Indian Telecom Sector

Indian Telecom Sector
May 2012
Presented by:
Prepared by: Tapan Jindal Pallavi Harchandani
Strategies for your Success
ARC
ARC Financial Services (P) Ltd.

(w): www.arc-fs.com (o): +91 11 6542 2128
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Jashanjot Singh Sekhon
Contents
ARC
Overview
Benchmarking
Segments
Key Trends
Key Players
Road Ahead
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2012 ARC Financial Services (P) Ltd
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May12
Overview Facts
ARC
Telephone services began in India in 1882 with the commissioning of a 50-line manual telephone exchange in Kolkata
Government monopoly until 1994; liberalised in 1994 Cellular service launched in Kolkata in 1995
India Telecom: Sector overcrowded with number of players in each circle 3-4 times the global average
One of the fastest growing telecom markets in the world

Worlds 2nd fastest growing industry in terms of number of wireless connections Industry expected to grow at 12-13% annually In Mar12, Telephone subscriber base reached 951.34 mn, out of which Wireless subscriber base was 919.17 mn and Wireline subscription was 32.17 mn. Broadband subscription reached 13.79 mn Target of 600 mn mobile connections by the end of Eleventh Five Year plan was achieved in Feb10 itself Overall tele-density has reached 77.57%
Mobile service penetration in the country is currently 51%; Expected to grow to 72% by 2016
Bharti controls the maximum share in terms of subscribers, followed closely by Reliance and Vodafone
Telephone (Wireline + Wireless) Subscribers (Millions)

951.4 846.3 34.77%
Revenue (INR bn)
Indian Telecom Subscribers (Millions)
Broadband
11.87 13.79 34.73 32.17
Y-o-Y growth of 13.3% in Wireless Y-o-Y growth of 16.2% in Broadband Y-o-Y decline of 7.4% in Wireline
33.35%
1,580
1,985 1,717
Wireline
66.65%
65.23%
Wireless
811.59 919.17 846.32 951.34

Mar'11 Mar'12
Telephone
Mar'11 Urban
Mar'12 Rural
FY'10
FY'11 May12
FY'12 (E)
Overview Investments in Indian Telecom Sector
ARC
Telecom sector expected to witness up to $56.3 bn worth of investments in FY13 (Foreign and Domestic)
PSUs BSNL and MTNL expected to make investments of $22.5 bn during the next 5 years
Third major sector, after services and computer software, attracting FDI inflows
FDI during Q1-Q3 FY12 stood at $1,992 mn
Red Cherry for FDIs
74% to 100% FDI allowed for various telecom services Foreign investors include Telenor, NTT Docomo, Vodafone, Sistema, Singtel, Maxis and Etisalat
Government Initiatives:
The National Knowledge Network (NKN), to be established to connect 1,500 educational institutes around the country through a high-speed data communication network with an outlay of $1.32 bn, has been approved
National Long Distance (NLD) Services have been opened for the Indian private sector with a minimum paid up equity capital of $56.3 mn
The government recently announced that it had a vision to connect the rural masses, and keeping with this goal, it is set to construct 10,000 towers connecting the remote parts of the country
FDI ($ mn)
FDI in telecom sector hit a high in FY09 ($2,558 mn)
2,558
2,554 1,992 1,631
FY12 saw a Y-o-Y increase of 22% in FDI

Cumulative FDI from Apr06 to Jan12 stood at $11,098 mn
1261 624
478
FY'06 Note: FDI Foreign Direct Investment
FY'07
FY'08
FY'09
FY'10
FY'11
FY'12 (till Jan'12)
May12
Overview Key Factors of Growth
ARC
Liberal Foreign Investment Regime FDI allowed through automatic route Up to 74% FDI allowed in Radio Paging Service and ISPs Up to 100% FDI allowed in Telecom Infrastructure, Email and Voice Mail
High Demand Second largest population in the world India has one of the highest minutes of usage (MoU) per subscriber per month, at more than 400 minutes
Collaborations among key players Key players have come together to form Indus Towers, which builds telecom towers that are shared by all. This leads to cost savings and telecom companies are thus able to reduce tariffs
Growth Drivers
Well Defined Regulatory Framework DoT, TRAI and TDSAT have framed well defined regulations such as the National Telecom Policy 1999 and Universal Service Obligation Fund
Among the Biggest Telecom Markets in the World Expected to grow at 12-13% annually Worlds 2nd fastest growing industry in terms of number of wireless connections (13.3% increase in FY12)
May12
Overview: Policy & Regulatory Framework
ARC
Ministry of Communications & Information Technology
Telecom Commission
Policy Making
DOT
Licensing
TRAI
Regulatory
WPC
Spectrum Allocation & Management
TEC
Technical body of Equipment Approvals
The Department of Telecommunication (DoT) governs the Indian Telecom industry. In coordination with the Telecom Commission, the DoT oversees licensing, policy formulation, frequency management, administrative monitoring, research and development, equipment standardization and validation, along with private investments The DoT established the Telecom Regulatory Authority of India (TRAI) in 1997 to streamline policy reforms and safeguard consumer interests The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) was also established in 1997
Note: WPC Wireless Planning Coordination Wing, TEC Telecom Engineering Center
May12
Overview: Analysis- Porters Five Forces
ARC
Barriers to Entry:
High capital investment is required Well established players having a nationwide coverage Continuously evolving technology Lower tariffs
Threat of Substitutes:
Large no of competitors Switching cost is low Intense competition has resulted in prompt service to the subscribers
HIGH
Degree of Rivalry HIGH
HIGH
Power of Suppliers:
Improved competitive scenario and commoditization of telecom services has led to reduced bargaining power for services providers
Power of Buyers:
A wide variety of choices available to customers both in fixed as well as mobile telephony has resulted in increased bargaining power for the customers.
LOW
HIGH
May12
Overview: Analysis - SWOT

Helpful Harmful
ARC
STRENGTHS
High customer potential High growth rate Allow FDI limit ranging from 74% to 100% (total FDI equity in telecom sector till Jan12 has been $ 1,992 mn) Easier to create economies of scales thereby increasing the return on investment
Internal
FACTORS
External
OBJECTIVES
Helpful Harmful Internal
WEAKNESSES
Poor infrastructure resulting in large call drops Difficult to enter because of huge requirement of financial resources Late adopters of new technology (India is probably one of the last countries to adopt 3G technology)
FACTORS
External
OBJECTIVES
May12
Overview: Analysis - SWOT

Helpful Harmful
ARC
OPPORTUNITIES
4G service which will cater to all business segments of an operator that includes fixed line, internet, voice and enterprise services TRAIs recent recommendations on spectrum auction will lead to an increase in outgoing tariffs by 30p/minute almost 8x TRAIs calculation of 3.6p/minute An additional 30p/outgoing minute outlay would reflect an increase of ~40% on the current estimated revenue per outgoing minute of 70-75p for GSM incumbents (RPM of 42-44p) Boost to telecom manufacturing companies
Internal
FACTORS
External
OBJECTIVES
Helpful
Harmful
THREATS
Telecommunication policies TRAIs intention of rolling out 4G technology, known as the ultrabroadband in 2-3 years raising fears rendering 3G services somewhat obsolete Declining average revenue per user (ARPU)
Internal
FACTORS
External
OBJECTIVES
May12
Contents
ARC
Overview
Benchmarking
Segments
Key Trends
Key Players
Road Ahead
May12
Benchmarking
ARC
FY12
Bharti Airtel
IDEA
Tata
BSNL (E)
Number of Subscribers (000s) ARPU (INR/month)
251,646 187.0
112,700 159.0
154,315 101.0
14,780 197.0
120,981
122.3
Revenue (INR mn) EBITDA (INR mn) EBITDA Margin (%) Net Income (INR mn) Net margin (%)
714,508 237,122 33.18 42,594 5.96
196,800 45,158 22.95 6,037 3.06
201,956 64,426 31.90 7,964 3.94
24,784 5,171 20.86 (7,034) (28.38)
177,524
N.A. N.A. (97,000) (54.64)
N.A. Not Available

May12
10
Benchmarking Market Performance of Key Players

Bharti Airtel 160 140 120 100 80 60 40 20 May'11 Reliance IDEA
ARC
Bharti Airtel announced a raise in call tariffs, triggering expectations that other players will follow suit, leading to rise in share prices of players
Jun'11 Jul'11 Aug'11 Sep'11 Oct'11 Nov'11
TRAI announced a high reserve price for the 2G spectrum to be auctioned
Dec'11
Jan'12
Feb'12
Mar'12
Apr'12
Bharti Airtel CMP (INR) 14th May12 12 month gain 6 month gain
Note: Re-based to the base of 100
Reliance Communications 66.05 (26.16%) (14.61%)
IDEA 81.15 21.12% (14.17%)
307.45 (16.96%) (23.42%)
May12
11
Valuation: Bharti Airtel Ltd and Idea Cellular Ltd

Company Name Bharti Airtel Ltd Idea Cellular Ltd CMP - 10th May12 (INR) 307.45 Market Cap (INR mn) 1,169,512 Enterprise Value (INR mn) 1,849,007
ARC
81.15
269,334
379,354
EV / Sales
2.59x 1.95x 7.80x 2.22x 2.02x 7.45x
EV / EBITDA
17.97x
EV / EBIT
14.88x
6.33x 6.31x 5.58x 5.11x
17.87x 13.26x
10.82x 10.61x
1.63x
1.37x
LTM
Mar'13
Mar'14
LTM
Mar'13
Mar'14 Idea Cellular Ltd
LTM
Mar'13
Mar'14
Bharti Airtel Ltd
Bharti Airtel stock currently trades at 2.59x EV/Sales, at a premium of 33% to Idea Cellular. Even though Bharti Airtel seems costlier in terms of sales multiple, it has better EBITDA margin and EBIT margin
The better margins are partly because Bharti Airtel realised a higher ARPU of INR 187/month in FY12 as compared to Idea Cellulars ARPU of INR 159/month
Bharti Airtel has better investment potential than Idea Cellular

Bharti Airtel has won 3G spectrum in 13 circles Leveraging on its deep coverage, Bharti Airtel is well positioned to capture rural growth
Uncertainty over Idea Cellulars 2G licenses in Punjab and Karnataka
May12
12
Contents
ARC
Overview
Benchmarking
Segments
Key Trends
Key Players
Road Ahead
May12
13
Segments Wireless
ARC
The first cellular call was made in India on July 31st, 1995 over Modi Telstras MobileNet GSM network of Kolkata The number of wireless subscribers touched 919.17 mn in Mar12
Facts
Includes GSM and CDMA services

Growing steadily because of the convenience and utility it offers
E-governance, m-commerce, mobile money, m-health, m-education
Bharti continues to be the major player in this segment (19.7% market share)
Wireless Subscribers (mn)

Total Wireless subscriber base increased from 811.59 mn in Mar11 to 919.17 mn in Mar12 (an increase of 13.3%) The share of urban subscribers decreased from 66.30% to 64.83% The share of rural subscribers increased from 33.70% to 35.17%
33.70%
919.17
811.59 35.17% Rural Urban 64.83%
Wireless Teledensity (%)

162.82 150.06 Overall Urban 67.98 32.75 Mar'11 2012 ARC Financial Services (P) Ltd Mar'12
66.30%
Mar'11
Mar'12
76.00 38.33
Rural
Higher growth in rural subscription (18%) than urban subscription (11%) The urban wireless teledensity increased from 150.06 to 162.82 The rural wireless teledensity increased from 32.75 to 38.33
May12
14
Segments Wireless
Market Share of Players Mar12
ARC
Most of the market share is held by private players (88.65%)

8.6% 6.8% 19.7%
Bharti Reliance Vodafone Idea
PSUs BSNL and MTNL, hold 11.35% market share Bharti holds the maximum market share (19.7%). Reliance (16.7%) and Vodafone (16.4%) trail closely
8.9%
10.7%
16.7%
BSNL Tata Aircel
Service Provider's share in net additions during Mar'12

35.00% 30.00% 25.00% 20.00% 15.00%
12.3%
16.4%
Others
Net Additions = 8,004,860 subscribers
Bharti accounted for the maximum additions (31.26%) in terms of number of subscribers in the month of Mar12
Idea accounted for 25.15% of subscriber additions in Mar12 HFCL, Tata, Videocon and Aircel lost subscribers in the month of Mar12
10.00% 5.00% 0.00% -5.00% -10.00%
-15.00%
May12
15
Segments Wireline
ARC
On 28th January, 1882 the first formal wireline service was established with a total of 93 subscribers
The number of wireline subcribers stands at 32.17 mn as on 31st Mar12
Facts
The numbers have been falling recently owing to the convenience of wireless communication
PSUs BSNL and MTNL hold maximum share mainly due to the heavy capital requirements
BSNL continues to be the major player in this segment (69.8% market share)
Wireline Subscribers (mn)

Total Wireless subscriber base decreased from 34.73 mn in Mar11 to 32.17 mn in Mar12 (a fall of 7.4%)
34.73 32.17 25.03% 23.46% Rural Urban
The share of urban subscribers increased from 74.97% to 76.54%

The share of rural subscribers decreased from 25.03% to 23.46%%
74.97%
76.54%
Overall Wireline Teledensity (%)

7.26 6.73
Mar'11
Mar'12
Higher fall in rural subscription (13.2%) than urban subscription (5.4%)

2.91 1.04 2.66 0.89
The urban wireless teledensity decreased from 7.26 to 6.73 The rural wireless teledensity decreased from 1.04 to 0.89
Feb'12
Mar'12
May12
16
Segments Wireline
9.3% 10.2%
ARC
Most of the market share is held by PSUs (80.6%)

MTNL Delhi and Mumbai BSNL Rest of India
Private players hold 19.4% market share

BSNL
BSNL holds the maximum market share (69.8%). Among the private players, Bharti and Tata hold 10.2% and 4.5% market shares respectively
10.8% 69.8%
MTNL
Bharti
Others
Service Provider's share in net additions during Mar'12

6.50% 11.57% 0.14% 1.61% 0.04% 0.18%
-0.92%
BSNL accounted for the maximum losses (119.12%) in terms of number of subscribers in the month of Mar12 Tata and Bharti gained 11.57% and 6.50% number of subscribers respectively in the month of Mar12
Net Additions = -154,005 subscribers
-119.12%
Bharti BSNL HFCL MTNL Reliance Sistema Tata Vodafone
May12
17
Segments Broadband
The number of broadband subscribers touched 13.79 mn in Mar12
ARC
Facts
High growth in this segment is expected to drive the next phase of growth in telecom sector
BSNL continues to be the leader (64.6% market share) Expected to grow rapidly owing to new faster technologies (3G, Broadband Wireles Access)
Overall Broadband Subscribers (Millions)

Total Broadband subscribers increased from 11.87 mn in Mar11 to 13.79 mn in Mar12 A Y-o-Y growth of 16.20% was realized in FY12
11.87
13.79

Mar'11 17.9%
BSNL
Mar'12
7.6%
Bharti
A total of 155 Internet Service Providers exist in the market BSNL holds the maximum market share (64.6%)
64.6%
9.9%
MTNL
Bharti and MTNL hold 9.9% and 7.6% market shares respectively
Others
May12
18
Contents
ARC
Overview
Benchmarking
Segments
Key Trends
Key Players
Road Ahead
May12
19
Key Trends
ARC
Wireless segment is much larger than the Wireline segment and is growing rapidly owing to its convenience, utility and availability of variety of mobile phones. Wireline segment has been losing subscribers in the last few years
Given the growing population and increasing disposable incomes in rural India, rural market poses tremendous growth opportunities
India has one of the highest minutes of usage (MoU) per subscriber per month, at more than 400 minutes. Service providers are thus able to increase their profits in spite of reducing their tariffs
Recent years have seen more collaboration among the telecom operators. Mobile Number Portability was introduced in India in Jan11
Major players have joined hands to form Indus Towers, a company that manufactures cellular towers for all the players. This leads to cost reduction and allows the service providers to charge lower tariffs and thus increase subscriber base
New technologies such as 2G and 3G are gaining popularity. Indias first 4G service has been launched by Bharti Airtel Ltd in Kolkata Indus Towers plans to go green by making 20% of its network diesel-free by April 2013
The revenue earned from Value Added Services (VAS) is expected to reach INR 480 bn by 2013. Launch of 3G and 4G services will be major growth drivers for VAS
May12
20
Key Trends: Mobile Number Portability
ARC
Mobile Number Portability Requests FY12

12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 Idea Cellular Vodafone Bharti Airtel
Port In Port Out Net Additions
Idea Cellular has been the biggest gainer of Mobile Number Portability service
Net addition of 3.32 mn subscribers as on 31st Mar12
Vodafone and Bharti Airtel follow closely with net addition of 2.89 mn and 1.2 mn subscribers as on 31st Mar12 Out of the three players, Idea Cellular received the minimum number of Port In requests (9.29 mn), but it also received the minimum number of Port Out requests (5.97 mn), making it the top gainer Vodafone received the most number of Port In requests (11.04 mn) as on 31st Mar12
May12
21
Key Trends: Impact of Budget 2012-13
ARC
Key Policies
Fixed network for telecommunication & telecommunication towers made eligible for VGF (Viability Gap Funding) for support to projects undertaken on PPP (Public- Private partnership) basis Full exemption from customs duty on parts of memory card for mobile phones
VGF is likely to promote laying of fixed networks which is important for development of highbandwidth connectivity
Impact
This will result in expansion of telecommunication in rural areas thus showcasing a positive impact Exemption on customs duty will have a positive impact on the domestic manufacturers
May12
22
Key Trends: Circle- Wise Growth

Net Additions Mar11
Category Circle A Circle B Circle C Metro All India Wire line (52,970) (68,924) (24,480) 10,823 (135,551) Wireless 6,037,874 9,153,194 3,008,810 2,007,649 20,207,527
ARC
Wireless 2,000,986 3,669,273 1,768,173 566,428 8,004,860
Net Additions Mar12

Category Circle A Circle B Circle C Metro All India Wire line 129,715 (76,306) (1,724) (205,689) (154,005)
Mar'11
Mar'12
Circle A
Circle B
Circle C
Metro
All India
Mar'11 Circle A Circle B Circle C Metro All India
Mar'12
Note: Metro indicates data for Delhi, Kolkata & Mumbai. Chennai is included in Circle A
May12
23
Key Trends: Circle- Wise Growth

Monthly Growth Rate (Feb12 Mar12) Category
ARC
Yearly Growth Rate (Mar11 Mar12) Wire line

(3.62%) (8.36%)
Wire line
Circle A Circle B 1.02% (0.73%)
Wireless
0.62% 1.02%
Wireless
12.33% 14.36% Circle B showcased the highest net addition Circle C showcased the highest rate of monthly growth in the wireless sector from Feb12 Mar12
Circle C
Metro All India
(0.08%)
(2.90%) (0.48%)
1.41%
0.55% 0.88%
(27.39%)
(4.85%) (7.37%)
17.93%
7.16% 13.26%
Monthly Growth Rate (Feb12 Mar12)
Yearly Growth Rate (Feb12 Mar12)

17.93%
7.16%
1.02%
0.62%
1.02%
1.41%
0.55%
0.88%
12.33%
14.36%
13.26%
0.73%
0.08%
0.48%
3.62%
8.36% 27.39%
4.85%
7.37%
Wireline Circle A
Wireless
2.90%
Wireline Metro
Wireless All India
Circle B
Circle C
Metro
All India
Circle A
Circle B
Circle C
Note: Metro indicates data for Delhi, Kolkata & Mumbai. Chennai is included in Circle A
May12
24
Contents
ARC
Overview
Benchmarking
Segments
Key Trends
Key Players
Road Ahead
May12
25
Key Players: Bharti Airtel Ltd
ARC
Established on 7th July, 1995 as Bharti Tele-Ventures. In 2006, ithe name was changed to Bharti Airtel
Listed on BSE and NSE
5th largest mobile telecom operator in the world. Operations are spread over 20 countries
Wireline and Wireless telecommunication services, Digital TV and IPTV services

Total Market Capitalization is INR 1,168 bn
Currently it has 3,797,530,096 shares outstanding at a CMP of INR 307.45 Total number of subscribers are 251,646,000
Investing heavily in Africa

Current mobile penetration in Africa is just 46%
Bharti Airtel rebranded its B2B business as Airtel Business to emphasize on innovative business solutions
Bharti Airtel Market Share

162mn 181mn
Gained market share in both Wireline and Wireless segments in Mar12 as compared to Mar11
3.30mn 3.27mn
19.72% 19.99%
Lost 0.03 mn subscribers in the Wireline segment Gained 19 mn subscribers in the Wireless segment
10.16% 9.49%
Wireline Mar'11 2012 ARC Financial Services (P) Ltd Mar'12
Wireless
May12
26
Key Players: Bharti Airtel Ltd

Q1 Jun11 Subscribers (000s) Total Minutes on Network (Mn Min) 230,831 251,962 Q2 Sep11 236,986 250,446 Q3 Dec11 243,336 252,972
ARC
Q4 Mar12 251,646 265,235
Number of Countries of Operation

Total Revenue (INR mn) ARPU (INR/month) EBITDA (INR mn) Net Income (INR mn)
19
169,749 190 57,058 12,152
19
172,698 183 58,151 10,270
19
184,767 187 59,584 10,113
20
187,294 189 62,329 10,059
Subscribers vs ARPU
255,000 192 190 188 186 184 182 180 178 Q1'12 Q2'12 Total Subscribers
Subscribers (000s)
The total number of subscribers grew from 230,831,000 in Q1 Jun'11 to 251,646,000 in Q4 Mar'12 (an increase of 9%) Even though the ARPU did not follow a fixed pattern, the revenues kept increasing steadily
From INR 169,749 mn in Q1 Jun'11 to INR 187,294 mn in Q4 Mar'12 (an increase of (10%)
250,000 245,000 240,000 235,000 230,000 225,000 220,000 Q3'12 ARPU Q4'12
Reducing the tariffs results in a substantial increase in subscriber base and thus revenues actually increase
May12
ARPU (INR)
27
Key Players: Reliance Communications

Established in 2004 16th largest mobile telecom operator in the world
2nd largest in India in Wireless Telecommunications
ARC
Wireline and Wireless telecommunication services, Digital TV and IPTV services Total Market Capitalization is INR 136.3 bn
Currently it has 2,064,026,881 shares outstanding at a CMP of INR 66.05 Total number of subscribers are 155 mn
Reliance has come up with Indias first CDMA tablet Reliance is targeting the 3G market by partnering with 3G enabled handset manufacturers Aiming for an IPO and listing in Singapore of its subsea telecommunications infrastructure network business
Reliance Market Share

136mn 153mn
There was an addition of 0.04 mn Wireline subscribers

Market share increased by 0.4% as BSNL lost many subscribers
16.72% 16.65%
1.23mn 1.27mn
Even though Reliance grew in terms of total subscribers in the Wireless segment (136mn in Mar11 to 153mn in Mar12), it lost 0.07% market share to smaller players
3.55%
3.95% Wireless Mar'11 Mar'12

Wireline
May12
28
Key Players: Reliance Communications

Q1 Jun11 Subscribers (000s) Total Minutes on Network (Mn Min) Number of Countries of Operation 143,265 97300 22 Q2 Sep11 147,087 98900 22 Q3 Dec11 150,079 99900 22
ARC
Q4 Mar12 (Projected) 154,315 N.A. 22
Total Revenue (INR mn) ARPU (INR/month) EBITDA (INR mn)
49,401 103 16,021
50,402 101 16,051
50,521 100 16,111
51,632 100 16,243
Net Income (INR mn)
1,574
2,521
1,862
2,007
Subscribers vs ARPU
156,000 103.5 103 102.5 102 101.5 101 100.5 100 99.5 99 98.5 Q1'12 Q2'12 Total Subscribers
Subscribers (000s)
Sharper than expected fall in Q3 Net Income as interest costs on its Rs 36,000-crore debt rose The total number of subscribers grew from 143,265,000 in Q1 Jun'11 to 154,315,000 in Q4 Mar'12 (an increase of 7.7%) Declining trend in ARPU (INR 103/month in Q1 Jun'11 to INR 100 in Q4 Mar'12)
Revenues still kept increasing every quarter (from INR 49,401 mn in Q1 Jun'11 to INR 51,632 in Q4 Mar'12)
154,000 152,000 150,000 148,000 146,000 144,000 142,000 140,000 138,000 136,000 Q3'12 ARPU Q4'12
N.A. Not Available 2012 ARC Financial Services (P) Ltd May12
ARPU (INR)
29
Key Players: Bharat Sanchar Nigam Ltd (BSNL)
ARC
Incorporated on 15th Sept, 2000 State-owned telecommunications company with operations in all states of India except New Delhi and Mumbai
MTNL operates in New Delhi and Mumbai DoT plans to finalise policies in order to synergise the operations of BSNL and MTNL without a merger
One of the largest & leading public sector units providing comprehensive range of telecom services in India Wireline and Wireless telecommunication services
Largest market share in Wireless (69.8%) and Broadband (64.6%) segments
Making focused efforts & planned initiatives to bridge the rural-urban digital divide in telecom sector
BSNL Market Share

25.2mn 22.5mn
Lost 2.7 mn Wireline subscribers in FY12

Still the top player in Wireline segment with 69.8% market share
72.63% 69.80%
91.9mn 98.4mn
Gained 6.5 mn subscribers in the Wireless segment, but lost 0.62% market share to private players
11.32% Wireline Mar'11 2012 ARC Financial Services (P) Ltd Mar'12
10.70%
Wireless
May12
30
Key Players: Bharat Sanchar Nigam Ltd (BSNL)
ARC
FY11 Subscribers (000s) 117,050
FY12 (E) 120,981
Total Revenue (INR mn)

ARPU (INR/month) Net Income (INR mn)
290,013
206.5 (59,970)
177,524
122.3 (97,000)
Subscribers vs ARPU
122,000 121,000 250
Subscribers (000s)
Net losses rose from INR 60 bn in FY11 to INR 97 bn in FY12 The total number of subscribers grew from 117,050,000 in FY11 to 120,981,000 in FY12 (an increase of 3.4%)
200 120,000 119,000 118,000 117,000 50 116,000 115,000 FY'11 Total Subscribers FY'12 ARPU 0 150
ARPU saw a downward trend

Reduced from INR 206.5/month in FY11 to INR 122.3/month in FY12
100
May12
ARPU (INR)
31
Key Players: Idea Cellular Ltd.

Established in 1995 16th largest mobile telecom operator in the world
4th largest in India in Wireless Telecommunications
ARC
Wireless telecommunication services & broadband services Total Market Capitalization is INR 268.5 bn
Currently it has 3,308,845,110 shares outstanding at a CMP of INR 81.15
Total no of subscribers in Mar12 were 112 mn & 89.5 mn in Mar11 Idea Cellular added the maximum no of subscribers (3.32mn) due to mobile no portability (MNP) followed by Vodafone (2.89mn) & Airtel (1.21 mn) as on Mar12
Idea Market Share

112mn 89.50mn
12.30% 11.03%
Gained market share in Wireless segment in Mar12 as compared to Mar11 Subscriber base increased from 89.5 mn in Mar11 to 112 mn in Mar12 (an increase of 22.5 mn)
Wireless Mar'11 2012 ARC Financial Services (P) Ltd Mar'12 May12 Indian Telecom Sector
32
Key Players: Idea Cellular Ltd.

Q1 Jun11 Subscribers (000s) Total Minutes on Network (Mn Min) Number of Countries of Operation 95,100 108,630 33 Q2 Sep11 100,200 106,224 33 Q3 Dec11 106,400 113,964 36
ARC
Q4 Mar12 112,700 124,305 36
45,559 160 10,666 1,541
46,554 155 10,436 793
50,652 159 11,986 1,687

Subscribers vs ARPU
54,035 160 12,070 2,016
115
161 160
Subscribers (mn)
The total number of subscribers grew from 95.1 mn in Q1 Jun'11 to 112.7 mn in Q4 Mar'12 (an increase of 18%) ARPU declined marginally from INR 160 in Q1 Jun'11 to INR 155 in Q2 Sep'11 (a decrease of 3.12%)
110 159
157 100 156 95 155 154 90 153 85 Q1'12 Q2'12 Total Subscribers Q3'12 ARPU Q4'12 152
Although ARPU was pretty stable, revenue increased from INR 45,559 mn in Q1 Jun'11 to INR 54,035 mn in Q4 Mar'12 (an increase of 18.60%)
May12
ARPU (INR)
105
158
33
Key Players: Tata Teleservices Maharashtra Ltd. (TTML)
ARC
Commenced landline operations in 1998 & today has the largest wire line base in Maharashtra amongst all private players TTML spearheads the Tata group's presence in the telephony sector in the telecom circles of Maharashtra (including Mumbai) and Goa Commenced full mobility wireless services on the CDMA-1X platform in 2004-05
Total Market Capitalization is INR 24.2 bn

Currently it has 1,897,196,854 shares outstanding at a CMP of INR 12.78
TTML Market Share

89.14mn
10.98%
81.7mn
Lost market share in Wireless segment in Mar12 as compared to Mar11

Subscriber base also deceased from 89.14 mn in Mar11 to 81.7 mn in Mar12 ( a decrease of 8.34 %)
1.44mn 1.28mn
8.89%
Gained market share in Wire line segment in Mar12 as compared to Mar11

Subscriber base increased from 1.28mn to 1.44mn (an increase of 12.5%)
3.69%
4.448%
Wireless Mar'11 Mar'12
Wireline
May12
34
Key Players: Tata Teleservices Maharashtra Ltd. (TTML)

Q1 Jun11 Subscribers (000s) Total Minutes on Network (Mn Min) 16,680 9,318 Q2 Sep11 16,830 9,040 Q3 Dec11 14,780 9,423
ARC
Q4 Mar12 N.A. N.A.
5,899.6 184 1054.3 (3304.9)
6,164.2 201 1206.7 (1193.2)
6,243.3 207 1437.7 (1302.1)
6,477 N.A. 1473.1 (1234)
Subscribers vs ARPU
17 210 205 200 195 16 190 15 185 15 14 14 Q1'12 Q2'12 Total Subscribers
However it increased marginally form 201 INR in Q2 Sep'11 to 207 INR in Q3 Dec'11 (an increase of 2.98 %)
Although ARPU was pretty volatile, revenue increased from 5,899.6 mn in Q1 Jun'11 to 6,477 in Q4 Mar'12 (an increase of 9.78%)
180 175 170 Q3'12 ARPU
May12
ARPU (INR)
ARPU increased from INR 184/month in Q1 Jun'11 to INR 201/month in Q2 Sep'11 ( an increase of 9.23%)
Subscribers (mn)
The total number of subscribers declined from 16.68 mn in Q1 Jun'11 to 14.78 mn in Q4 Mar'12 (a decrease of 11.39%)
17 16
35
Major Deals : M&A
ARC
Month
04 Feb12 23 Dec11 25 Nov11 01 Aug11 28 Jul11 01 Jul11 07 Mar11
Target
Vodafone India Ltd. Tulip Telecom Ltd. Bharti Airtel Ltd. G T L Ltd. Idea Cellular Ltd. Vodafone India Ltd. Tata Communications Internet Services Ltd.
Merged/ Acquirer Co.

Piramal Healthcare Ltd. STCI Finance Ltd. Bharti Telecom Ltd. ICICI Bank Ltd. First State Asia Pacific Leader Fund Vodafone Group Plc. Tata Communications Ltd.
% stake
5.50% 5.34% N.A. 29.30% 5.00% 33.00% N.A.
Transaction Value ($mn)

619.00 1.55 11.85 N.A. 1.14 5,460.00 N.A.
May12
36
Contents
ARC
Overview
Benchmarking
Segments
Key Trends
Key Players
Road Ahead
May12
37
Road Ahead : Risks
ARC
Failure to shift the business model from minutes to bytes

Though data services have grown exponentially, actual revenue does not match up to the rate or percentage growth of the sector Operators need to move away from their legacy strategies on customer retention & target revenues from new services that tap into rising demand & master a wide array of charging models to monetize these services
The sector is currently suffering from an evolving regulatory framework and frequent policy changes, which has negative effect on financial profiles and access to capital & is also undermining operators willingness to invest
Risks
As per the current recommendations of TRAI if the 100% hike in mobile tariffs are implemented, then the affordability of telecom services will be severely impacted & will result in network losses in thousands of villages The metrics and key performance indicators (KPIs) that operators use to manage their operations internally and communicate their performance and prospects externally have not kept pace with the shift in business models from minutes to bytes Commonly used external metrics such as average revenue per user (ARPU) fail to give investors a full picture. Operators urgently need to define a new and different set of metrics that puts the customer first and leads to improved financial performance
May12
38
Road Ahead : Initiatives & Growth
ARC
The Indian government is currently working on a new telecom policy which is expected to be finalized in May-Jun12 TRAI has issued guidelines to all the operators to set up a complaint centre under Telecom Consumers Complaint Regulations, 2012. The centre would be responsible in acknowledging all the complaints it receives, even if the complaint is made by a subscriber of another mobile operator TRAI is also doing its bit to achieve the aim of carbon emission reduction under which operators are directed to achieve carbon reduction to the extent of 5% by 2012-13, 12% by 2016-17 and 17% by 2018-19
Initiatives
Under 'Green Telephony', TRAI has mandated for all the operators that at least 50% of all rural towers and 20% of all urban towers are to be powered by hybrid power by 2015
The Indian handset market is poised to grow at a compounded annual growth rate (CAGR) of 10.7% over 2011-17, with total handset volume projected to mark 335 mn units of sales by 2017
Growth
Smartphone segment would be the fastest-emerging division that would even outpace the overall handset market. The segment is anticipated to account for 29% of the total handset volume with 97.2 mn units by 2017, registering a CAGR of around 40%
May12
39
Glossary
ARC
ARPU BSE CAGR CDMA CMP DOT EBIT EBITDA EV FDI FY GSM INR KPI LTM MNP MOU NKN NLD NSE NTP PSUs TDSAT TRAI Y-o-Y
Average Revenue Per User Bombay Stock Exchange Compounded Annual Growth Rate Code Division Multiple Access Current Market Price Department Of telecommunication Earnings Before Interest & Tax Earnings Before Interest Tax Depreciation & Amortisation Enterprise Value Foreign Direct Investment Financial Year Global System for Mobile Communications Indian Rupee Key Performance Indicator Last Twelve Months Mobile Number Portability Minutes Of Usage National Knowledge Network National Long Distance National Stock Exchange National Telecom Policy Public Sector Units Telecom Disputes Settlement and Appellate Tribunal Telecom Regulatory Authority Of India Year on Year
May12
40
ARC
Thank You
CA. Tapan Jindal
tapan@arc-fs.com +91 11 6542 2128
Jashanjot Singh Sekhon

info@arc-fs.com +91 11 4562 2128
Pallavi Harchandani
info@arc-fs.com +91 11 4562 2128
Disclaimer The information contained herein has been obtained form various public sources. The above information is believed to be correct but is not necessarily complete and its accuracy cannot be guaranteed. ARC Financial Services is not responsible for any error or any decision taken by the reader based on this information. ARC Financial Services Pvt. Ltd. will not accept any liability, whatsoever with respect to the use of this document or its content.
Copyright by ARC Financial Services Private Limited
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the permission of ARC Financial Services Private Limited.

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Indian Telecom Sector

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Prepared by: Tapan Jindal Pallavi Harchandani

Strategies for your Success

ARC Financial Services (P) Ltd.

Jashanjot Singh Sekhon

Strategies for your Success

ISIEmergingMarketsPDF in-mdidemo from 115.111.95.19 on 2012-06-14 16:10:31 EDT. DownloadPDF.

2012 ARC Financial Services (P) Ltd