www.imacs.

in

Telecom
September 2006
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Contents
• Market Overview
• Government regulations & policy
• Advantage India and business
opportunities
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Market
Overview
• Market Overview
• Government regulations & policy
• Advantage India and business opportunities
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Market Overview

India’s telecom market has grown

rapidly in the last few years…
Subscriber growth
180 164
• Revenues ~ USD 19.5 bn (FY 2006)
CAGR - 38 %
• CAGR (FY 2002-06) - 21%
120 98 • Have doubled in last 3 years
76
60 44
53
• Subscribers ~ 160 million (Aug 2006)
• CAGR (FY 2002-06) - 38 %
0 • Nearly quadrupled since FY 02
2002 2003 2004 2005 Aug-06 • 5-6 million being added every month

Revenue growth • Tele-Density - 14.8 (Aug 2006)

20
20 • Has doubled in 3 years
CAGR - 21% 15
• Target set for 2007 under NTP 1999
15 achieved during FY 2005
11
10
10 9
$ Billion
5

0
2002 2003 2004 2005 2006
Source: www.voicendata.com, Telecom regulatory Authority of India (TRAI),
Year indicates financial year ending March
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Market Overview

…and is poised to be the second

largest network globally by 2008*
Telecom Subscribers - Country wise December 2005
China
800 743

India - Nov
600 2006
184 mn. subs

USA
400 360

mn. subscribers Japan Rus Ind

200 Germany
153 130 125
134

Expected to overtake US by 2008

* Based on excerpts from Worldwide Wireless Data Trends 2006 - a mid year update. Datacomm research

Source: International Telecommunications Union (ITU)

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Market Overview

Mobile telephony continues to be

the key growth driver…
Subscriber Growth - Mobile vs Fixed
• Progressive regulation
• Migration to revenue sharing 175
• Calling Party Pays (CPP) regime 140 143
• Unified access licensing
• Intra-circle merger guidelines 105

• Intensifying competition 70
43 52
38 42
• 3 to 6 players per circle Mn.35subscribers
• Presence of CDMA and GSM providers 13 34 41 41
7
• Significant share of private sector 0
2002 2003 2004 2005 2006
• Growing affordability Fixed (mn. subs) Mobile (mn. subs)
• ARPUs among lowest in the world
• Lower cost of ownership due to Low cost / used
handsets Wireless emerging as the preferred mass market format service
• Success of the pre-paid format providers focus on Internet / broadband access to improve fixed line
ARPU*

* Average Revenue per user

2006 figures as of Nov 2006

Source: TRAI
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Market Overview

Growing network coverage is

triggering further market expansion
Segment Cellular reach (2003-04) Cellular reach (End 2006 - Est.)
Locations Population Locations Population
Urban ~ 1700 of 5200 200 million ~ 4900 towns out 300 million
towns of nearly 5200
towns
Rural Negligible Negligible ~ 350,000 out of 450 million
607,000 villages

Support from Universal Service Obligation Fund envisaged for shared network infrastructure creation
in uncovered rural areas

Source: Recommendations on Rural Telephony 2005 - TRAI

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Market Overview

Vibrant and competitive telecom market

Subscribers Jul
Share (%)
Company Presence 06 (mn)
Fixed Mobile Fixed Mobile
Government owned. Has ramped up GSM services. National
BSNL 37.4 17.7 74.7% 19.6%
presence (except Mumbai and Delhi)
MTNL Government owned. Operates in Delhi and Mumbai. 3.8 2.0 7.7% 2.3%
Integrated operator, with presence in all sectors. Largest
Bharti 1.4 19.6 2.7% 21.7%
mobile services provider.
Integrated operator. Plans expansion of GSM network apart
Reliance 3.0 17.3 6.0% 19.2%
from being the largest private CDMA operators.
Hutch Pure play GSM operator in 11 circles. 15.4 17.0%
IDEA Pure play GSM operator in 6 circles 7.4 8.2%
Tata Integrated operator (along with VSNL) with presence in all
4.0 4.9 8.0% 5.4%
Teleservices segments. Provides CDMA services in 20 circles
Operates in 2 circles. Announced Plans to expand GSM
Aircel 2.6 2.9%
footprint in North and North east
Spice Pure play GSM player in 2 circles 1.9 2.1%
Others 0.4 1.4
Total 50 90

Consolidation leading to emergence of integrated pan-national service providers

Source: TRAI, IMaCS research

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Market Overview

Several Indian firms gaining a

foothold in the global market
• Indian service providers acquiring scale in the International Long Distance market through acquisitions…
• Acquisitions - FLAG by Reliance, Tyco and Teleglobe by Videsh Sanchar Nigam Limited
• VSNL is now the world's fifth largest carrier of voice globally
• Reliance’s FLAG network connects with 28 countries. FLAG’s FALCON cable system when completed
would connect 12 countries with 25 international cable landing stations
• Investments in Infrastructure and
• Bharti-Singtel and VSNL investments in undersea cable
• Emerging as Integrated telco, positioning themselves as full service providers
• Tata teleservices-VSNL, Bharti, Reliance have end-to-end presence in ILD, NLD and Access; BSNL has
announced plans to get into ILD
• Focus on corporate connectivity - IPLCs, Frame relay, VPNs
• Strong thrust on internet and broadband - both corporate and retail segments
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Government regulations
and policy
• Market Overview
• Government regulations & policy
• Advantage India and business opportunities
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Government Regulations and policy
Reform thrust on independent regulation,
competition and investment facilitation
Pre-reform Partial Deregulation
Pre-1994 1994-1999
• MTNL - Mumbai and • 4 private fixed service
Delhi; DTS elsewhere providers with less
than 1% market share
• No mobile service
• 2 GSM mobile players
• NLD - DoT per/ BSNL in each circle
ILD - VSNL
• 13 players start mobile
service
• National Telecom Policy
(NTP) 1994
• TRAI constituted 1997
National Telecom
Policy, 1994
TELECOM
Further Deregulation Take-off
1999 - 2002 2002 onwards
• Licenses converted to revenue • Calling Party Pays
sharing • CDMA launch
• Private sector share less than 5% • 3-6 operators in each
in revenue terms circle
• Competition in NLD and ILD • Intra-circle merger
guidelines
• Licenses on Revenue share
• 4 mobile operators / circle • Unified Licensing
• NTP 1999
• BSNL formed 2001 • Broadband policy 2004
• Internet Telephony 2002 • FDI - 74% 2005
• FDI - 49 %
New Telecom Unified Licensing
Policy, 1999 Regime
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Government Regulations and policy

Independent regulation has been a

critical factor in growth
2006
Number portability
Convergence

2005
Unified Licensing
Quality of Service regulation
TRAI’s recommendations Rural Telephony

2004
Intra-circle merger guidelines
Internet / broadband penetration

2003
Calling Party Pays Regime
Unified Access Licensing
Reference Interconnect Order

2002
• ILD opened to competition
• Internet Telephony allowed.
• Reduction in License fees
Mature regulatory regime and an enabling policy
framework already in place
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Government Regulations and policy

Important policy initiatives

• Broadband policy unveiled in 2004 - Targets 20 million broadband subscribers by 2010

• Focus on making India a regional Telecom manufacturing hub
• FDI limit increased from 49% to 74%
• 100% FDI permitted under automatic route in the manufacturing sector
• Deregulation virtually complete and Unified Licensing regime
• Interconnection Usage Charge framework in place
• Exemption from customs duty for import of Mobile Switching Centres
• Comprehensive Spectrum policy and 3G policy on the anvil

Creating a favourable investment climate to support growth

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Advantage India and

business opportunities
• Market Overview
• Government regulations & policy
• Advantage India and business opportunities
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Advantage India and business opportunities

Recent developments are

indicative of the paradigm shift in
wireless growth

India China comparison • Of the 160 million subscribers, more than

90 million subscribers added in the last
500
two years

• More than 5 million subscribers added

every month since Dec. 2005, translating
250 into the highest growth rate in the world
China
• On a comparison of growth since
India
introduction of mobile telephony, India
Million Subscribers
surpasses China at the same stage of
0 market evolution
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Year
In the 11th year
India - 76 mn.
China - 24 mn.

Source:TRAI
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Advantage India and business opportunities

Mobile Value Added Services (VAS)

set to register explosive growth*
• Data and VAS contributed to 7% of revenue in 2004
• Messaging and music (ringtones, downloads etc) to be key contributors
• VAS revenues expected to grow given
• Demand - Young population (60% < 30 years) and an affinity to music and movies
• Supply - aggressive pricing, vibrant ecosystem of content providers /
broadcasters, declining GPRS/mp3 handset prices

• Indian Idol - a reality show on Sony Television got 55 million SMS

messages in 5 months
• Radio Mirchi - a popular FM radio channel receives ~
40000-45000 SMS messages every day
• R-World - the mobile portal of Reliance Communications
had 5.3 million visitors out of its 18 million subscribers in
2005
VAS expected to contribute 20% of revenue by 2008 and 30% by 2010

* Excerpts from Mobile Data in India. Lehmann brothers report. Oct 2005. IMaCS research
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Advantage India and business opportunities

Broadband and Internet connectivity

on the verge of a take-off

Broadband subscriber growth • Internet / Broadband market (FY 2006)

2.00 • 6.94 mn.Internet customers
(25% growth YoY)
• 1.35 mn. broadband customers
1.5 1.38 (6-fold growth YoY)
• Incumbents (BSNL / MTNL)
dominate - 66% share

0.75
6-fold • 7-fold growth in broadband
growth connections during FY 2006
Mn. subscribers
0.18 • Broadband Policy 2004
0
• Recognises the importance of
internet penetration
Mar-05 Mar-06 Nov-06
• Envisages 40 million internet
connections by 2010
Growing PC sales, Internet adoption in small • Visualises creation of infrastructure
towns and offerings including triple play and through various access technologies
video-on-demand / IPTV expected to be major
growth drivers
Source: TRAI
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Advantage India and business opportunities
Growth-driving sustainable factors
in the telecom sector
• Favorable Macro-Economic fundamentals and
Demographics
• Strong Economic Growth and rising incomes
• By 2020, working age population to
rise to 65%
• Low tele-density relative to Asian peers
• Progressive policy and regulation
• Independent regulation
• Consistent policy framework
• Favourable Investment Climate
• Rising Affordability
• Declining ARPUs
• Lowering cost of handsets
• Growing popularity of pre-paid format
TELECOM
• India not just a cost-sensitive mass market
• 300 million plus middle class population
• Value added service revenue expected to grow at
80% CAGR over next 5 years.
• IDC estimates phones with color screens/
cameras to account for 30%of handset sales in
2005 and 62%by 2008
“People think about the Indian market as a lower tier.
About 30%of the U.S. market is high end and maybe
it's only 5%in India. But India has 1.1 billion people”
Ron Garriques. Executive vice president,
Motorola's personal communications sector in
On the Razor's Edge:Cell Phones Morph into Hip
Consumer Electronics Devices Knowledge@Wharton
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Advantage India and business opportunities

India poised to be a USD 40 bn - 45

bn telecom market by FY 2010…

Telecom sector targets announced by Government of India

• 250 million subscribers by 2007
• 500 million subscribers by 2010
• 20 million broadband subscribers by 2010
• Mobile access to all villages with population more than 5,000 by 2006
• Mobile access to all villages with population of more than 1,000 by 2007

Translating into an investment requirement of USD 25 bn to USD 30 bn…

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Advantage India and business opportunities

A compelling destination for

Telecom service providers and
equipment majors
• Largest pure-play GSM service provider in India
• Has over 15 million subscribers

• Has a 10% stake in Bharti telecom, an integrated service provider

• Represents the largest foreign investment in the telecom services
sector in India

• Promotes and supports a range of telecommunications products and services in

India in association with licensed operators.
• Has invested in Bharti Airtel and also Network i2i is a 50:50 Joint Venture
between Bharti and SingTel, connecting Chennai to Singapore

• Nortel offers a suite of products and solutions across two broad categories
Carrier Networks (incorporating Wireless Networks, Wireline Networks and
Optical Networks) and Enterprise Networks.
• In India since 1991. Has an R&D centre in Bangalore
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Advantage India and business opportunities

Key Indian Companies

• BSNL - Incumbent service provider and World's 7th largest Telecommunications Company
providing comprehensive range of telecom services in India
• Services include Wireline, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service,
MPLS-VPN, VSAT, VoIP services, IN Services etc.

• MTNL - State owned operator covering the cities of Mumbai an Delhi

• Provides both fixed and mobile services

• Bharti Airtel - Integrated operator with presence in all segments

• Leads the mobile segment in the country

• Reliance Communications - Largest player in India in the CDMA segment

• Plans a GSM network

• Tata Teleservices - Integrated operator (with VSNL) with presence in all segments
• Provides CDMA services in 20 circles
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