dynamism in telecom industry

Dynamics of Indian Telecom Industry

Research ReportBy

Jyothin Madari

2

Executive Summary Third largest telecom network in the world Fastest growing – Forecasted CAGR growth

rate of over 15.3% by the end of 2012 Monthly additions of above 8 million

subscribers Growth impetus from wireless segment with

84% wireless and 16% wired National teledensity at 22%, rural teledensity

at 7%, while urban at 57% 9 million Internet and 2.5 million broadband

subscribers Six major operators and eight minor operators

3

Future Outlook Need for massive investments in infrastructure

development – expected to require 330,000 network towers from the present 100,000

Decrease in wireline subscriber base however strong growth in mobile subscriber base

Improvements in mobile quality of service, quick service delivery, affordable pricing plans, and lower handset costs.

VAS* - Key revenue stream for mobile operators Broadband penetration is low => high growth

expected New Technologies paving the way for new services,

additional revenue streams and rural penetration

* Value added-Service

4

Market Forces/Growth Drivers

Subscribers

Infrastructure/Equipment

BurgeoningMiddleClass

BoomingKnowledge

Sector High GDPGrowth

RisingIncomeLevels

GrowingUrbanization

YoungerPopulation

Handsets

Service Providers

Growth

Macro Economic Factors

Industry Specific Factors

5

Market Size & Growth Currently valued at $100B Telephone coverage in India rose to 34.5% in

Jan ’09 from 33.23% in Dec ’08. Growth spurred by fall in tariffs and fall in

handset prices Wireless accounts for nearly 70% of the total

telephone subscriber base Total telecom subscribers growth rate during

quarter ending March 2009 – 11.68% Total wireline subscribers growth rate for

quarter ending March 2009 – 0.15%

6

Subscriber BaseTotal Telecom Subscribers (Wireline+Wireless)*

Total Subscribers 429.72 Million

% Growth QoQ 11.68%

Urban Subscribers 309.43 Million (72%)

Rural Subscribers 120.29 Million (28%)

Overall Teledensity 36.98

Urban Teledensity 88.66

Rural Teledensity 14.8

* All figures for March end 2009

7

Teledensity

20.7426.88

39.4548.52

66.39

81.06

135

7.02 8.95 12.7418.31

26.2233.23

58

1.57 1.73 1.83 5.38 9.46 13.13

25

0

20

40

60

80

100

120

140

160

2004 2005 2006 2007 2008 2008 (Dec) 2012

(%)

Urban Total Rural

8

Service TypesFixed-line

Mobile

Broadband

Internet Subscribers

9

ICT* Statistics

Fixed Telephone lines per 100 inhabitants : 3.5

Mobile subscribers per 100 inhabitants: 18.4

Internet subscribers per 100 inhabitants: 0.8

Broadband subscribers per 100 inhabitants: 0.22

* Information and Communication Technology

10

Subscriber Base (Fixed-line and Mobile)

40 39 39.42 38 37.9 37.75 37.96

100150

192.87 229 250325

462

0

100

200

300

400

500

600

2006 Jun-07 Jul-07 Dec-07 Dec-08 Jan-09 2010

Num

ber

of Subsc

riber

s (i

n m

illions)

Fixed-line Mobile

11

Subscriber Base (Broadband and Internet)

0.18

1.352.34

3.13.87

5.456.22

56

8

10.411

12.8513.54

0

2

4

6

8

10

12

14

162005

2006

2007

2007

(Dec

)

2008

(Jan

)

2008

(Dec

)

2009

(Mar

)

Num

ber

of Subsc

riber

s (i

n m

illions)

Broadband Internet

12

Fixed-line Telecom MarketTotal Wireline Subscribers 37.96 Million

% Growth QoQ 0.15%

Urban Wireline Subscribers 27.38 Million (72.13%)

Rural Wireline Subscribers 10.58 Million (27.87%)

Village Public Telephones (VPT) 5.61 Million

Public Call Office (PCO) 6.20 Million

All figures for March end 2009

13

Operator wise Market Share of Fixed-line Service

Urban+Rural Fixed-line Operators

BSNL77.30%

MTNL9.41%

Other Private

Operators13.29%

Urban Fixed-line Operators

BSNL69.00%

Other Private18.00%

MTNL13.00%

Rural Fixed-line Operators

Other Private0.35%

BSNL99.65%

14

Mobile Telecom MarketTotal Wireless Subscribers 391.76 Million

% Growth QoQ 12.93%

Urban Wireless Subscribers 282.05 Million (72%)

Rural Wireless Subscribers 109.71 Million (28%)

GSM Subscribers 297.26 Million (75.88%)

CDMA Subscribers 94.50 Million (24.12%)

All figures for March end 2009

15

Development and Penetration

3.1 5.0510.5

22

37.4

58.5

105.4

180

0.86.4 10.9

19.1

44.2

85

0

20

40

60

80

100

120

140

160

180

200

2000 2001 2002 2003 2004 2005 2006 2007

(millions)

GSM Subscriptions CDMA Subscriptions

16

Operator wise Total Market Share of Mobile Service

Bharati Airtel23.97%

Reliance18.56%

Vodafone17.55%

BSNL13.31%

Tata9.93%

Idea8.96%

Aircel4.73%

Others2.99%

17

GSM vs. CDMAStatistic* GSM CDMAShare of Prepaid 94% 0.7%Incoming Minutes of Usage per subscriber per month

249 192

Outgoing Minutes of Usage per subscriber per month

235 164

Outgoing SMS per subscriber per month

30 10

ARPU# $4 $2# Average Revenue Per User *March End 2009

18

Operator-wise Market Share of GSM

BPL0.73%

Bharati31.60%

BSNL15.71%

Idea13.08%

Spice1.39%

Vodafone23.13%

Reliance6.73%

Aircel6.22%

MTNL1.41%

19

Operator-wise Market Share of CDMA

Reliance55.72%

Tata Teleservices37.16%

HFCL0.41%

MTNL0.32%

Shyam Telelink0.63%

BSNL5.76%

20

Internet ServiceTotal Internet Subscribers (including Broadband) 13.54 Million

% Growth QoQ 5.30%

Broadband Subscribers 6.22 Million

Wireless Data Subscribers(i.e. through mobile handsets)

117.82 Million

Total International Bandwidth owned by ISPs 209 GB

Total National Bandwidth owned by ISPs 174GB

All figures for March end 2009

21

Operator wise Market Share of ISPs

MTNL15.69%

BSNL53.62%

Bharati Airtel Ltd.8.01%

Reliance Communications

Infrastructure Ltd.6.91%

Sify Technologies Ltd.2.99%

Tata Communications Internet Services Ltd.

2.72%

Hathway Cable & Datacom Pvt. Ltd.

2.50%

You Telecom Pvt. Ltd.1.47%

Data Infosys Ltd.1.83%Others

4.26%

22

Broadband Service (>= 256 Kbps) Move into high-speed broadband

Internet access has been distinctly slow Broadband penetration still remains at

only around 0.2% Most of the local loops are owned and

operated by state owned service providers, which pose a significant bottleneck for Broadband penetration

Broadband services account for only 25% of the total Internet subscriber base

23

Technology wise Market Share of Broadband Subscribers

5.364

0.4740.244 0.042 0.02 0.074

0

1

2

3

4

5

6

DSL CableModem

EthernetLAN

Fiber Leased Line Other

Subsc

riber

Bas

e (i

n m

illions)

All figures for March end 2009

24

Operator wise Market Share of Broadband Service Providers

BSNL57%

Bharati Airtel13%

You Telecom India Pvt. Ltd.

2%

Sify Limited2%

Tata Communications Internet Services Ltd.

4%

MTNL11%

Hathway Cable & Datacom Pvt. Ltd.

4%

HFCL Infotel Ltd1%

Reliance Communication

Infrastructure Ltd.2%

Others4%

25

ARPU & Pricing Trend India has one of lowest mobile tariffs in

the world resulting in low ARPU ARPU have been on the decline since

2004 due to price wars and increased competition in the mobile telecom sector

ARPUs continue to drop by 5% while tariffs decrease further by 15%

Low tariffs building margin pressure on operators

26

Mobile Pricing/TariffsMobile Tariffs in Absolute terms

0.230.22

0.190.17

0.16

0.11 0.11 0.110.09

0.05 0.05 0.040.03

0.02

0

0.05

0.1

0.15

0.2

0.25

Bel

gium

Ital

y

UK

Fran

ce

Bra

zil

Phi

lippi

nes

Taiw

an

Arg

enti

na

Mal

aysi

a

Hon

g Kon

g

Thai

land

Pak

ista

n

Chi

na

Indi

a

USD

Lowest inIndia

27

Mobile Pricing/Tariffs

Tariff war has intensified in the past few months and competition has reached a new level

The price war has spread to the SMS segment as well, with negative impact on operator revenues

28

ARPUs are fallingEffective margin/ min 2005

1.25

0.25

1.5

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Cost perminute

Margin Effectiverate perminute

Effective Margin/ min 2006

0.87

0.08

0.95

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Cost perminute

Margin Effectiverate perminute

29

VAS (Value – added Services) More Lucrative for operators and content

providers as some VAS at 14c make more money than voice at 3c–4c.

VAS include, SMS, Ring tones, Caller tones Internet Data Access Mobile Commerce On-demand Music, Videos, Animation clips Contests/Voting Gaming Enterprise products (Email, Office, etc.) New Alerts/Match Scores

30

VAS Forecast and Growth

VAS

Revenues $500 million (this includes texting)

Parties involved Media content providers, Mobile operators and aggregators

VAS

Revenues $10 Billion

Parties involved Media content providers, mobile operators, aggregators, banks, Enterprises

2006

Forecast 2009-2010

31

Leading VAS and mobile application service providers

Indiagames

OnMobile

Mobile-2-Win

IMImobile

HungamaMobile

Mauj.com

VAS

32

Telecom Administrative Framework Total of 22

circles 4 Metros 5 ‘A’ Circles 8 ‘B’ Circles 6 ‘C’ Circles

Each circle has LDCAs (Long Distance Charging Areas) and SDCAs (Short Distance Charging Areas)

33

Telecom Regulatory Bodies

Government of India

Ministry of Communications &Information Technology

TDSAT DoT TRAI

State ownedoperators

PrivateOperators

License Fees/Spectrum Charges

Timely policy and regulatory interventionhas ensured that Sector development has stayed on track.

34

Regulatory Bodies – Key Responsibilities

Agency Key Responsibilities

Department of Telecommunications (DoT)

Policy Formulation, licensing, wireless spectrum/frequency management Enforcement of wireless regulatory measurement Standardization/validation of equipment, R&D, etc.

Telecom Regulatory Authority of India (TRAI)

Mandate for Tariffs, Interconnection, Standards for quality of service Recommendatory: Licensing Timing, terms & conditions, License revocation, competition facilitation, etc.

Telecom Disputes Settlement & Appellate Tribunal (TDSAT)

Adjucation and disposal of disputes between service providers and/or a group of consumers

35

Upcoming Technologies and Growth Areas

3G WiMax Network Infrastructure Telecom Equipment Exports Handsets

36

3G

MTNL and BSNL have launched 3G services

Other Private players are yet to obtain licenses

Expensive affair for operators to upgrade to 3G

3G equipment upgrades will be high

37

WiMax

The total base station equipment market is estimated to be between $50 million and $120 million for WiMax

Projected total WiMax connections by 2012: 6.9 million

38

Network Infrastructure

The industry needs to add additional capacity to sustain growth

Continuing trend towards import of telecom equipment

Shared Wireless infrastructure like, share tower services, help reduce operator costs by 15-18%

39

Telecom Equipment Exports

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

2006 2007 2008 2012(Projected)

(in R

s. C

rore

)

Exports fueled by localTelecom equipment

manufacturers

40

Handsets – Market Share

Total (GSM+CDMA)

Others8.40%

Sony-Erricson6.80%

Samsung9.50%

Nokia53.70%

LG14.40%

Motorola7.20%

GSMOthers7.30%

Sony-Erricson8.90%

Samsung

9.00%

LG4.40%

Motorola

7.80%

Nokia62.60%

CDMAOthers11.50%

Nokia24.30%

Samsung11.20%

Motorola5.40%

LG47.60%

Feedback/Questions

42

Sources/References Capacity Building Workshop on information Society

Statistics, 2007 Future Trends in Indian Telecom, 2005 Mobile Services to Mobilize Indian Telecom Sector, 2008 Indian Telecom Sector, www.mas.net.in Indian Telecom Analysis, Report Summary, 2009 Experiences in Telecom Sector Regulation in India, 2008 Indian Broadband Wireless and WiMax Market Analysis

& Forecasts 2007-2014, 2007 Indian Telecom Statistics Forecast, 2003-2007