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©2008 Tata Communications, Ltd. All Rights Reserved

The Potential Opportunity of Emerging Markets

4th June 2009

Sunil Joshi

2

2

Safe Harbor Statement

Some of the statements herein constitute “forward-looking statements” that

do not directly or exclusively relate to historical facts. These forward-looking

statements reflect our intentions, plans, expectations, assumptions and

beliefs about future events and are subject to risks, uncertainties and other

factors, many of which are outside our control. Important factors that could

cause actual results to differ materially from the expectations expressed or

implied in the forward-looking statements include known and unknown risks.

Because actual results could differ materially from our intentions, plans,

expectations, assumptions and beliefs about the future, you are urged to

view all forward-looking statements contained herein with caution. Tata

Communications does not undertake any obligation to update or revise

forward looking statements, whether as a result of new information, future

events or otherwise.

3

Agenda

� The Changing face of the world

� Emerging Markets:

� What's Different Where is the opportunity

� Bridging the Demand Gap

� Framework

� Tata Communications: Committed to Emerging Markets


The Changing Face of the World

5

Changing world dynamics and emergence of the New World

1980’s-1990’s1980’s-1990’s Early 2000’sEarly 2000’s Beyond – “The Emerging

World”

Beyond – “The Emerging

World”

• US economic superpower:

~30% World GDP; high

growth

• Foreigners investing in US

• US Influencing policies of

other nations

• Technology flow from

developed to EMs

• BRIC nations driving growth

• Increasing contribution of

India, China to world GDP

• Developed countries

investing in EMs- Increase in

EM FDI

• Developed markets % of

GDP declining

• ChIndia prominent, however

other EM getting attention

• EM beyond BRIC Nations

• Technology Innovations in

EMs- Tata Nano; Increasing

number of patents from EMs

• EM companies led M&A in

the developed world

Source: EIU, Euromonitor, Internet Search, Tata communications analysis

6

Confidential & Proprietary© 2008 Tata Communications Ltd., All Rights Reserved

Global economy witnessing a downturn, however wheels of economy expected to move in positive in most EMs though at a reduced pace

Fastest growing markets pre

recession

Fastest growing markets pre

recession

Most EM expected to continue

growing

Most EM expected to continue

growing

Developed

Emerging

Growth expected back in all

markets

Growth expected back in all

markets


7

If growth rates are sustained Emerging markets will have ~50% ofWorld GDP

ChIndia along with Other

EM to constitute

~ 50% of World GDP by

2030

ChIndia along with Other

EM to constitute

~ 50% of World GDP by

2030

2007 2010 2020 2030

Europe US Singapore ChinaIndia Indonesia Russia BrazilKenya Egypt Philippines Others

World GDP ($T) 53T 67T 122T 235T

ROW

US

Europe

ROW

Singapore

China

IndiaIndonesiaRussiaBrazil



Emerging Markets:

What's different, where is the opportunity

9

So what is different about emerging markets????...

• Large middle class population

• Small premium segments

• Preferences dictated by local cultural & physiological nuances

• Price sensitive customers

• Large middle class population

• Small premium segments

• Preferences dictated by local cultural & physiological nuances

• Price sensitive customers

• Local competitors have lower labor and overhead costs

• Fragmented and inadequate distribution & retail infrastructure

• Strong government influence: Some cases strong oligopolies

• Some sectors require local partner, policies: large impact on profitability

• Some sectors legally require local partners

• Local competitors have lower labor and overhead costs

• Fragmented and inadequate distribution & retail infrastructure

• Strong government influence: Some cases strong oligopolies

• Some sectors require local partner, policies: large impact on profitability

• Some sectors legally require local partners

• Intense competition for limited talent pool

• Filled in to a varying extent by high cost ex-pats

• Lack of Basic Infrastructure

• Liberalization of economy still in nascent stages

• Intense competition for limited talent pool

• Filled in to a varying extent by high cost ex-pats

• Lack of Basic Infrastructure

• Liberalization of economy still in nascent stages

Competition and ConditionsCompetition and Conditions

DemographicsDemographics

Resource AvailabilityResource Availability


10

Three distinct opportunities for MNCs: emerging, semi-developed and developed

Note: All figures for 2006; GDP is in real terms

Sample countries

1-3%5-6%6-11%GDP growth

US $20,000-30,000US $2,000-5,000US $1,000-2,000GDP per capita

� Affluent population with high spending levels

� Markets typically low growth

� Moderate wealth levels and FMCG spend

� Markets with moderate growth

� Low income levels and low spending power

� Strong growth as economies strengthen

Economic Situation

DevelopedSemi-developedEmerging

Indonesia

Vietnam

Mexico

Philippines

Russia

Hong Kong

Singapore

Japan

S. Korea

Malaysia

ThailandChina

India

Brazil


11


Macro economic trends in emerging markets present opportunities

Macro trends:Macro trends:

Growing middle class


Urbanizationand changing

lifestyle

Urbanizationand changing

lifestyle

Evolvingpopulation pyramid


A B C

Commodity super-cycle at historic

peaks


peaks

D

12


In most Emerging Markets middle class is emerging and Spending power is on the rise

0.00

5,000.00

10,000.00

FY 2008 FY 2012

China India Indonesia US UK Australia

Personal Disposable Income (US $bn) Personal Disposable Income (US $bn)

Double digit CAGR of disposable income in EM

Double digit CAGR of disposable income in EM

China Example: Rise in Middle Class China Example: Rise in Middle Class

7 fold increase in middle class households by 2025

7 fold increase in middle class households by 2025



A

CAGR ’08-’12

12% 16% 12% 3% -1% 0%

Source: EIU, Euromonitor, Mckinsey Globar Research Internet Search, Tata communications analysis

77%

23%

Global Affluent

(>200,000 ren) 3%

M ass Affluent

(100,001 - 200,000

ren) 8%

Upper middle

class (40,001-

100,000 ren)

59%

Low er middle

class (25,001-

40,000 ren)

20%

Poor (< 25,000 ren)

10%

0%

25%

50%

75%

100%

2005 2015 2025

% o f

ho useho lds

13


India Example: Favorable Demographic Shift

Deprived (<Rs.

90,000 pa)

22

35

54

Aspirers (Rs.

90,000-

200,000 pa)

36

43

41

Seekers (Rs.

200,000-

500,000 pa)

32

19

4 Striv ers (Rs.

500,000 - 1,000,000

pa) 8

11 1

Globals (>Rs.

1,000,000 pa) 2

0%

20%

40%

60%

80%

100%

FY 2005 FY 2015E FY 2025E

% of population

Middle Class

Food to remain largest consumption category and Communications to grow fastest

Food to remain largest consumption category and Communications to grow fastest

Source: (1) Source: Mckinsey Report May 2007 (Income levels are at real 2001 prices)

(2) Source: The National Commission On Population May 2006



A

Favorable Shift in Income Class Favorable Shift in Income Class

14


Still Urbanization is low when compared to developed markets

0% 50% 100%

Australia

Singapore

UK

US

Kenya

Egypt

Philippines

Indonesia

India

China

Rural markets awaiting exploration for Banking, Retail & telecom

Rural markets awaiting exploration for Banking, Retail & telecom

Urbanizationand

changing lifestyle

Urbanizationand

changing lifestyle

B

Source: CIA; World Bank, Tata Communications Analysis

1.2%

0

600

1982 2002 2008 2017

212

288

348

5001.2%

0.5%

1.3%

4%

1.8%

3%

3.3%

2.5%

2.7%

Rate of Urbanization

Rapid pace of urbanization in India; 23 large cities in ’91; 40 in ’01 and increasing

Rapid pace of urbanization in India; 23 large cities in ’91; 40 in ’01 and increasing

% Urbanization

UrbanizationUrbanization India Example: growth in Urban PopulationIndia Example: growth in Urban Population

15


Demand

Education

E-learning

Research

Magazine and Books

Education

E-learning

Research

Magazine and Books

MES

Online Gaming

Social Networking

Music/ Movies

MES

Online Gaming

Social Networking

Music/ Movies

Retail

Apparel

Gadgets

Fast Foods/ Cafes

Retail

Apparel

Gadgets

Fast Foods/ Cafes

Emerging markets enjoy the optimism of youth Evolvingpopulation pyramid


C

Source: Internet Search, Tata Communications Analysis, UN Population Statistics

Services Targeting YouthServices Targeting Youth

33%28%

36%

21% 18%

19%

19%

20%

14%13%

43%47%

41%

53%53%

5% 6% 4%12%

16%

0 -14

22%

15-24

17%

25-64

53%

65+

8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

China India Indonesia Philippines US UK

Population PyramidPopulation Pyramid

16


International Brands leveraging the power of youth to sellin emerging markets

Influx of International companies to cater to needs of youth will create demand for Connectivity and Telecom services

Influx of International companies to cater to needs of youth will create demand for Connectivity and Telecom services

►Youth Cards- Attractive tariffs and Add-ons:

►50% lower than regular tariffs; Free Hello

tunes

►Virgin Mobile India positions itself as India’s first

Youth centric service launches stylish handset for

the young

►Youth Cards- Attractive tariffs and Add-ons:

►50% lower than regular tariffs; Free Hello

tunes

►Virgin Mobile India positions itself as India’s first

Youth centric service launches stylish handset for

the young

Standard Bank Youth Account

Youth Products

Youth Services

Young Brand Ambassadors

Youth Magazines

Source: Internet Search, Tata Communications Analysis

17


Commodity Supercycle witnessed in the markets


peaks


peaks

D

0%

50%

Oil Gas Coal Oil Gas Coal Oil Gas Coal

China India

Increasing Share of India, China in World Consumption

Increasing Share of India, China in World Consumption

1965 2000 2007

% World Consumption

• Rising Disposable Income to create demand

for washing machines, cars and other durables

increasing energy consumption.

• Rising Urbanization in EM- 1% increase in

urbanization rates brings in a 1.5% increase in

energy demand - Merrill Lynch estimates

• China is one of the largest consumers of Gold

• Rising Disposable Income to create demand

for washing machines, cars and other durables

increasing energy consumption.

• Rising Urbanization in EM- 1% increase in

urbanization rates brings in a 1.5% increase in

energy demand - Merrill Lynch estimates

• China is one of the largest consumers of Gold

Source: Internet Search, Tata Communications Analysis, Commodity Online;www.bp.com; www. Blanchardonline.com


Emerging Markets:

Bridging the Demand Gap

19


Influx of International companies across sectors into EM; Infrastructure development to connect Emerging markets to the world

• SEACOM

• Eassy

• TEAMS

• GLO-1

• WACS

• WAFS

• Main One

• ACE

• SEACOM

• Eassy

• TEAMS

• GLO-1

• WACS

• WAFS

• Main One

• ACE

• FLAG – NGN

• JAKABARE

• Millennium Telecom Cable

• IMEWE

• MENA Cable system

• Europe- India Gateway

• Intrepid

• FLAG – NGN

• JAKABARE

• Millennium Telecom Cable

• IMEWE

• MENA Cable system

• Europe- India Gateway

• Intrepid

• Increasing liberalization of sectors

• Public- Private Investments to

invite greater international interest

and participation in coming years

• EM companies looking at Regional

and International Expansions

• Increasing liberalization of sectors

• Public- Private Investments to

invite greater international interest

and participation in coming years

• EM companies looking at Regional

and International Expansions

Cable Systems being build to connect EM; Additional Cable systems proposed

International Companies expanding into Emerging markets

0

150000

300000

450000

'01 '06 '01 '06 '01 '06 '01 '06

Inward FDI Outward FDI

$mn

Source: CIA, Internet Search, UNCTAD, Tata Communications Analysis

China India UK US

FDI on rise in EMs

20


Mauritius

10%

U.K

10%

Sudan

5%

Cyprus

3%

USA

13%

Russia

13%

Others

27%

Netherland

s

7%

Singapore

5%

British

Virgin

Island

4%

Hong Kong

3%

� Regional distribution evenly spread.

� Russia and USA were the largest

destinations.

� There is traction in investment in

Emerging Markets

� Regional distribution evenly spread.

� Russia and USA were the largest

destinations.

� There is traction in investment in

Emerging Markets

Source: Ministry of Finance

However Emerging Economies are also going global, example of India’s Overseas Investment

Cumulative Total : US$ 22.1 bn (Apr ’96 – Oct ‘06)

Cumulative Total : US$ 22.1 bn (Apr ’96 – Oct ‘06)

Tata Companies Example

Telecom:

• Developed Markets: Tyco, Teleglobe (DM’s)

• Emerging Markets: Neotel, CEC China

Others:

• Jaguar Landrover, Corus

Source: Internet Search, Ministry of Finance (GoI) , Tata Communications Analysis

21


USD 12.1 billion USD 12.1 billion Tata Steel buys Corus Plc

Tata Steel buys Corus Plc

USD 6 billion USD 6 billion Hindalco acquired Novelis Inc.

Hindalco acquired Novelis Inc.

USD 1.58 billion USD 1.58 billion Essar Steel acquired Algoma Steel

Essar Steel acquired Algoma Steel

USD 4 billion USD 4 billion Abu Dhabi National Energy Buys Primewest

Abu Dhabi National Energy Buys Primewest

USD 1.25 billion

USD 1.25 billion

Lenovo acquires IBM’s PC Division

Lenovo acquires IBM’s PC Division

Emerging Markets companies Going Global, through International Acquisitions and expansions IT/ ITES

Banking

O & G

Some ExamplesSome Examples

Source: Internet Search, IBEF , Tata Communications Analysis

22


There is rapid adoption of technology, technology being customized for EMs market needs at a low switching costs; demanding innovation

Philippines (Texting Capital of

the World)

• Avg 4000 mn text messages

• 142 bn messages in a year!!!

• Smart Communications, World's

market leader for non-voice

revenues 50%

Philippines (Texting Capital of

the World)

• Avg 4000 mn text messages

• 142 bn messages in a year!!!

• Smart Communications, World's

market leader for non-voice

revenues 50%

0% 160%

Australia

US

UK

Argentina

Indonesia

India

Egypt

Malaysia

Source: www.nickburcher.com – Facebook usage; ITU; Wikipedia

Orkut customization in Portuguese for Latin American

Users; Hindi for India

Orkut customization in Portuguese for Latin American

Users; Hindi for India

India Brazil, Pakistan form 50% of Traffic on OrkutIndia Brazil, Pakistan form 50% of Traffic on Orkut "Looking to emerging markets, mobile

could become the number one platform

for music, where packaged CDs haven't

gained traction due to piracy and lack of

hardware ownership.“

- David Sidebottom, Analyst, Information for

global entertainment media

"Looking to emerging markets, mobile

could become the number one platform

for music, where packaged CDs haven't

gained traction due to piracy and lack of

hardware ownership.“

- David Sidebottom, Analyst, Information for

global entertainment media

Rising Social networking in EM’sRising Social networking in EM’s Rapid Technology AdoptionRapid Technology Adoption

23


Innovation in Business Models, Pricing characterizing emerging markets

>5010ILD

31DLD

41Mobile

Cents / min- India

� Pre-paid packs for <$3 per month

� $0.25 Top-ups

� Handsets on Credit: <$10 down-payment

B2B MarketPlace: AliBaba.comB2B MarketPlace: AliBaba.com

Alibaba group

operates 5

e-commerce sub

companies

Partnerships for Cross Platform Online Gaming

between DIGI Malaysia and Nokia to provide the

world’s first mobile massively multiplayer on line

game

Partnerships for Cross Platform Online Gaming

between DIGI Malaysia and Nokia to provide the

world’s first mobile massively multiplayer on line

game

GamingGaming

India Calling: Worlds Cheapest Call ratesIndia Calling: Worlds Cheapest Call rates

Cents / min- US

Source: Internet Search, IBEF , Tata Communications Analysis

24


But infrastructure gaps exist within markets; Penetration of Fixedline, Wireless and Broadband currently low

0% 20% 40% 60%

Wireless PenetrationWireless PenetrationFixed line PenetrationFixed line Penetration Broadband PenetrationBroadband Penetration

Australia

Singapore

UK

US

Kenya

Egypt

Philippines

Indonesia

India

China

0% 50% 100% 150%

Australia

Singapore

UK

US

Kenya

Egypt

Philippines

Indonesia

India

China

0% 20% 40% 60%

Australia

Singapore

UK

US

Kenya

Egypt

Philippines

Indonesia

India

China

Though Wireless subscribers are increasing Broadband is a blip on the radarThough Wireless subscribers are increasing Broadband is a blip on the radar

Developed

Emerging

Source: Telegeography, Internet Search, IBEF , Tata Communications Analysis


Emerging Markets:

Framework

26


• Assessment of competitive environment

• Evaluation of potential for wholesale and Enterprise services

• Assessment of current and future regulatory environment

• Potential risks/ opportunities

• Analysis of GDP

• Identification of key sectors

• PEST Analysis

Framework to identify Emerging markets

Emerging Markets Identification frameworkEmerging Markets Identification framework

Tele

com

Mac

ro

econo

mic

Regulatory

Strategic

implications

for Entry

Strategic

implications

for Entry

Market Attractiveness and existing capabilities used for short listing marketsMarket Attractiveness and existing capabilities used for short listing markets

Market

Entry

Options

Market

Entry

Options

Source: Tata Communications Internal Analysis, Internet Search

27


Sample assessment criteria for Country Evaluation

Demand –Supply MNC presence

Incumbent strength

Telecom

Each Element

provides weightage

based on context to

enable comparative

analysis;

Each Element

provides weightage

based on context to

enable comparative

analysis;

Political and Security Economic

Social

Macro-economic environment

Licensing scenario Foreign investment

Infra liberalisation

Regulatory environment


28


Approach to Identify and Prioritize Markets

Establish focus markets (“where could we go”)

Establish focus markets (“where could we go”)

Evaluate relative strength to shortlist

(“Where Should we go”)

Evaluate relative strength to shortlist

(“Where Should we go”)

Develop a Go-to-Market plan

(“What/ How to do”)

Develop a Go-to-Market plan

(“What/ How to do”)

Assess Macro-economic environment

Assess Macro-economic environment

Assess Regulatory environment

Assess Regulatory environment

Assess Competitive Telecom environment

Assess Competitive Telecom environment

Prioritize regions / countries

Attractiveness for Multiple services

Attractiveness for Multiple services

Existing infrastructure leverage / Tata presence

Existing infrastructure leverage / Tata presence

Relative investment- return analysis

Relative investment- return analysis

Which services/ segments to target

Which services/ segments to target

Resources/ Infrastructure needed

Resources/ Infrastructure needed

Organic or Inorganic growth plans

Organic or Inorganic growth plans

Identify 6-8 key markets for short-term

Recommend entry options & goals

Timeline TimelineTimeline



Tata Communications:

Committed to Emerging Markets

30

Emerging Markets; India and Beyond..

China

Asia

Middle East & North Africa

Sub-Saharan Africa

Cables / Infrastructure IP / MPLS / Ethernet Managed Services

• India-China backbone • CEC: VPN & Internet access

• Data Centres* & other services

• Intra-Asia Cable

• PIPE

• NNIs in Th, Ph, Vi, Sing, Indo, Mal

• Full suite available

• New IDC in Singapore

• Eurasia cable

• IMEWE

• Partnerships in UAE, Qatar, Morocco, Saudi, Turkey, Egypt, Bahrain…

• White-labeled partnerships

• Neotel backbone in SA

• SEACOM

• Neotel in SA • Neotel in SA

31

TCL has made Significant investments in creating submarine cablenetwork connecting emerging markets to the developed markets

• TGN-Atlantic

• TGN Western Europe

• TGN Northern Europe

• TGN-Pacific

• TGN-Intra Asia

• SMW-3

• SMW-4

• SAFE/SAT-3

• APCN-2

• TGN-Eurasia

• TGN-Intra Asia

• IMEWE

• SEACOM

OW

N

CO

NS

OR

TIU

M

NE

W B

UIL

DS

EM

EM

China- CEC

Neotel

TCL can connect most Emerging Markets to rest of the world on its own high quality network with protection of path

EM

32

TCL is aggressively strengthening its presence in Emerging Markets through Partnerships & Direct Investments

China- CEC

Neotel

Other ME

Established POPs and NNI for IP, MPLS & Ethernet connectivityManaged Services Partnerships

Home Market

LATAM

Malaysia

Philippines

Thailand

UAE

Egypt

Presence

Vietnam

Indonesia

33

TCL has created innovative business models to cater customer needs in Emerging markets; NNI, White-labeled services & Opex models

3 Screen Public Telepresence Rooms3 Screen Public Telepresence Rooms Single Screen Public Telepresence RoomsSingle Screen Public Telepresence Rooms

White label Partnerships, NNI’s help to mitigate market risks and make entry fast an mitigates key challenges

White label Partnerships, NNI’s help to mitigate market risks and make entry fast an mitigates key challenges

34


• Partner EM Telco's to address B-end of MNC clients: Dimension Data, Batelco, Etisalat

• Direct Investments in South Africa, Nepal, Sri Lanka & China

• Partner EM Telco's to address B-end of MNC clients: Dimension Data, Batelco, Etisalat

• Direct Investments in South Africa, Nepal, Sri Lanka & China

• White Labeled Services / Public rooms for Telepresence

• Network to Network Interface

• Opex Based Models

• White Labeled Services / Public rooms for Telepresence

• Network to Network Interface

• Opex Based Models

• Internal Consultants & TATA Group Relationships

• Public Information/filings: World Bank, IMF, ADB, Govt

• Research reports from Reputed houses: Gartner, Ovum

• External Consultants; BCG, Bain, TSMG

• Internal Consultants & TATA Group Relationships

• Public Information/filings: World Bank, IMF, ADB, Govt

• Research reports from Reputed houses: Gartner, Ovum

• External Consultants; BCG, Bain, TSMG

• Largest Submarine Cable network

• POPs in Thailand, Philippines, Malaysia, Nepal, Sri Lanka

• South Africa, China through Neotel and CEC

• Largest Submarine Cable network

• POPs in Thailand, Philippines, Malaysia, Nepal, Sri Lanka

• South Africa, China through Neotel and CEC

Partner selection, Global infrastructure, immaculate planning, innovation helped TCL mitigate market risks and overcome challenges

Global Infrastructure: EM Focus

EM: Business Intelligence

Business Model innovation

Strong Partnerships

Strong execution of Strategy is the Key to Emerging Market Success

Thank You

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