Telecommunications 171109

8/8/2019 Telecommunications 171109

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TELECOMMUNICTIONSSeptember 2009


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The focus of this presentation is to discuss the

Telecom industry - overview

Telecomattracting investments

Regulatory framework

Key trends in the telecom industry

Growth avenues in the telecom industry

TELECOMMUNICTIONS September 2009


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Indian telecom industrya snapshot

India has one of the biggest telecom markets in the world. It has more GSM subscribers than fixed-linsubscribers.

Total telecom subscribers494.07 million (August 2009)1

Teledensity42.27 per cent (August 2009)1

Addition of mobile subscribers (JulyAugust 2009)15.08 million1

Annual growth rate of telecom subscribers (June 2008June 2009)42.68 per cent

Average Revenue Per User (ARPU) for GSM (as on 30 June 2009)US$ 3.801

Telecom equipment market (200809)US$ 24.99 billion2,3

Handset market (2008-09)US$ 5.82 billion2,3

Expected mobile subscriber base (2013)About 771 million.4

Sources: 1) Exchange rate as on 30 June 2009 (1 US$ = INR 48.64380) , TRAI and TRAI; 2) Average exchange rate for the year 200809 and TRAI;

3) Cybermedia; 4) Stockwatch

Telecommunications September 2009

TELECOM INDUSTRY OVERVIEW


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The Indian telecom industry generatedrevenues of approximately US$ 32 billion in2007081 with a growth rate of 60 per centover 200607.

It witnessed a compound annual growth rate(CAGR) of approximately 29 per cent from200203 to 200708.

The CAGR is expected to stabilise at 16 percent between 200708 and 200910.

Sources: 1) Average exchange rate for the year 200708; 2)TRAI Report

Telephony services (mobile and basic) and internet services

dominate the Indian telecom services market.




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Telephony services (mobile and basic) and internet services

dominate the Indian telecom services market.

Telecom Services In India

Internet

PMRTS

VSATs

Radio Paging

GMPCS

Basic Services

Cellular Mobile Services

The Indian telecom industry can be primarily divided into basic, cellular mobile and internet services. It alsohas smaller segments such as radio paging services, Very Small Aperture Terminals (VSATs), Public MobileRadio Trunked Services (PMRTS) and Global Mobile Personal Communications by Satellite (GMPCS).

The mobile services in India are growing more than basic wireline services.




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The wireless segment in India is much larger than the

wireline segment and is growing steadily owing toconvenience and utility.

Basic Services

Basic services encompass fixed wireline and

wireless in local loop (WLL-fixed) services.

Wireless services hold a major market share of92 per cent in basic services as compared to thewireline.

Market Share of Basic Services Segments in India (200809)

Source: TRAI




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Government-owned players account for the highest growth

in subscriber base in the basic telephony services segment.

Government-owned Bharat Sanchar NigamLtd (BSNL) and MahanagarTelephone NigamLtd (MTNL) are the two largest operators inthe wire line segment, whereas Bharti AirtelLtd is the leader in wireless segment.

MTNL is present in Delhi and Mumbai,whereas BSNL covers the rest of thecountry.

Though private players such as Bharti Airteland Reliance have registered notable growth,BSNL still dominates the segment in terms of

wireline subscriber base despite the nominaldecrease in its market share.

Market Share of Wireline Service Operators in India (2008-09)

Source: TRAI report




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Reduction in tariffs have led to a constant reduction in the

Average Revenue Per User (ARPU). The gradual decline in ARPUremains well supported by the increase in subscriber base.

The ARPU for GSM service in India is muchhigher than that for CDMA service. The ARPUper month for GSM services has declined fromUS$ 6.64 for the quarter ending (QE) March2008 to US$ 4.10 for the QE March 2009, whilethat for CDMA services has fallen from US$3.99 to US$ 1.98 during the same period.1,2

Sources:1) TRAI Report; 2)Exchange rate as applicable on an average

basis for respective quarters

Average Revenue Per User in India

ARPU

(US$permonth)




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Reduction in tariffs have led to a constant reduction in the

Average Revenue Per User (ARPU). The gradual decline in ARPUremains well supported by the increase in subscriber base.

The Minutes of Usage (MoU) for GSM havebeen significantly higher than those for CDMA.The MoUs for CDMA service have declinedfrom 364 in March 2008 to 357 in March 2009,whereas those for GSM have decreased from493 to 484 during the same period.

Minutes of Usage (MoU) Per Subscriber

Per Month in India

Sources:1) TRAI Report; 2)Exchange rate as applicable on an average

basis for respective quarters

M

oU(persubscriberpermonth)




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The telecom subscriber base in India is likely to reach 500

million by 2010.

The subscriber base grew to 494.07 million (August2009), registering a growth of approximately 42.67per cent over last year. It grew at a CAGR of 45.21per cent from June 2004 to June 2009.

Teledensity in India is still low as compared to thatin some countries. As on August 2009, India had ateledensity of 42.27 per cent as compared to theprevious years figure of 29.83 per cent.

Source: TRAI Report

(in millions)

Source: TRAI Report



Telecom Subscriber Base in India


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Private players have maximum subscribers in the wireless

services segment Wireless services have led to significant

growth in the Indian telecom industry.

Currently, there are 11 playersBharti Airtel,Reliance, Vodafone, BSNL, Tata Tele ServicesLtd, Idea, Aircel, MTNL,BPL, HFCL andShyamactive in this segment.

As compared with 200708, the subscriberbase of most wireless service providers hasincreased leading to an increase in theirrevenues.

Market Share Of Wireless Service Operators In India(As of June 2009)

Source: TRAI Report




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Private players have maximum subscribers in the wireless

services segment The subscriber base of Bharti Airtel, a leader in

this market, increased from 69.38 million in200708 to 102.37 million in 200809, followedby Reliance (79.62 million subscribers) andVodafone (76.45 million subscribers).

GSM preferred to CDMA segment by a large margin in terms of subscriber numbers.

Indian Mobile Services Market Share

(As of June 2009)

Source: TRAI Report




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GSM preferred to CDMA in number of additions to

subscriber base

Bharti has the largest market share in the GSM segment. During 200809, out of the total subscriberbase of 328.83 million, private players accounted for approximately 84 per cent, while the publicsector operators (BSNL and MTNL) accounted for the remaining share (16 per cent).

Reliance Communications dominates the Indian CDMA mobile services segment with a subscriber

base of 54.19 million.

Market Share Of GSM Service Providers (As of June 2009) Market Share Of CDMA Service Providers (As of June 2009)

Source: TRAI Report




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Radio Paging Services

Radio paging services were launched in India in 1995. This service, however, could not competewell with cellular services in general and SMS technology in particular and is shrinking continuously.

At present, all but four radio paging service providers have been marginalized in the Indian market.

Very Small Aperture Terminals (VSATs)

At present, there are 8 VSAT service providers in India including BSNL, Bharti Airtel, HughesCommunication and HCL Comnet Ltd. The number of subscribers of VSAT services increased on aquarterly basis by 6,108 to 108,328 in June 2009. The market for VSAT services registered a 5.98

per cent growth for the quarter ending June 2009. Hughes Communication is the market leader,with a market share of 29.4 per cent, followed by Bharti Airtel with 25.9 per cent.

Source: TRAI Report

Various other services emerged by leveraging the telecom

services industry...(1/2)




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Various other services emerged by leveraging the telecom

services industry...(2/2)

Public Mobile Radio Trunked Services (PMRTS)

PMRTS services have been showing a negative growth. PMRTS subscriber base decreased by 2.06 percent during the quarter ending June 2009.1 High license fee for this service leaves low margin for

services providers, thereby inhibiting its growth. In India, 12 operators are offering this service to a totalof more than 30,951 subscribers.

Global Mobile Personal Communication by Satellite (GMPCS)

GMPCS2 services were launched in India in 1999. These services allow a subscriber to communicatewith others from any point on earth through a hand-held terminal. Moreover, the telephone numberremains unchanged, irrespective of the subscribers location. Iridium India Telecom Limited is the pioneer

in GMPCS services in India. The Government of India has restricted foreign equity participation in thissegment to 74 per cent.

Sources: 1) TRAI Report; 2) DOT




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The total number of internet subscribersincreased at a CAGR of approximately21.09 per cent from 200001 to 200809.

* The Internet subscribers for the above graph does not include

wireless data subscribers and those with broadband connections

The total revenue from internet servicesincreased 4.32 per cent from US$ 400.6 millionin March 2009 to US$ 417.9 million in June2009.

Broadband contributed 250.20 million to thetotal revenue from the internet services, where

as share of leased line was 93.04 million inquarter ending June 2009.Source: TRAI Report

Internet Services: June 2009

Internet Subscribers: 2000-2009*

InternetSubscr

ibers(inmillion)

Despite a slow penetration rate, the internet services segment

embodies huge growth potential in India.




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Despite a slow penetration rate, the Internet services segment

embodies huge growth potential in India. The total number of internet subscribers grew

from 11.66 million in June 2008 to 14.05 millionin June 2009. This is primarily attributed to anincrease in broadband subscriber base from 4.38million in June 2008 to 6.62 million at the end of

June 2009.

BSNL is the biggest player in this market with7.6 million subscribers, followed by MTNL,Bharti Airtel, Reliance and Sify Technologies.

Internet services can also be accessed throughmobile phones (CDMA and GSM). Bharti Airtel

is the leader among the wireless internetoperators with a market share of approximately24 per cent in June 2008.

Top Five Internet Service Providers by Market Share

(As of June 2009)

Source: TRAI Report




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Nokia, Samsung and Sony Ericsson mobile phones are most

popular in the country.

Nokia continues to dominate the handsetsmarket. Its market share increased from 62.5per cent in 200708 to 64 per cent in 200809.Samsung has the second-highest market share(10 per cent) in 200809.

LG, Motorola and Sony Ericsson witnessed adecline in their market share in 200809 ascompared to 200708.

Market share of Mobile Handset Manufacturers 20082009(GSM and CDMA)

Source: Voice & Data




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Indiaan ideal destination for investments

Worlds largest democracy

Independent judiciary

Third-largest telecom network in the world, second-largest among the emerging economies after China

On an average, approximately 8 million users are added per month, making India the worlds fastest growingtelecom market.

Liberal Foreign Investment Regime: FDI limit increased from 49 per cent to 74 per cent; the rural telecomequipment market also open to large investments

Among countries offering the highest rates of return on investment

The large untapped potential in Indias rural markets revealed by 9.21 per cent teledensity in rural markets ascompared to the national level of 28 per cent in 2008.

The government is promoting telecom manufacturing by providing tax sops and establishing telecom-specificSpecial Economic Zones

Fully repatriable dividend income and capital invested in telecom equipment manufacturing

Source: TRAI

TELECOM - ATTRACTING INVESTMENTS



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The regulatory framework provides a level-playing field for all

operators.

DoT

Licensor and Frequency

Management for Telecom

TRAI

Independent Regulator

WPC

(Wireless Planning

Commission)

Spectrum Management

TDSAT

Disputes Settlement

Body

Indian

TelecomIndustry

Framework

ILD Players

VSNL

Bharti

Reliance

Private CDMA

Reliance

TTSL

HFCL

Systema

GSM Operators

Vodafone

Bharti

Idea

Spice

BSNL

Reliance

Aircel

BPL

Telecom Commission

Exclusive Policy Making

Function of DoT

GoTIT

(Group on Telecom and

IT)

Handles adhoc issues

The Department ofTelecommunications (DoT) governsthe Indian telecom industry. DoT, incoordination with its arm, TelecomCommission, looks after licensing,policy making, frequency

management, administrativemonitoring, research anddevelopment, equipmentstandardisation and validation alongwith private investments.

Telecom Regulatory Authority ofIndia (TRAI) was established in 1997by DoT to streamline policy reformsand safeguard consumer interests.

The Telecom Disputes Settlementand Appellate Tribunal (TDSAT) wasalso established in the same year.

Source: TRAI

Integrated Fixed

Line

BSNL

MTNL

Tata

Communications

Bharti

reliance

REGULATORY FRAMEWORK



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operators.Unified Access Licensing Regime (UALR)

The establishment of the UALR (2003) eliminated the need for separate licences for different services. Thisregime allowed players to offer both mobile and fixed-line services under a single licence after paying anadditional entry fee. The regime does not take into account the national and international long-distanceservices and Internet access services.

Between February and March 2008, DoT granted 120 new licences to provide Unified Access Services tovarious companies, including Datacom Solutions Pvt Ltd, Aska Projects Ltd, Swan Telecom Pvt Ltd, LoopTelecom Pvt Ltd and S Tel Ltd.

Universal Service Obligations (USO)

The USO policy was implemented along with National Telephone Policy (NTP) 1999 to widen the reachof telephony services in rural India. All telecom operators are bound to contribute 5 per cent of theirrevenues to this fund. This system was put in place to bridge the wide gap between urban and ruralteledensity, bringing it down from the current 31 per cent. Initially, only basic service providers wereunder the purview of USO. Later, its scope was expanded to include mobile services also. Although itincreases the cost burden for telecom companies, USO helps in building the telecommunicationinfrastructure in rural areas.

Source: TRAI




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operators.

Impact of Policy Change on Indian Telecom Industry

Sources: 1) TRAI; 2) Fitch Report

NTP 99

Telecom Tariff Order

WLL

UASL, CPP

Lowering of ADC Removal of ADC

Cellulartarrif(INRperminute)

Numberofsubscribers(million

s)




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Various important regulations and laws have been passed

in the Indian telecom industry post-liberalisation eraDepartment of Telecommunication (DoT) is the main body formulating laws

and various regulations for the Indian telecom industry.

Private players

were allowed in

Value AddedServices

Go-ahead to

the CDMA

technology

National Telecom

Policy (NTP) was

formulated

1992

1994

1997

Independent

regulator, TRAI,

was established

NTP-99 led to

migration from high-

cost fixed license fee

to low-cost revenue

sharing regime

1999

2000 2002

BSNL wasestablished

by DoT

ILDservices was

opened tocompetition

Internet

telephony

initiated

Reduction oflicence fees

2003

Calling Party Pays

(CPP) was

implemented

Unified Access

Licensing (UASL)

regime was

introduced

ReferenceInterconnect

order was

issued

2004

Intra-circle merger

guidelines wereestablished

Broadband

policy 2004 was

formulated

targeting 20million

subscribers by

2010

2005

FDI limit wasincreased from

49 to 74 percent

Attempted to

boost Rural

telephony

2006

Number portabilitywas proposed

(pending)

Decision on 3G

services(awaited)

2007

2008

3G policy

unveiled

ADC removed

and IndianTelegraph

Rules

introduced

Information

Technology

Act introduced

Communication Convergence

Bill introduced

2001

Mobile

Number

Portability

Regulations

introduced

ILDInternational Long Distance

Sources: 1) TRAI; 2) Fitch Report 3) India Law Journal

2009




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MERGERS AND ACQUISITIONS (M&A)

Source: Thomson One Banker

The market is witnessing several M&A activities that are resulting in consolidations in the industry. Thistrend has assisted companies in expanding their reach in the Indian telecom market to offer betterservices to customers.

Recent Mergers and Acquisitions in the Indian Telecom Industry

Deal Date Target Company Acquirer Company Deal Value (US$mn)

September 15, 2009 XL Telecom & Energy Ltd Morgan Stanley Mauritius Co 3.68

August 19, 2009 Wireless TT Info Services Ltd Quippo Telecom infrastructure 1,320.63

July 23, 2009 Words Infocomm Pvt Ltd Lighthouse Funds LLC -

July 20, 2009 Shree Shree Telecom Pvt Ltd Goldstone Infratech Ltd -

July 14, 2009 Spice Mobiles Ltd Spice Televentures Ltd 7.05

July 12, 2009 S Tel Ltd Investor Group 225

July 08, 2009 HFCL Infotel Ltd Investor Group 17.78

June 06, 2009 Spanco Ltd Investor Group 3.93

May 27, 2009 Allianz Infratech (P) Ltd Swan Telecom Pvt Ltd -

KEY TRENDS IN TELECOM INDUSTRY



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FDI in the Indian Telecom Sector

Source: Ministry of Commerce and Industry

* Estimate

FDI in telecommunications sector

KEY TRENDS IN TELECOM INDUSTRY


(US$ millions)

The Indian government allows FDI of up to 74 percent, subject to licensing and security requirements, inthe following categories:

Basic and cellular services

National/international long distance services

Value-added services such as PMRTS and GMPCS Radio paging service

Internet services (providing service gateway)

Infrastructure providers (Category-II)

The Indian government allows FDI of up to 100 percent in the following categories:

Manufacturing of telecom equipment

Internet services (not providing internationalgateways)

Infrastructure providers providing dark fibre, right ofway, duct space, tower (IP Category-I)

Electronic mail

Voice mail


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India presents a host of opportunities for telecom

companies(1/9)3G Services

The Indian government plans to auction thespectrum for 3G services by inviting bids fromdomestic as well as foreign players. The 3G

spectrum is among the major investmentopportunities and is expected to attractinvestments worth US$ 810 billion during 200811.

International and foreign players can enter thissegment through joint-ventures with Indiancompanies with a stake of not more than 74 per

cent. They will also have to pay an additional entryfee of US$ 344 million to acquire Unified ServicesAccess Licence (USAL).4 Companies such as AT&Tand NTT DoCoMo are planning to enter thissector.

Growth

Avenues

3G

WiMax

Infrastructure

Sharing

ManagedServicesVirtualPrivate

Network

Value

Added

Services

Rural

Telephony

Enterprise Telecom

services

Sources: 1) TRAI Report; 2) International Business Times; 3) Indiapwire 4) Business Standard 5) e-Eighteen.com Ltd

GROWTH AVENUES



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companies(2/9)

The Telecom Ministry would auction four licences for 3G services including one reserved licencefor US$ 4.09 billion.5

BSNL launched 3G services under the proposed 'India-Golden 50' scheme that allows customersto make long-distance calls for 50 paise (About US 1 cent) per minute. The subscribers also getadditional features such as video telephony, Internet access, video on demand, mobile TV andothers facilities.3Sources: 1) TRAI Report; 2) International Business Times; 3) Indiapwire 4)

Business Standard 5) e-Eighteen.com Ltd.

GROWTH AVENUES

3G Services



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companies(3/9)Worldwide Interoperability for Microwave Access (WiMax)

WiMax has been one of the most significant developments in wireless communication in the recentpast. Since this mode of communication provides network access in inaccessible terrains at a speedof more than 4 Mbps, it is expected to be a major factor in driving telecom services in India,

especially the wireless services. Thus, it will lead to the increased use of telecom services, internet,value added services and enterprise services.

ICOMM Tele and Beceem Communications jointly announced the commercial availability of WiMAXmodems for the Indian market.

The Telecom Ministry is also planning to auction three WiMax slots for US$ 1.07 billion with anapproximate auction cost of US$ 358 million each.

Source: TRAI; Indiapwire; Indiapwire; e-Eighteen.com Ltd

GROWTH AVENUES


GROWTHAVENUES


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companies(4/9)Managed Service

Managed service is another segment that is attracting telecom companies. On account of the rapidlygrowing subscriber base, service providers find it difficult to manage their infrastructure andnetwork. In such cases, they completely or partially outsource their infrastructure or network

management operations.

Bharti Airtel and Nortel entered into an enhanced managed-services agreement in November 2008that allows Nortel to continue providing contact centre technology (CCT) solutions.

In turn, Bharti Airtel is able to leverage Nortels solution to provide its customers with interactivevoice and video response capabilities.

Source: TRAI; Indiapwire; Indiapwire; e-Eighteen.com Ltd

GROWTH AVENUES


GROWTHAVENUES


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Infrastructure Sharing

In order to curtail their network deployment costs, many service providers are considering infrastructuresharing. It is a major step towards Indias ambitious target of 500 million subscribers by 2010.

Infrastructure sharing promises several advantages. Some of which are:

Significant reduction in initial set up costs Increased environmental aesthetics Lower operating costs for service providers Improved service quality Increased affordability for customers Faster roll out of services in rural and remote areas

New Guidelines for Infrastructure Sharing in Mobile Telephony

TRAI has recommended all mobile service providers in India to share infrastructure so as to meet therequirements of the flourishing telecom industry.

Its proposal to Department of Telecommunications (DoT) states that the mobile telephony serviceproviders should have better cooperation among them and have least regulatory interventions.

The service providers can share active infrastructure if they have entered into a mutual agreement. The sharing of infrastructure includes sharing of antenna, feeder cable, nodes, radio access network

and transmission system only.

Source: TRAI


companies(5/9)

GROWTH AVENUES


GROWTHAVENUES


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Virtual Private Network

Virtual Private Network is a private data network that provides connectivity within closed user groups(CUG) via public telecommunication infrastructure. It is similar to leasing/owning lines and yet gettingexclusive access.

Enterprise Telecom Services

Telecom service providers are increasingly targeting enterprises by providing them dedicated services.Some of the key services include VoIP, dedicated telecom communication systems; IT infrastructure-enabled unified communication services, etc. This segment is expected to witness major developmentsas the demand for enhanced telecom infrastructure is increasing along with the growth in theinformation and communication technology (ICT) industry.

Source: TRAI


companies(6/9)

GROWTH AVENUES


GROWTHAVENUES


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Value-Added Services

The VAS industry in India generated revenue ofUS$ 1.2 billion in 200708 and is expected toreach US$ 4.0 billion by 2015.1,2

Major growth drivers for VAS in India

Increasing focus on localisation and availabilityof content in local languages

Development of M-commerce applications,such as booking tickets and making billpayments

Availability of mobile TV and development ofshows, films, images, news, etc.,

Availability of complete subscriber data hashelped in reaching niche audience leading to agrowth in advertising revenue through M-marketing

Development of video-based applications, suchas video SMS and podcasts

Sources: 1)India PRwire; 2) Exchange rate as on 20 November 2008;

3) Indiapwire


companies(7/9)

Value-Added Services in India (200708)

GROWTH AVENUES


GROWTHAVENUES


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Current Initiatives

Mumbai-based Mobile Value Added Service company called Planet41 Mobi-Venture Ltd is planningan initial public offer in the coming months.

The telecom companies can leverage VAS services to increase ARPU through content rather thanvoice services.


companies(8/9)

GROWTH AVENUES

Sources: 1)India PRwire; 2) Exchange rate as on 20 November 2008;

3) Indiapwire


GROWTHAVENUES


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Rural Telephony

Under the Bharat Nirman Programme, thegovernment will invest US$ 2 billion, from 2008to 2009, to set up about 100,000 communityservice centres in rural areas to provide

broadband connectivity.

With the teledensity in rural areas at less than10 per cent against the national teledensity ofapproximately 28 per cent in 2008, there seemsto be huge untapped potential for mobile phonepenetration in rural India.

In March 2009, TRAI released recommendationsfor accelerating growth of telephony in the ruralareas.

The suggested measures focus on the UniversalService Obligation Fund (USOF) to empowereffective investments in less-lucrative rural areas.

Sources: 1) TRAI Report ; 2) ZDNet Asia Report; 3) TRAI


companies(9/9)

UrbanRural disparity in India

Teledensity

percentage

GROWTH AVENUES


TELECOMMUNICTIONS S b 2009


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