39.9 42.57 0.2 11.60 11.0 21.03 32.9 19.4 7.0 127.2 Mar-16 8.1 19.2 0.1 25.6 23.2 199 -1.52 9.3 32.5 31.7 -5.81 -5.0 205 -0.2 9.9 53.44 1.9 22.0 42.3 8.1 20.8 5.5 205 1.5 20.2 43.1 0.7 6.2 39.3 25.1 323 -12.4 10.9 21.5 0.4 41.4 1.4 9.0 39.5 33.9 17.5 112.0 Terminal 3.9 500 2.0 FY3/14E 235.5 15.6 Mar-15 9. Credit Suisse estimates India Telecoms Sector 36 .0 90.9 40.2 10.7 19.2 202 -17.39 -2.67 13.1 460 -9.6 12.53 -16.7 0.0 1.2 27.4 23.1 Source: Company data.0 23.7 24.4 41.80 16.4 244 -24.32 27.7 0.59 0.6 FY3/12E 199.0 Source: Company data.7 29.1 -6.44 -16.9 25.82 -4.6 22.0 0.7 16.0 FY3/13E 218.2 0.63 -16.6 48.3 38.3 476 4.6 36.5 0.2 21.7 202 -17.3 244 -24.3 28.1 23.1 26.5 FY10 FY11 FY12E FY13E FY14E Source: Company data.6 510 5.40 -3.4 13.0 0.3 28.

Credit Suisse estimates India Telecoms Sector 37 .23 May 2011 Figure 59: Base case and blue-sky sum-of-the-parts valuation Sum-of-part Rs/share Mobile (ex 3G) 3G Tower B'band and fixed Enterprise Zain Eliminations Cash Total Previous TP 339 11 74 37 17 -24 -34 -5 416 Base case 339 43 77 38 17 -24 -41 -1 448 Blue-sky 365 43 80 38 17 1 -41 -5 498 Source: Company data.

9 7.2 6. Rs) 67.470. We reiterate our OUTPERFORM rating.2 5.1 2. This should continue.com Share price performance Price (LHS) Rebased Rel (RHS) 120 100 80 60 40 100 80 60 40 May.a.8 7.6 24.0 3/11E 156.2 3/12E 189. (Rs mn) 221.3 3.5 Market cap.5 3M 6. our EPS for Idea goes up 0-4% over FY12-13.1 5.6 8.4 6.0 10. [V] = Stock considered volatile (see Disclosure Appendix). Idea’s full exposure to the mobile business makes the company an attractive route to capture the full upside from the expected 3G uptake in India.1 Enterprise value (Rs mn) 348. Market share gains should continue Fully exposed to 3G uptake. New circle growth should help margins.418 Number of shares (mn) 3.641.1 2. As the businesses continue to grow and mature.90 *Stock ratings are relative to the relevant country benchmark.922.945.8 0 9.076.5 13.BO / IDEA IN) Rating OUTPERFORM* [V] Price (20 May 11.8 34. Research Analysts Sunil Tirumalai 91 22 6777 3714 sunil.4 12M 26.7 67.6 11. we are already seeing Idea capitalise on the weakening competition by gaining 130 bp in revenue market share over the past 18 months.4 0.) (Rs) Change from previous EPS (%) Consensus EPS (Rs) EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%) 3/10A 124.71 -0.433. We now expect 19% of company’s subscribers to take up 3G services by FY3/14. ¹Target price is for 12 months.745.5 15.5 22.53/US$1 Performance Over Absolute (%) Relative (%) 1M -1.1 69.48.4 9.0 14.1 1.6 103.35 Free float (%) 53.37 1.09 on 20/05/11 On 20/05/11 the spot exchange rate was Rs44.23 May 2011 Asia Pacific / India Wireless Telecommunication Services Idea Cellular Ltd (IDEA. In the voice business. Reiterate our OUTPERFORM.85 .a.tirumalai@credit-suisse.9 14.6 Source: Company data. Credit Suisse estimates.2 3. 38 .254.7 India Telecoms Sector ■ ■ ■ ■ Financial and valuation metrics Year Revenue (Rs mn) EBITDA (Rs mn) EBIT (Rs mn) Net income (Rs mn) EPS (CS adj.071.1 91.09 Sep-09 Jan-10 May-10 Sep.7 1. giving 40% potential upside.140. 3G business now contributes nearly 17% to our fair value at Rs16 per share. n.142.0 33.280.00) 95.7 2.46 -10. The EBITDA losses from new circles currently impact overall margins by 350 bp (down from 420 bp a year ago).9 65.9 24.69 4.6 4. in our view.895.539.10 Jan-11 The price relative chart measures performance against the BOMBAY SE 30 SHARE SENSITIVE index which closed at 18326.4 1.5 22. Thomson Reuters.1 1.03 n.95 53. Gains in voice business should continue.0 52-week price range 77. -14.4 15. we expect these losses to come down and help the company deliver 25% EBITDA CAGR over three years. Our DCF-based target price rises to Rs95 (from Rs85).37 61.303.0 1.3 4.223.4 38.2 0 8.820.5 3/13E 211. adding 13% to mobile EBITDA.938.15 Target price (Rs) (from 85. With higher 3G uptake estimates.1 13.00¹ Chg to TP (%) 41.0 53. and help company improve margins.

137 89.239 18.983 20.017 13.076 262.471 13.076 6.983 19.037 14.365 146.347 11.418 217. Credit Suisse estimates India Telecoms Sector 39 .975 56.225 10.630 270.619 0 0 -8.072 20.907 67.433 4.851 11.569 14.746 29.949 2.900 43.902 127.452 -52.649 2.814 1.647 -628 -44.144 78.518 7.051 32.141 23.314 0 63.864 25.947 10.019 2.468 18.005 836 10.975 30.54 124.945 20.827 105.661 4.814 628 16.864 22.216 18.962 146.593 20.527 385.232 371.996 78.622 65.622 -175 -50.730 36.907 22.864 2.895 17.69 FY3/08A FY3/09A FY3/10A FY3/11E FY3/12E FY3/13E Source: Company data.900 33.598 18.03 156.205 53.639 33.145 -36.200 6.525 15.539 -836 -66.776 175 12.975 -13.145 25.527 -1.280 31.005 -27.500 110.968 86.149 13.975 10.470 -43.967 -35.305 -91.577 40.020 344.214 22.679 232.539 8.529 -28.035 21.199 4.887 14.114 48.917 18.716 0 9.922 4.814 1.938 2.966 30.933 -55.255 4.972 22.917 22.908 -13.900 20.114 16.247 -43.539 3.371 -231 -63.553 66.938 0 -91.889 9.522 24.413 87.442 28.520 38.214 4.685 178.001 34.453 348.655 22.154 30.900 1.142 23.23 May 2011 Figure 60: Summary financials Year-end 31 Mar (Rs mn) Income statement Revenue License and WPC charges Roaming and Access charges EBITDA Depreciation EBIT Finance expenses (net) Other income (net) Profit before tax Net Income EPS (Rs) Balance sheet Cash and short-term investments Receivables and other current assets Total current assets Gross fixed assets Net fixed assets Total assets Total long-term liabilities Cash flow statement Net income Other income (net) Change in fixed asset Cash flow from investing Change in debt and liabilities Change in equity reserves Cash flow from financing Change in cash Cash at the beginning of year Cash at the end of year Change in cash 11.900 -27.814 16.313 11.622 4.411 320.676 146.585 181.850 23.134 12.194 41.505 -10.122 2.748 -113.224 8.452 209.821 53.460 65.754 9.964 8.205 191.880 4.473 15.313 133.822 0 0 -8.900 39.917 35.334 22.42 101.71 189.371 3.641 8.37 211.892 304.945 231 10.305 68.907 39.850 25.

2 50.2 17.23 May 2011 Figure 61: Key ratios FY3/08A Margin (%) EBITDA margin EBIT margin Net profit margin YoY growth (%) Revenue growth EBITDA growth EBIT growth Net profit growth Return ratios (%) ROE (average) ROE(end of period) ROIC Turns ratios (x) Working capital turns Fixed asset turns Other ratios Net debt/equity Gross debt/equity Interest cover 33.1 172 -10.2 21.8 48.4 6.3 406 2.6 7.5 38.7 22.0 FY3/12E 94.6 172 -10.7 3.6 32.5 11.3 12.7 -10.4 11.5 0.7 0.9 3.4 40.1 1.1 2.1 -11.2 3.8 24.7 8.0 1.5 FY3/09A 43.5 11.0 FY3/13E 102.9 2.7 26.1 -8. Credit Suisse estimates Figure 62: Mobile business key assumptions FY3/08A Subscribers (mn) % YoY ARPU excluding 3G (Rs/sub/month) % YoY ARPU including 3G (Rs/sub/month) % YoY Revenue per minute ex-3G (Rs/min) % YoY MoU (min) % YoY 24.9 61.2 27.0 0.3 7.5 10.5 193 -18.9 0.1 14.3 54.8 -10.7 3.0 71.7 1.4 398 2.9 169 -0.9 10.0 7.8 5.43 -12.1 40.3 5.5 24.6 0.3 9.77 -15.8 1.3 FY3/10A 63.1 11.3 7.6 280.5 37.6 8.0 79.9 69.9 176 1.2 237 -19.2 10.3 0.7 0.0 28.1 391 -6.5 53.0 7.9 21.8 15.6 21.0 248.4 27.8 90.7 0.3 -6.4 -6.4 0.8 FY3/09A FY3/10A FY3/11E FY3/12E FY3/13E Source: Company data.5 22.0 15.9 4. Credit Suisse estimates India Telecoms Sector 40 .9 53.0 1.7 65.4 193 -18.1 5.7 30.6 7.1 170 -1.9 1.5 -89.3 295 -11.3 295 -11.7 237 -19.57 -25.4 173 0.2 7.8 12.8 7.8 9.42 -3.8 0.8 1.8 18.1 10.9 15.8 0.0 Source: Company data.0 1.8 414 2.4 0.3 0.41 -2.9 384 5.4 -21.49 -13.7 0.8 0.0 0.8 416 8.1 FY3/11E 87.

TP Rs450. HK$2.00) StarHub Ltd (STAR.5 475 425 N 375 U 290 320 N 360 O 415 X 475 463 425 405 U N 375 355 320 305 290 Rs 6-May-11 255 N O 360 415 455 23 -M ay -0 23 8 -Ju l-0 8 23 -S ep -0 8 23 -N ov -0 8 23 -Ja n09 23 -M ar2 3 09 -M ay -0 9 23 -Ju l. certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was. TP S$2.BO Date 8-Jul-08 25-Jul-08 13-Mar-09 24-Jul-09 2-Oct-09 22-Oct-09 25-Jan-10 9-Jul-10 17-Sep-10 6-May-11 Closing Price (Rs) 355. TP Bt3. TP Rs120. $26.00) Singapore Telecom (STEL.25.00) Total Access Communication PCL (DTAC. TP W6. is or will be directly or indirectly related to the specific recommendations or views expressed in this report.75.45.BO. Bt94. OUTPERFORM. OUTPERFORM [V]. TP HK$12. TP RM6. 173. Rs214.BO. OUTPERFORM.92.BO.BK.00) Globe Telecom Inc (GLO.KL.70.44. OUTPERFORM.HK. TP HK$86.SI. TP Bt100.JK.14. Rp7650.00. OUTPERFORM.5 331 307. UNDERPERFORM [V].20.000.00) LG Uplus (032640.L.22.35 416. TP Bt50.00.HK.66) Maxis Berhad (MXSC.00) PT Telkom (Telekomunikasi Indo.BO BRTI.600) M1 Limited (MONE. NEUTRAL.HK. TP $36. UNDERPERFORM. OVERWEIGHT) PT Indosat Tbk (ISAT. N=Neutral. Bt5.Ja n23 11 -M ar -1 1 Closing Price Target Price Initiation/Assumption Rating O=Outperform. S$2. TP Rp9750. HK$12. TP Rs375. TP Rs95. NEUTRAL. OUTPERFORM. U=Underperform.90) Idea Cellular Ltd (IDEA. OUTPERFORM [V]. TP Rp7900. NEUTRAL [V].00. OUTPERFORM [V]. 3-Year Price.TW.00) True Corp PCL (TRUE. NEUTRAL. NEUTRAL.00) SmarTone Telecom (0315.00) Tata Communications Ltd (TATA. NR=Not Rated. RM4. See the Companies Mentioned section for full company names. OUTPERFORM. W5.95 435 337. Rp6500.00. NEUTRAL. MARKET WEIGHT) Disclosure Appendix Important Global Disclosures I.5 Target Price Initiation/ (Rs) Rating Assumption 462.BO.L. NEUTRAL.BK.25) Bakrie Telecom PT (BTEL.00. RM5. OUTPERFORM.5 359.00) China Mobile Limited (0941.31) Taiwan Mobile (3045.JK. P853.000.40. Rp375. RESTRICTED [V]) Bharti Airtel Ltd (BRTI.00) Reliance Communication Ltd (RLCM. Rs83.00) Hutchison Telecommunications HK Holdings Ltd (0215. TP Rp7200.10) NTT DoCoMo (9437. NC=Not Covered India Telecoms Sector 41 . TP P930.BK.85. NT$75.95. TP S$2. NT$44. HK$69. NEUTRAL.00) Axiata Group Berhad (AXIA.62) Sistema (SSAq. OUTPERFORM.90 p. Target Price and Rating Change History Chart for BRTI.75. TP HK$2. TP ¥150. S$2.PS.00) Far EasTone Telecom (4904. ¥146.TW.15.00.SI.SI.JK. Sunil Tirumalai. UNDERPERFORM.0 9 23 -S ep -0 9 23 -N ov -0 9 23 -Ja n-1 0 23 -M ar -10 23 -M ay -1 0 23 -Ju l-1 0 23 -S ep -1 0 23 -N ov -1 0 23 .KS. R=Restricted.00) Excelcomindo Pratama PT (EXCL. Bt55.95 398. TP RM6.JK.KL.23 May 2011 Companies Mentioned (Price as of 20 May 11) Advanced Info Service PCL (ADVA. TP 185.00 p. S$3.740. Rs67. OUTPERFORM.) (TLKM.225 279. TP S$3.30) Vodafone Group (VOD. Rp5350.05. Rs373.

U.9 79. Australia.5 45 U 50 75 O 85 106 96 86 N 76 66 56 46 Rs 36 O 60 45 70 73 U 50 75 O 95 85 The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues. during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.S. R=Restricted. current holdings.23 May 2011 3-Year Price. For Australian and New Zealand stocks a 22% and a 12% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions. The 22% and 12% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition. and non-Japan Asia stocks. depending on market conditions and industry factors.Ja n23 11 -M ar -1 1 Closing Price Target Price Initiation/Assumption Rating O=Outperform. as our stock ratings are determined on a relative basis. Target Price and Rating Change History Chart for IDEA. and Canadian ratings are based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe**.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer. Hold.BO IDEA. the meanings are not the same.6 Target Price Initiation/ (Rs) Rating Assumption 95 60 O 70 N 72.g. For Latin American. Neutrals the less attractive. the S&P 500 in the U. Credit Suisse’s policy is to update research reports as it deems appropriate. our stock ratings of Outperform. **The broad market benchmark is based on the expected return of the local market index (e. and Sell. Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Credit Suisse policy and/or applicable law and regulations preclude certain types of communications. with Outperforms representing the most attractive.7 38. **An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector. Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. clear. (Please refer to definitions above. a portion of which are generated by Credit Suisse's investment banking activities. NR=Not Rated.75 61.BO Date 8-Jul-08 29-Oct-08 3-Jun-09 27-Jul-09 22-Oct-09 25-Jan-10 9-Jul-10 26-Jan-11 Closing Price (Rs) 85. subject to analysts’ perceived risk. U=Underperform. Analysts’ stock ratings are defined as follows: Outperform (O): The stock’s total return is expected to outperform the relevant benchmark* by at least 10-15% (or more. depending on perceived risk) over the next 12 months.0 9 23 -S ep -0 9 23 -N ov -0 9 23 -Ja n-1 0 23 -M ar -10 23 -M ay -1 0 23 -Ju l-1 0 23 -S ep -1 0 23 -N ov -1 0 23 .S. fair and not misleading. and Underperforms the least attractive investment opportunities. however. Neutral. the sector or the market that may have a material impact on the research views or opinions stated herein. Restricted (R): In certain circumstances. ratings are based on a stock’s total return relative to the analyst's coverage universe**.. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www. including an investment recommendation.csfb. New Zealand. for European stocks. and other individual factors.) An investor's decision to buy or sell a security should be based on investment objectives. *An analyst’s coverage universe consists of all companies covered by the analyst within the relevant sector. Underperform (U): The stock’s total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months. and Underperform most closely correspond to Buy.75 80.9 71. Japanese. Credit Suisse's policy is only to publish investment research that is impartial.6 59. Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. Credit Suisse’s distribution of stock ratings (and banking clients) is: Global Ratings Distribution Outperform/Buy* 47% (63% banking clients) Neutral/Hold* 40% (56% banking clients) Underperform/Sell* 10% (50% banking clients) Restricted 2% *For purposes of the NYSE and NASD ratings distribution disclosure requirements. subject to analysts’ perceived risk. Some U.html 23 -M ay -0 23 8 -Ju l-0 8 23 -S ep -0 8 23 -N ov -0 8 23 -Ja n09 23 -M ar2 3 09 -M ay -0 9 23 -Ju l. Neutral (N): The stock’s total return is expected to be in line with the relevant benchmark* (range of ±10-15%) over the next 12 months. respectively. N=Neutral. independent. ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark. based on developments with the subject company. NC=Not Covered India Telecoms Sector 42 . Analysts’ coverage universe weightings are distinct from analysts’ stock ratings and are based on the expected performance of an analyst’s coverage universe* versus the relevant broad market benchmark**: Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months.9 66.S.) over the next 12 months. respectively. and Canadian ratings may fall outside the absolute total return ranges defined above. respectively. *Relevant benchmark by region: As of 29th May 2009.

23 May 2011 Credit Suisse does not provide any tax advice.creditsuisse. Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.BO. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company.FY3/30) and 3% terminal growth.BO. Price Target: (12 months) for (BRTI. Please refer to the firm's disclosure website at www. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. and cannot be used. please visit http://www. We assume a weighted average cost of capital (WACC) of 12. As of the date of this report. where it is the sixth or seventh operator. Any statement herein regarding any US federal tax is not intended or written to be used.BO) within the past 12 months.BO) Method: We arrive at our TP of Rs450 for Bharti by Discounted cash flow (DCF). Inc. Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (BRTI. This includes a Rs24/share value destruction from Zain Africa acquisition Risks: Risks to our 12-month target price of Rs450 for Bharti include 1) TRAI recommendations get implemented 2) increased capex/slower improvement in EBITDA for African operations and 3) increased competitive intensity in the Indian market 4) Slower than expected 3G ramp Price Target: (12 months) for (IDEA. VOD. it could lead to a downside risk to our target price.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections. Total Access Communication PCL(Good). the independent 2008 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: Advanced Info Service PCL(Excellent). public appearances and trading securities held by a research analyst account.credit-suisse. it could negatively impact our fair value estimate by 70% 2) execution risk .L.csfb. or was during the 12-month period preceding the date of distribution of this report. For Credit Suisse disclosure information on other companies mentioned in this report. is a research analyst employed by Credit Suisse Securities (India) Private Limited. 3) Intensification of competition in the Indian telecom market. • Sunil Tirumalai. Credit Suisse provided investment banking services to the subject company (BRTI. Disclaimers continue on next page. analyst.BO) currently is. For Thai listed companies mentioned in this report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (BRTI. a client of Credit Suisse. Principal is not guaranteed in the case of equities because equity prices are variable. analyst contributors: The non-U. For Credit Suisse Securities (Canada). The non-U. IDEA. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA.com/legal_terms/canada_research_policy.S. please visit the website at www.BO) within the past 12 months. by any taxpayer for the purposes of avoiding any penalties.'s policies and procedures regarding the dissemination of equity research. IDEA. India Telecoms Sector 43 . a 8% medium term growth (FY3/15 . To the extent this is a report authored in whole or in part by a non-U. RVS--Restricted Voting Shares.S.Idea is entering new circles. analyst and is made available in the U.S. The subject company (BRTI.com/researchdisclosures or call +1 (877) 291-2683. See the Companies Mentioned section for full company names. and a 3% terminal growth rate and terminal ROIC of 27%. Our DCF model builds a period of strong cashflow growth till FY3/16. IDEA. True Corp PCL(N/A). Taiwanese Disclosures: Reports written by Taiwan-based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers.L.S. Important Regional Disclosures Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report. The following disclosed European company/ies have estimates that comply with IFRS: SSAq.. Risks: Risks to our 12-month target price of Rs95 for Idea are: 1) If TRAI's recommendations get implemented.BO.shtml. non-U. See the Companies Mentioned section for full company names. Our DCF model builds in strong cashflow growth till FY3/15. Commission is the commission rate or the amount agreed with a customer when setting up an account or at anytime after that.BO) within the next 3 months.BO) Method: Our 12-month target price of Rs95 for Idea Cellular Limited is based on discounted cash flow (DCF) analysis.S. the following are important disclosures regarding any non-U.BO. We assume a weighted average cost of capital (WACC) of 12. IDEA. SVS--Subordinate Voting Shares. If marketshare or margins are below our estimates or capex higher than our numbers.

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