India Telecom Market Overview

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India Telecom Market

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2nd largest market after China in terms of number of subscribers

Indian mobile industry is reaching maturity where the new subscriber addition has slowed considerably

Reported subscriber base as of Dec’12 was 861 million but the real active base is much lower at around 650 millionThe base dropped from 937 M in Mar’12 to 861 M in

Dec’12Fixed line subscription at 31 million which is

shrinking every month. The rest of the presentation would focus on mobile industry as it is the most significant part of Telecom Industry

Background


Structure of Indian Mobile IndustryIndia is divided into 23

circles and separate licenses have been issued for each circle

Division of circles mostly along the state boundaries

Circles were categorized as Metros, A, B and C based on the revenue potential of the circle when 1st set of auctions were held in 1995


Brief History of Indian Mobile Industry

1994Start of Cellular

operations

1999New Telecom

Policy

2000-013rd/4th

Operator Licenses

2003CDMA

networks launched

2004Calling Party Pays (CPP) Introduced

2005Lifetime Validity

Products Issued

2008Fresh

Licenses issued to 6

players

2009Tariff wars amongst operators

20103G, BWA auctions


2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

GSM

10.480403

21.991743

37.378831

58.503224

105.425183

171.885864

257.845498

415 543 640 657

CDMA

0 6.189943

9.821

16.912897

41.010375

57.058033

83.503407

95.372879591163

203 250 204

50

350

650

950

CDMAGSM

Hyper growth in subscriber base punctuated in 2012

Source: COAI, AUSPI

CDMA data has GSM numbers of Tata & Reliance from 2010 onwards

Mobile Subscriber Base ( Million)


Bipolar market – Low Rural penetration still an opportunity

6

Total

Urban

Rural

Source: TRAI

• Significant disparity between Urban and Rural penetration

• Different market dynamics for either side of market

Mobile penetration (%)

2005 2006 2007 2008 2009 2010 2011 20120

20

40

60

80

100

120

140

160

180

1 3 7 1220

33 36 39

22

39

56

75

107

139

160

143

713

2030

45

6273 71


OperatorSubscriber base

(million) as of 31st Dec, 2012

BSNL 21.04

MTNL 3.46

Bharti Aitel 3.28

Reliance Communications 1.26

Tata Teleservices 1.49

HFCL 0.18

Others 0.08

All India 30.79

Fixed Line subscriber base is Shrinking

The fixed line subscriber base has dipped by 6 million in last three years

Source: TRAI


Analysts estimated Indian Handset market size f0r 2012 between 190 – 210 million

Low cost handsets dominate with the average selling price of ~Rs 3200 ($55). However, with increasing penetration, the ASP has started to increase thereby reversing the trendASP increased by over 20% in last one year

Market is dominated by Nokia, Samsung and Indian brands like Micromax, Karbonn, etc

Share of CDMA in handsets is on a decline after the decision of Reliance and Tata to focus on GSM

Handset Market: 3rd Largest after China & US


Smartphones are new growth engines

India is the 3rd largest market for smartphones after US and China

Growth driven byConsumer aspirationAffordable due to falling prices and EMIsIncreasing Data consumption

India is the 1st country where the internet traffic from mobiles has exceeded the fixed line


As a result of separate licenses, there are few pan India operators. However, in the period 1999-2005, consolidation led to emergence of larger players

In 2007-08, new licenses were issued to new players taking total number of operators in each circle to as high as 13

Competitive Intensity


GSMBharti AirtelVodafone IdeaBSNL/MTNLAircelRelianceTata DocomoTelenorLoopStel*Etisalat*

RelianceTata IndicomMTS

Current Operators

CDMA

* Stel & Etisalat closed down their operations in 2012 due to license cancellation by supreme court post 2G controvery


India is currently the most competitive market in the world which has led to tariff wars

Tariff wars (2009 onwards)

$1 = Rs 60Rs 1 = 100 p


Revenue growth has got impacted significantlyThe break-even point for new operators has

increased significantlyIncrease in churn and Multiple SIM

It is estimated that only 50% of new subscriber addition is actually new subscribers. Rest all are either churning from one network to another or are adding to Multiple SIM phenomena

Impact of Tariff wars


1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0%

20%

40%

60%

80%

100%

120%

26%

44%53%

63%

80%73% 78%

86% 91% 93% 96% 96% 96% 96%

Prepaid as % of Total Subscribers

High Proportion of Prepaid Subscribers

99% of new subscriber additions are in prepaid

Source: TRAI


2000 2001 2002 2003 2004 2005 2006 2007 20080

200

400

600

800

1000

1200

1400

1158

814731

503412

352 316 282 240

845

453328 288

193 159 146 128 123

ARPU Cost/Sub

High volumes have led to continuous decline in costs in line with the ARPU

GSM ARPU & Cost data (Rs)


Composition of GSM operator revenues

Revenue Break-up as % of Gross Revenues

Source: TRAI report for Quarter ending Dec’12

Net Service Revenue = 78% of Gross Service RevenueNet Service Revenue = Gross Service Revenue –

Interconnection Usage Costs – Outroaming Airtime

Airtime; 52.1

SMS; 5.8

VAS; 14.3

Roaming; 9.0

Rental; 18.8


Composition of GSM operator costs

Source: PwC Benchmarking report - 2008

Network operating expenses proportion of costs increased from 36% in 2005 to 51% in 2008

51.0%24.0

%

8.0%

10.2%

6.8%

As % of Total Costs

Network Operating Costs

Sales & Marketing Costs

Personnel Costs

Outsourcing Costs

Adminis-trative Costs

26.0%

12.0%

4.0%

4.8%3.2%

As % of Net Rev


VAS Revenues are dominated by SMS and Ring-back Tones

40.0%11.0

%

16.0%

9.0%4.0%

20.0%

Postpaid

SMS CLIGPRS Ringtones &

Ringback Tones

Content Downloads

Others

36.0%

5.0%30.0%

5.0%

24.0%

Prepaid


Defense occupies chunk of spectrum and hence there is scarcity of spectrum leading to poor quality of service

New Telecom Policy, 2012Policy announced but implementation is still

unclear2G licenses controversy

Licenses issued in 2007-09 have been challenged in the court due to undue favor to a few player

Licenses of new players were cancelled by the supreme court

Regulatory Issues


Spectrum Allocation Plan

450 470

698 862

• Known as 700 MHz band

• Identified by WRC-07 for IMT

• Entirely held by defense

824 844 869 889


• Allocated to CDMA

• Entire band available for mobile 890 902.

5915 935 947.

5960

• Known as 900 MHz Band

• Allocated GSM• All available

spectrum allocated to mobile services

Paired With

Paired With

• Known as 450 UHF MHz Band

• Currently used for Police & Security networks


Spectrum Allocation Plan (cont’d)

1710

1785

1805

1880


• Allocated to GSM• Up to 80%

spectrum is with defense

Paired With

• Known as US PCS band

• CDMA operators have claimed this band but GSM operators oppose it due to interference

• Defense has all the spectrum

Paired With

1900

1910

1980

1990

1710

1785

1805

1880

• Known as 2.1 GHz band

• Allocated to WCDMA• Defense currently

has bulk of spectrum and is expected to vacate some

Paired With


Spectrum Allocation Plan (cont’d)

2300

2400

• Known as 2.3 GHz TDD band

• Intended allocation for BWA

• Known as 2.6 GHz band

• Part intended allocation for BWA and part for mobile services

• Currently entire band is with defense

2500

2690


Visit Telecom Circle to read interesting articles on Telecom and Internethttp://www.telecomcircle.com

To download1. India Subscriber Database – Circle-wise, operator-

wise from year 2000 onwards2. Circle-wise ARPU data for GSM networks3. Case study on how Indian Carriers make 40%

EBIDTA margins at 2 cents a minute

Visit http://www.telecomcircle.com/2009/06/india-telecom/

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India Telecom Market Overview

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