doc 2 paradigm shift saxena

7/31/2019 Doc 2 Paradigm Shift Saxena

1/58

Indian Mobile IndustryIndian Mobile Industry


2/58

2

INTRODUCTION TO THE WORLDS FASTEST GOWING TELECOM MARKET


3/58

3

THE WORLDS SECOND LARGEST MARKET

Area 3,287,263 Square kilometers

Population (July 2005) 1.08 Billion

22 National Recognized Languages Literacy Rate (2005) 65%

Average Annual Growth Rate

Population 1.4%

Labour Force 2.5%

GDP Growth- 6.7%

Trade (2004)

Total Exports (FOB) USD 76 Billion

Total Imports (CIF) USD 97 Billion

Forex Reserves (including gold) =USD 155 Billion

Source : The World Bank Group


4/58

4

.& ONE OF THE FASTEST GROWING ONES

One of the fastest growing economies in Asia.One of the fastest growing economies in Asia.

Annual GDP growth rate of ~8% over next 5Annual GDP growth rate of ~8% over next 5--10 years10 years

Set to emerge as 3rd largest economy in the world by 2020Set to emerge as 3rd largest economy in the world by 2020

Major global hub for IT & IT enabled servicesMajor global hub for IT & IT enabled services

Mobile telephony transforming peopleMobile telephony transforming peoples livess lives


5/58

5

Background of Mobile Revolution in Indian TelecomBackground of Mobile Revolution in Indian Telecom


6/58

6

! "#! $"#%&'(

)!*

!!! *! +,- ./"%!00!0

(

1,)1"20!! $ 3


7/58

7

! "#$

%

&'(&

)"#"

*"("+,-

",-

!"$

(!,,!"

$


8/58

8

Policy announced for additional licenses in Basic and Mobile Services (Jan2001).

Entry fee: Basic Services: US$ 0.2mn US$ 25.5mn (+ Bank Guarantees = 4 timesentry fee for rollout obligations)

GSM Mobile Services (4th Operator bid): US$ 0.2mn US$ 45mn

License fee (revenue share) reduced from provisional 15% to 12%, 10% &

8%. Limited Mobility allowed to Basic Services (CDMA spectrum allotted to

BSOs).

Rollout Obligations to cover Urban / Semi-Urban / Rural areas in equal

proportion. New licenses awarded in Jul - Sep 2001 : Basic (25), GSM Mobile (17).


9/58

9

(!$

.#"#.)*/0110$

/23,,,45

6 !,"$

37#7#377! !",

$

*83,*83!"9($

:#9"9$


10/58

10

MOBILE MAJOR CONTRIBUTOR TO TELE DENSITY

Cellular constitutes ~61% of current national tele density has played an important role intaking overall tele density from 0.8 in 1994 to 12.3 in Feb06.

Fixed 4.8 %

Mobile 7.5 %

Total 12.3%

0

2

4

6

8

10

12

14

1997 1998 1999 2000 2001 2002 2003 2004 Feb'06


11/58

11

GSM DRIVING MOBILE GROWTH

1 2 4

6

41

65

26

13

2

811

19

10

10

20

30

40

50

60

70

1999 2000 2001 2002 2003 2004 2005 Feb'06

GSM CDMA

Subsc

ribersinMillion

GSM driving growth of Indian market with nearly 80% market share & about 75% of new

additions

Year Ended March


12/58

12

IN SYNC WITH WORLDWIDE TRENDS

Worldwide GSM constitutes 75% of the subscriber base and 80% of themonthly additions.

0

200

400

600

800

1000

1200

1400

1600

1800

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Jan'06

GSM CDMA

Subscribers

inMillion

Year Ended December


13/58

13

INDIAN GROWTH FUELLED BY INCREASED COVERAGE

249 421

918 1116

15751743

3076

5048

0

1000

2000

3000

4000

5000

6000

Dec'98 Jun'99 Nov'00 Apr'01 Sep'02 Sep'03 Dec'04 Dec'05

Number of Cities & Towns

Estimated that service providers will cover 5,000 towns by mid 2006

Ubiquitous coverage holds the key to future growth of mobile industry


14/58

14

AND CONTINUOUSLY IMPROVING AFFORDABILITY

Effective Tariffs 400 Minute Basket

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

Dec-0

0

Mar-01

Jun-01

Sep-0

1

Dec-0

1

Mar-02

Jun-02

Sep-0

2

Dec-0

2

Mar-03

Jun-03

Sep-0

3

Dec-0

3

Mar-04

Jun-04

Dec-0

4

USD

perminute

In last 3 years alone, effective local call cellular tariffs have plummeted by 80% fromUSD 0.06 / minute in December 2000 to USD 0.01 / minute in December 2004.During 2005, tariffs have declined further by ~ 37%

Source:TRAI Quarterly Performance Indicators, March 2005


15/58

15

INDIAN MOBILE INDUSTRY CURRENT STATUS 2006

133 state-of-the art Networks (GSM + CDMA) on Air: 91 on GSM

Total Investments ~ USD 15 billion

Nearly 85 million mobile subscribers (GSM + CDMA) end February 2006 with GSM accounting for ~80% of the subscribers base.

4-5 million new mobile phone subscribers added every month, Total adds in2005 ~28 million, showing growth of almost 60% in last 12 months

Services in ~ 5000 cities & towns & ~1 lakh villages

Fixed Mobile Crossover in October 2004, GSM Fixed Crossover in April 2005

Mobile the primary driver of growth, accounts for 7% tele density


16/58

16

GROWING SUBSCRIBER BASE

0

5

10

15

20

25

30

35

40

45

50

1999 2000 2001 2002 2003 2004 2005*

COAI-PWC Benchmarking Reports* COAI Estimates

Subscriber growth predominantly on the prepaid plank Allows even credit challenged subscribers to take advantage of benefits of

connectivity

Mobile connectivity a common feature amongst blue collar segment

Million

Prepaid

Postpaid


17/58

17

IMPROVED AFFORDABILITY

0.08

0.06

0.04 0.036

0.02

0.0125

0.0

0.0

0.0

0.1

0.1

0.1

2000 2001 2002 2003 2004 2005*

Blended Airtime Rate

US

D

/minute

COAI-PWC Benchmarking Reports*TRAI Report Dec-05

1USD=Rs. 44.3


18/58

18

GROWING MINUTES OF USE

175

204220

192

245

287

393

0

50

100

150

200

250

300

350

400

1999 2000 2001 2002 2003 2004 2005*

Minutes/Subscriber/Month

COAI-PWC Benchmarking Reports*TRAI Report on GSM


19/58

19

DECLINING ARPUS

29.3

26.1

18.416.5

11.48.7

8.2

0

8

16

24

32

1999 2000 2001 2002 2003 2004 2005*

Increased subscriber base accompanied by constantly declining ARPUs demonstrating the increased acceptance of mobile services amongst low

end consumers.

USD

/Subscriber/Month

1USD=Rs. 44.3

COAI-PWC Benchmarking Reports*TRAI Report


20/58

20

REDUCED OPEX PER SUBSCRIBER

22.4

19.1

10.2

7.46.5

4.73.6

0

10

20

1999 2000 2001 2002 2003 2004 2005*

Opex per subscriber brought down by 80% in last 5 years Result of better improved efficiency by operators as well as the benefits of

economies of scale

US

D/Subscriber

1USD=Rs. 44.3

COAI-PWC Benchmarking Reports* COAI Estimates


21/58

21

COMPOSITION OF NET SERVICE REVENUES

Airtime, 28%

Rentals, 13%

Activation &

Processing fees, 20%

Roaming Revenues,

12%

MS Revenues, 4%

Gross IUC Revenue,15%

Other Revenues, 3%

Other VAS, 5%

Airtime Rentals

Activation & Processing fees Roaming Revenues

SMS Revenues Other VAS

Other Revenues Gross IUC Revenue

Source: Price Waterhouse Benchmarking Study, December 2004

Roaming Revenues 12%; SMS Revenues 4%; Other VAS 5%


22/58

22

REVENUES FROM VALUE ADDED SERVICES

10%

8%

0%

2%

4%

6%

8%

10%

12%As a %age of Service Revenues

CLIP

12%

Others

34%

SMS

54%

SMS

83%

CLIP

0%

Others

17%

Postpaid

Prepaid

VAS Composition

Source: COAI-Price Waterhouse Benchmarkin Stud , December 2004

Prepaid subscribers are increasingly taking to value added services, Percentage of Revenuesfrom VAS for prepaid subscribers has gone up from 3% in 2003 to 8% in 2004.

Overwhelming proportion of this comes from SMS, which is the VAS of choice for prepaid

subs.


23/58

23

GROWTH IN VALUE ADDED SERVICES


24/58

24

REVENUES FROM VAS

Revenue from the VAS segment is growing at the rate of 30 to 40 percent

annually. At present, this segment accounts for 10 to 13 percent of the total revenue of

a service provider,

- Tim DeLuca Smith, Communications Manager, SmartTrust.

Market for mobile VAS is currently about USD 85 million and it is expected to grow

around 800 million by 2010.

- Arun Gupta, CEO Mauj Telecom

Daily downloads of around 1 million ringtones and ringback tones.

average cost: Rs 9 per ringtone.

During festive season the figures skyrocket..

This Diwali, there was a six fold increase in value added service

downloads, over a normal day.

Delhi circle alone saw 8.5 million SMSs being exchanged on Diwali

day as against 5.5 million last year.


25/58

25

REVENUE GENERATED FOR OPERATORS FROM VARIOUS APPLICATIONS

0.07-0.14/minute,voice + transactioncharges

IVRS

25-50%141.13-3.39Games

50-60%140.23Wallpapers

50-60%70.14-0.34CRBT

80-90%50.07/MMS; 2.23

unlimited for 1 month

2.5G Messaging

70-75%500.05 0.232G P2A/ A2P

90%1,1000.02 0.112G SMS

Operator RevenueShare

Estimated monthlydownloads

(in million)

Charges

(in USD)

Application

Source: Global Equity Research1USD=Rs. 44.3


26/58

26

REVENUES FROM SMS

SMSVolumesinbillion

Source: Portio Research

12.320.6

33.1

50.7

89.4

140.2

180

0

20

40

60

80

100

120

140

160

180

200

2004 2005 2006 2007 2008 2009 2010

Expected to grow in the next five years due to

falling prices,

increasing mobile penetration,

widening user demographic and

increasing number of SMS based services.


27/58

27

CONSUMER AWARENESS FOR DATA SERVICES IN INDIA

Source: Portio Research

4

5

7

10

27

62

76

90

0 20 40 60 80 100

MMS

M-banking

Data Services

Instant Access

Email

Call Waiting

Voice Mail

Roaming


28/58

28

INDIAINDIAS PLACE IN ASIA PACIFICS PLACE IN ASIA PACIFIC


29/58

29

ARPU

0

5

10

15

20

25

30

35

Malaysia Philippines Indonesia Thailand China Singapore Australia India

ARPU Average

INDIA ARPUs well below Asia Pac average Market driven by volumes not margins

USD

COAI PWC Benchmarking Study, December 2004


30/58

30

MINUTES OF USE

0

50

100

150

200

250

300

350

Malaysia China Singapore Australia India

ARPU Average

INDIA One of the most talkative markets in the region Increased use a direct result of affordability of service

Minute

s/Subscriber/Month



31/58

31

COST OF CUSTOMER ACQUISITION

0

20

40

60

80

100

120

Malaysia Philippines Indonesia* Thailand* Singapore Australia India

Cost of Customer Acquisition

Average

INDIA One of the lowest costs of customer acquisition in the region

USD

* For the year 2002



32/58

32

MONTHLY CHURN

2.0%

6.7%

1.9%

1.0% 1.2%1.5% 1.4%

8.0%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%


INDIA The highest Churn in the Asia Pac Region demonstrating existence of an

intensely competitive & vibrant mobile market



33/58

33

BAD DEBTS AS A % OF NET SERVICE REVENUES

1.3%

1.6%

0.9%

3.1%

2.8%

1.1%

3.0%

0%

1%

1%

2%

2%

3%

3%

4%

Malaysia Philippines Thailand China Singapore Australia* India

INDIA Bad Debts above Asia Pac averages; need to be brought under control



34/58

34

EBITDA

INDIA Lowest EBITDA in Asia Pac Region; Combined effect of lowest tariffs & highest

costs

0%

10%

20%

30%

40%

50%

60%

70%


0

10

20

30

40

50

60

EBITDA Average



35/58

35

PAST PERFORMANCE AND FUTURE AHEADPAST PERFORMANCE AND FUTURE AHEAD


36/58

36

Convergence of Tariffs and Growth of mobile services

Mobile growth and effective charge per minute

Steps taken for increasing growth

0.901.18

13.00

33.60

89.54

52.17

0.88 1.20 1.883.58

6.500.00

2.00

4.00

6.00

8.00

10.00

12.00

14.0016.00

18.00

Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06

Effectivecharge(inRs.permin.)

0

10

20

30

40

50

60

70

8090

100

Mobilesubscribe

rbase(inMillion)

Fixed (Rs./min.) Full Mobile (Rs./min)Limited Mobile (Rs./Min) Mobile Subscriber base (Millions)

NTP '99

Telecom

Tariff Order

3rd & 4th

cellular

operator

CDMA

introduced

CPP

introduced

Lowering of ADC

from 30% to 10%

of sector revenue


37/58

37

Falling ARPU vs. Rising Subscriber Base

29.7725.12

19.95

10.59 9.19 7.90

1.883.58 6.5

33.6

51.57

89.54

14.31

13

0

10

20

3040

50

60

7080

90

100

Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06

ARPU(in $) Subs. in (Mn)

* ARPU of March-06 are Estimated

U b /R l i i di t ib ti f h h ld


38/58

38

Urban/Rural income-wise distribution of households

Income Group Rural Households Urban Households

Lower 60 (43.48%) 10 (18.52%)

Lower Middle 56 (40.58%) 20 (37.04%)

Middle to High 22 (15.94%) 24 (44.44%)

Total 138 (100%) 54(100%)


39/58

39

Effect of CPP Regime

Additions in Mobile

0

500

1000

1500

2000

2500

Feb-

03

Mar-

03

Apr-03 May-

03

Jun-03 Jul-03

Thousand

s

!!

"#$%&'

CPP Introduced


40/58

40

DECLINING ARPUS

29.3

26.1

18.4

16.5

11.4

8.78.5

7.06.5

6.05.0

0

8

16

24

32

1999 2000 2001 2002 2003 2004 2005* 2006* 2007* 2008* 2009*

Increased subscriber base accompanied by constantly declining ARPUs demonstrating

the increased acceptance of mobile services amongst low end consumers. To achieve the

required growth, the focus will shift to villages with low teledensity, and ARPU will be

going sub $5 mark I next few years.

USD

/Subscriber/Mon

th

1USD=Rs. 44.3

COAI-PWC Benchmarking Reports* Estimates


41/58

41

Past Growth and future Expectations

0

2

4

6

8

10

12

14

16

Mar-05

Jun-05

Sep-05

Dec-05

Mar-06

M

illions

0%

10%

20%

Growth % Growth (")$&'"%(")$&'"%*+"*+"

!,(&,$"!,(&,$"

-**.*//-**.*//..00

112+'+2+'+

Growth (Estimates)


42/58

42

Growth (Estimates)

%&

1

13"#,%"#,%

-4

43

'

5#&

0

50

100

150

200

250

300

350

2003 2004 2005 2006 2007 2008 2009 2010

M

illions

! #


43/58

43

!" #

0

5

10

15

20

25

30

35

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Urban Rural Total

Tele

de

ns

ity

(% )


44/58

To bridge the Urban-Rural divide, Cost to Serve the Rural area should be reduced

Enhancement of Rural Density

0.90.70.5 1.21.5 1.7 1.74 1.942.3

2.9 3.6 4.3 5.1

7.049.08 9.86

6.98.2

10.412.2

14.3

21.3

26.2

31.1

0

5

10

15

2025

30

35

1999 2000 2001 2002 2003 2004 2005 Jul-05

Rural Total Urban

Source: TRAI


45/58

45

0

10

20

30

40

50

60

70

80

90

Q120

01

Q220

01

Q320

01

Q420

01

Q120

02

Q220

02

Q320

02

Q420

02

Q120

03

Q220

03

Q320

03

Q420

03

Q120

04

Q220

04

Q320

04

Q420

04

Q120

05

Q220

05

Q320

05

Q420

05

Impact of CDMA on IndiaImpact of CDMA on Indias Wireless Industrys Wireless IndustryTariffsTariffs

Rs.4.00/min.Rs.4.00/min.Voice TariffsVoice Tariffs

83 million net wireless sub adds since83 million net wireless sub adds since

competition from CDMA Limited Mobility was introducedcompetition from CDMA Limited Mobility was introducedSources: TRAI study


CDMA Limited MobilityCDMA Limited MobilityIntroducedIntroduced

with competitivewith competitiveService OfferingsService Offerings

Subscribers(Millions)



46/58

46

FUTURE GROWTH POTENTIAL


47/58

47

Urban population -Indian Census 2001: Agewise

distribution

0 50 100 150 200 250 300 350

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

AgeGroup

Population in lac

8!,,

7"#%1#5)45!,,"5/;",!#


48/58

48

The next generationThe next generation People born in 1980People born in 1980s & 90s & 90ss

Majority of these young people will be in their early twentiesand thirties in the next ten to fifteen years

General profile of next generationGeneral profile of next generation

Just started working or would start in near future

Single or just married with high disposable incomes High Lifestyle Aspirations


49/58

49

!"#$%

& &

&

'()& '() '() '() '()

*"+,+ +-, ."-

/0""10-,2!#$%

Growth has been accelerating in each decade Industry + services (78% of GDP) growing at +8% Impact of agriculture on overall growth is steadily reducing

Per capita income has grown by 7% CAGR over the past decade and is projectedto cross $1,000 by the end of the decade


50/58

50

Break up between Basic and Non Basic Household Expenditure

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

Basic Non-Basic

Moving away from basic necessities

Aspirations given wings by higher Disposable Incomes have changed consumptionpatterns

Decrease in outlay on basic: 16%

Increase in non-basic items: 39%

SUBSCRIBER BASE & MOBILE PENETRATION


51/58

51

SUBSCRIBER BASE & MOBILE PENETRATION

14

32 29 27

316

418

48

58%

36%

12%

40%

25%

92%88%

4.50%0

50

100

150

200

250

300

350


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%Subscriber Base

Mobile Penetration

INDIA 2nd largest market in Asia Pac, in absolute terms With a mobile tele density of only 4.5% (now 6%) the one with the highest untapped

potential

Million


FUTURE SUBSCRIBER GROWTH


52/58

52

FUTURE SUBSCRIBER GROWTH

764831Sub (MLN) Actual

471377290207130814828Sub (MLN) Projected

2010201020092009200820082007200720062006200520052004200420032003IndiaIndia

27920714585432413.26.8Subs (MLN)

2003200320022002200120012000200019991999199819981997199719961996ChinaChina

161615154141131312121111101099YearYear

0

100

200

300

400

500

9 10 11 12 13 14 15 16

China COAI Projections Actual

Million

Year Ended December


53/58

53

The tariff driversThe tariff drivers


54/58

54

,, !!!!0!!0

!!!!

65!,!65!,!!!!!!!!!!'!'!!

Shift in tariff paradigms of cellular services


55/58

55

p g

3:9!,#,,3:9!,#,,,!$,!$

)("!#,",",$)("!#,",",$.,!",/.,!",/

("


56/58

56

What s next

$!78,!$!78,!

*!'!*!'!!!

!!!,!!,!

4!$'4!$'

9!:4!33959!:4!3395 9!9! 1.+$1.+$ ,,

$$ ;; ;!,;!,


57/58

57

p g

3:9!,#,,3:9!,#,,,!$,!$

)("!#,",",$)("!#,",",$.,!",/.,!",/

("


58/58

58

Thank you.Thank you.

S D SaxenaS D SaxenaDirector (Finance), Bharat Sanchar Nigam LimitedDirector (Finance), Bharat Sanchar Nigam Limited

+91 11 23714141

[email protected]

doc 2 paradigm shift saxena

Documents