sample report telecom industry

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Analysis of

Telecom

Industry

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• Industry Review : 3• Pre-paid vs Post-Paid : 15• GSM vs CDMA : 19• ARPU : 33• MOU : 36• Fixed Services : 41• Industry Structure : 48• Demand and Revenues Outlook : 79• Growth Outlook : 101• Market Dynamics : 119• Pricing and MOU : 148• Investments : 161• Technology View : 175• Growth Projections: Summary : 183• Player Profiles : 191

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Industry review

Mobile services

Subscriber base

Initial years of mobile telecom services saw steep tariffs and low demand

•Mobile telecom services were introduced in India towards the end of 1995.

•During the initial years, mobile tariffs were high as a consequence of the large licence

fee commitments and capital expenditure requirements of service providers. On the

other hand, demand during this period was low.

•In March 1998, only 0.88 million mobile subscribers existed in the country. More than

half of these were from the Delhi and Mumbai circles.

NTP 1999 transformed the scenario and growth accelerated from 1999 to

2003•The National Telecom Policy (NTP), 1999, changed the scenario, with the industry shifting from a fixed licence fee regime to a revenue share regime, thus encouraging more players to enter the market.•In 1999-2000, the mobile services industry gathered pace, adding 0.7 million customers to its base. Growth accelerated in 2000-01 as service providers added another 1.7 million customers. •In 2001-02, net additions of the industry increased to 2.9 million and further to 6.7 million in 2002-03.•In 2002-03, Bharat Sanchar Nigam Ltd (BSNL) launched its services as the third operator across many of the circles.•The launch of services by the fourth operator led to a decline in tariffs, which drove growth and consequently, the total number of mobile subscribers climbed to 13.8 million in March 2003.

Net additions took on a new turn in 2003-04

•With over 20 million subscribers joining the rolls, 2003-04 saw growth moving into a

new phase altogether.

•Two key events: implementation of the Calling Party Pays (CPP) regime in May 2003

(making incoming calls free) and the launch of services by Reliance Infocomm drove

this stage of development.

•The CPP regime brought more low-usage customers into the mobile telephony fold.

Reliance Infocomm, with low priced schemes like Monsoon Hungama, further

lowered the entry barriers for mobile services.

•By the end of 2004-05, total mobile subscriber base outnumbered total fixed

subscriber base. Ratio of fixed to mobile, which was 0.7 in 2004-05, came down to 0.4

in 2005-06.

Net additions took on a new turn in 2003-04•In 2004-05, the mobile industry added 21.4 million customers. •This net additions figure was lower than that seen in 2003-04, partly because about 1 million subscribers were disconnected by Reliance Infocomm (after checks for credit•worthiness and customer verification), and partly because there were no significant growth triggers during the year. •Total mobile subscriber base overtook the total fixed line subscriber base for the first time making the year momentous. •By the end of the year, total mobile subscriber base touched 56.97 million.In 2005-06, the total telecom subscriber base increased by 43.6 million and reached 140.4 million. During 2005-06, mobile subscriber base went up by 43.5 million subscribers whereas fixed services added 0.13 million subscribers during the period. The launch of theÃ¢Â?Â?2-year incoming freeÃ¢Â?Â? and Ã¢Â?Â?lifetimevalidityÃ¢Â?Â? schemes by Tata Teleservices' led mobile net additions to exceed the 4-million mark.

Per month net addition surpass the 6 million mark in 2006-07

•In 2006-07, total telecom subscriber base went up by 66.5 million and reached 206.8

million. In June 2006, the government came out with a policy wherein fixed wireless

subscribers were included under the mobile segment.

•According to the new policy, only fixed wireline is considered in fixed telephony

segment. Therefore, the total wireless segment (mobile plus fixed wireless) went up

by 67.2 million subscribers to touch 166.05 million in March 2007 and further

increased by 19.08 million to reach 185.13 million in June 2007.

•Fixed wireline continued its previous year's trend and declined by 0.8 million to

reach 40.8 million in March 2007.

•In 2006-07, average monthly total subscriber net addition stood at 5.7 million.

Mobile subscriber base witnesses a surge in 2008-09

•The mobile subscriber base added 131 million subscribers in 2008-09, to reach 392

million at the end of 2008-09, registering a growth of 50 per cent over 2007-08.

•Buoyed by new player launches and expansion of existing players, monthly

subscriber additions crossed the 15 million mark for the first time in January 2009.

Price wars drive subscriber growth in 2009-10 and 2010-11

•The year 2009-10 witnessed a spurt in subscriber additions, driven majorly by cheap

tariffs and ever-increasing cellphone affordability.

•The cellular subscriber base swelled to 584 million, a growth of 49 per cent y-o-y.

•In a bid to overcome competition, operators launched lucrative schemes which led to

a drastic reduction in cell-phone tariffs.

•Tata Teleservices launched its GSM services in mid 2009.

•It caused an upheaval in the telecom industry by offering its unique Ã¢Â?Â?per-

second billingÃ¢Â?Â? plan compelling others to follow suit. Initiating a fresh round

of price war, it offered services at rates as low as one paisa per second.

Price wars drive subscriber growth in 2009-10 and 2010-11

•With tariffs hitting rock-bottom and operators expanding their rural reach, another

230 million customers were added in 2010-11 taking the outstanding subscriber base

to 811 million at the end of March 2011.

•The B and C circle states accounted for about 55 per cent of the total net additions in

2010-11.

•These states have a high proportion of rural population and are fairly under-

penetrated. Rural population in B circle states is about 75 per cent and about 80 per

cent in circle C states, with teledensity ranging between 50-60 per cent as of March

2011.

All India mobile subscriber base

Yearly net additions

All-India mobile subscribers

Pre-paid Vs Post-Paid

Prepaid vs postpaid

•Mobile subscribers are classified into prepaid and postpaid subscribers.

•While postpaid subscribers pay for the usage of mobile services at the end of the

billing period, prepaid subscribers pay a fixed amount upfront for which they get talk

•time valid until a certain date.

•Between 1999-2000 and 2003-04, the number of postpaid subscribers, as a proportion

of total global system for mobile communication (GSM) subscriber base, witnessed a

sharp decline. In 2004-05, the number of postpaid subscribers increased for the first

time, which is believed to be a result of aggressive cut in rentals on postpaid services

by many operators.

•This was reflected in the sharp decline in postpaid average revenue per user (ARPU)

in 2004-05. In 2005-06, the share of postpaid subscribers went down again to 13 per

cent but picked up in 2006-07 to reach 16 per cent.

Prepaid vs postpaid

•On the other hand, the share of prepaid subscribers climbed up from 81 per cent in

2005-06 to 87 per cent in 2006-07.

•This upward trend of subscribers in the prepaid segment was an outcome of the re-

launch of lifetime validity prepaid scheme by various mobile network operators,

available at a minimum charge of Rs 495 as against Rs 999 in 2004-05.

•Further in 2008-09, the minimum charge of lifetime validity prepaid schemes

dropped to Rs 99, as against a minimum charge of Rs 199 in 2007-08.

•With growing competition in the industry, service providers were forced to bring

down initial subscription costs.

•While Airtel slashed the lifetime subscription cost to Rs 99, Reliance Communications

brought this further down to Rs 25-49 at the time of its GSM launch.

Prepaid vs postpaid

•The share of prepaid subscribers in the GSM segment rose from 91 per cent in 2007-08

to 95 per cent in 2009-10 and further to 97 per cent in 2010-11.

•Likewise, the share of prepaid subscribers in the CDMA segment moved up to 94 per

cent in 2009-10 from 91 per cent in 2007-08.

•It remained at 94 per cent in 2010-11.

•Over the last 5 years, the growth in prepaid segment has outpaced the growth in the

postpaid segment.

•While prepaid subscribers have grown at a CAGR of 81 per cent, postpaid

subscribers have grown at 37 per cent.

GSM and CDMA

Break up of GSM subscriber base

Break up of CDMA subscriber base

Circle-wise trend

Subscriber base by category of circle

Total mobile subscribers in each circle

Circle-wise trend

Mobile subscriber base

Proportion of net additions by mobile operators

Proportion of net additions by mobile operators

•Mobile services were first launched in the metros. Hence, in the first 2 years of

operation, the metro circles accounted for almost the entire mobile subscriber base

and net additions.

•Herein, Delhi and Mumbai accounted for the largest chunk.

•However, with metros and urban areas nearing saturation and operators fast

expanding their rural footprint, the share of metros in the total net additions plunged

from 23 per cent in 2004-05 to 11 per cent in 2010-11.

•The share of semi-urban and rural areas, represented largely by the B & C circle

states, has been increasing gradually.

•Together, they accounted for about 55 per cent of the total SIM additions in 2010-11,

as against 42 per cent in 2004-05.

Mobile penetration by states

•Mobile penetration, or mobile teledensity, is the percentage of population owning a

mobile phone. As of May 2011, the wireless teledensity stood at 70 per cent,

significantly up from 52 per cent in May 2010.

•While the urban tele-density was as high as 154 per cent as of May 2011, the rural

teledensity stood at 34 per cent.

•Nevertheless, sustained efforts have been made by the government to improve the

rural teledensity by providing subsidy support for mobile towers in rural areas

through the Universal Service Obligation Fund (USOF).

Mobile service penetration in India as of March 2011

Mobile service penetration in India as of March 2011

•In India, the mobile teledensity varies significantly with different circles.

•As of March 2011, the latest quarter for which data on circle-wise teledensity is

available, Delhi has the highest teledensity followed by Himachal Pradesh while Bihar

•and Assam circles have the lowest teledensity. Broadly, the relative teledensity in

different circles corresponds to the per capita gross domestic product (GDP) in the

circle. Higher per capita GDP states have a higher penetration and vice versa.

Subscribers by technology

•As GSM was the more widespread technology worldwide, regulators decided to

adopt GSM as the technology in India.

•Thus, all mobile licencees had to base their service on GSM technology.

•In 2001, basic service operators were given permission to provide limited mobility

services based on code division multiple access (CDMA) technology.

•However, the limited mobility services were more or less competing directly with

•fully mobile services.

•This led to disputes between mobile operators and basic service operators,

hampering investments and growth in the sector.

Subscribers by technology

•Subsequently, to put an end to this dispute, the Telecommunications Regulatory

Authority of India (TRAI) introduced the Unified Access Service Licence (UASL) in

November 2003, wherein a UASL licensee can provide access services based on any

technology.

•The basic service operator can convert to UASL by paying the fees required.

•All the basic service operators providing limited mobility services converted to UASL

and are now providing mobile services based on CDMA technology.

•The GSM mobile subscriber base has increased at a CAGR of 60 per cent from 26

million in March 2003 to about 698 million in March 2011.

•GSM subscribers accounted for around 86 per cent of the total mobile subscriber base

in India at the end of March 2011.

Technology-wise mobile subscriber base

Average revenue per user (ARPU)

All India ARPU

•Over the last 7 years, blended (weighted average of prepaid and postpaid) ARPU has

declined at a CAGR of 20 per cent, from Rs 469 per month in 2003-04 to Rs 100 per

month in 2010-11, driven by the fall in local mobile tariffs and decline in domestic and

international long distance tariffs.

•The fall in tariffs was the outcome of implementation of CPP regime, increase in the

proportion of prepaid subscribers and rising competitive intensity.

•From 2003-04 to 2010-11, while the postpaid ARPU has declined by 9 per cent per

CAGR; prepaid ARPU posted a drop of 16 per cent. Postpaid ARPU, however,

increased on a y-o-y basis in 2010-11. It rose by 12 per cent to Rs 564.

All India ARPU of GSM operators

Minutes of use (MoU)

•The blended (weighted average of prepaid and postpaid) minutes of use has

registered an increase of 11.2 per cent CAGR from 218 minutes in 2001-02 to 457

minutes in 2008-09.

•However, in 2009-10 and 2010-11, minutes declined by close to 14 per cent. As

cellular operators widen their reach in rural and semi-urban areas, the proportion of

low-end users has been increasing resulting in lower usage.

•Also, the increasing competitive intensity has led to a steep decline in mobile tariffs

prompting users to buy multiple SIMs as operators unleash innovative schemes.

•The multiple SIM phenomenon has led to minutes splitting between multiple

subscribers.

Minutes of use (MoU)

•However, the multiple SIM phenomenon has begun to taper off as net additions are

diminishing and minutes are stabilising. Prepaid MoU grew at a higher CAGR of 24.4

per cent between 2001-02 and 2008-09 to reach 411 minutes, whereas postpaid MoU

stood at 1,009 minutes in 2008-09, having increased by a CAGR of 15.7 per cent over a

period of 7 years

•However, in 2009-10, prepaid as well as postpaid MoU declined by 11 per cent and 7

per cent, respectively.

•In 2010-11, while prepaid MoU continued to decline, postpaid MoU rose marginally.

•It can be observed that, post the implementation of the CPP policy in May 2003, the

2003-04 numbers for blended MoU reflected a significant rise.

All India Minutes of Use (MOU) of mobile services

Fixed Services

Fixed services

•The total number of fixed services connections in India increased from 5.81 million in

1991-92 to 40.8 million in 2006-07.

•Between 1999-2000 and 2001-02, about 5 to 6 million fixed line customers were added

per year.

•However, with the drop in mobile tariffs and increase in coverage of mobile services,

fixed-line net additions fell significantly in 2002-03 to 2.5 million. In 2003-04 and 2004-

05, fixed services added only 0.4 and 0.5 million subscribers, respectively.

All India total fixed subscriber base

All India total fixed subscriber base

•From 2006-07 onwards, this segment has been witnessing a declining trend in its

subscriber base.

•The fall in the fixed segment can be attributed to the migration of fixed-line

subscribers to the rapidly growing mobile segment. At 35 million, fixed subscriber

base declined by 6.1 per cent y-o-y.

Yearly net additions

All India fixed subscribers

The rural wireline subscriber base too continued its downtrend. It declined from 10

million in March 2010 and settled at 8.7 million at the end of March 2011.

Fixed wireline subscriber base :Rural market

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Industry structure

Industry structure

•Telecommunication services in the local, long distance and international long

distance categories were initially the monopoly of government-owned organisations.

Mahaganar Telephone Nigam Ltd (MTNL) provided fixed (basic) services, BSNL

provided fixed (basic) and domestic long distance services, while Videsh Sanchar

Nigam Limited (VSNL) provided international long distance services.

•Factors such as the need for development of telecom infrastructure for economic

development and the government's financial constraints in meeting the resource

needs of the sector led the Central government to open the sector to private

participation.

•As a result, in the mobile services segment, private sector participation was allowed

from the advent itself, while other services were opened up subsequently.

Mobile services

Inception of mobile services

•In 1994, the government initiated the process of opening up the telecommunications

industry by inviting bids from private operators to provide cellular services in the

four metropolitan cities.

•The cellular industry was initially envisaged as a duopoly and thus the government

invited bids for two licences for each of the circles.

•Metro cellular licences were issued in November 1994 and operations were started in

August 1995. Modi Telstra (now Spice Communications) launched the first cellular

services in India on August 23, 1995 in Kolkata.

•The process of launching mobile services in the non-metro circles began in 1994-95.

Mobile services


•During January 1995, the government invited tenders from private operators to

provide cellular services in 18 circles, excluding the four metropolitan areas.

•The circles were classified into three categories (‘A' through ‘C'), based principally on

their revenuegenerating potential; Category A circle had the highest revenue

potential.

•The government issued 34 licences for 18 service areas to 14 companies during 1995-

1998.

•The licences were initially granted for 10 years.

•The government extended the licence period from 10 years to 15 years in October

1998 for the non-metro circles.

Mobile services


•Although both metro and non-metro circle licences were awarded on the basis of

tenders, the terms of both these tenders and licences were different in certain respects.

The most important differences were in the selection criteria and the licence fee

structure.

•With effect from June 2006, the government of India included the fixed wireless

services under the wireless segment.

•Therefore, the wireless segment now comprised GSM, CDMA and fixed wireless.

Selection criteria

•The key selection parameter for an operator in the metros was based on the lowest

rental proposed to be charged from subscribers (with licence fee and call charges as

given parameters), whereas in terms of the non-metro circles, the selection parameter

was the highest licence fee quoted by bidders.

•In the metros, the evaluation of bidders was on the basis of their experience, financial

strength, committed rollout and the proposed rental.

•The evaluated value of lowest rental was determined at Rs 156 per month.

•The selected operators were as under:

Selected operators – Metros

Selected operators – Metros

•In the non-metro circles, licences were issued on the basis of highest licence fees

quoted by the operators.

•The bidders selected were asked to match the highest licence fee quoted by the

highest bidder.

•In case the highest bidder was unable to accept the licence for a particular circle due

to restriction on the number of circles that can be allotted to one bidder, the licence

fees quoted by this bidder was the benchmark for awarding the licence to other

bidders.

The selected bidders and the licence fees quoted by them for the non-metro circles

were as follows:

Selected bidders (1st and 2nd operators) – Non-metro circles

Licensing fee structure

•In the metro circles, licence fee for the first 3 years was fixed, while from the fourth

year onwards, Rs 6,023 per subscriber per annum was charged, subject to an amount

varying between Rs 60-180 million for different circles.

•For calculating the licence fee from the fourth year onwards, the average number of

subscribers was considered (number of subscribers at the end of each month were

added for all the months of the year and divided by the number of completed

•months).

Minimum licence fee schedule for metros

Minimum licence fee schedule for metros

•For non-metro circles, the bidders were required to quote the total licence fees to be

paid in yearly instalments for the 10- year licence period.

•The annual payout had to be such that the instalment for the years 6 to 10 equalled

1.2 times the amount payable for the first 5 years.

•Thus, the total licence fee was 11 times the first year's payment. National Telecom

Policy changed the face of the industry

Selected bidders (1st and 2nd operators): Non-metro circles

Category – B circles

Category - C circles

Category - C circles

In March 1999, the government announced the National Telecom Policy (NTP) 1999

that brought about significant changes to the structure of the cellular industry. The

major announcements of the NTP 1999 were as follows:

• Fixed-line and cellular service providers could migrate from a fixed licence-fee

regime to a revenue-sharing arrangement.

• Third cellular operator licence to be issued to BSNL and MTNL in the service areas

where they were offering fixed-line services.

• Entry of an additional private cellular operator in all the circles.

• Extension of licence period to 20 years for metros and non-metro circles (extendable

by additional periods of 10 years thereafter).

Migration from fixed licence-fee regime to revenue-sharing regime

In July 1999, private telecommunication operators were offered the option to change

the basis of licence fees payment, from a fixed amount to a share of revenues.

However, these concessions were subject to operators accepting a set of conditions.

These included the following:

• The existing cellular operators had to clear all their outstanding dues by January

2000, as a pre-condition for changing the basis of determining the licence fees from

fixed to a revenue share model (with effect from August 1999).

• The clause relating to the exclusivity of licence was removed from the new licence

agreement (hence, more operators could be provided licences to offer cellular services

going forward).

Migration from fixed licence-fee regime to revenue-sharing regime

•All private telecommunication operators accepted the terms of migration to a

revenue sharing arrangement.

•For the existing cellular operators, the licence fee paid till July 1999 was treated as an

entry fee.

•From August 01, 1999, the new licence fee structure was implemented.

•The provisional licence fee was fixed at 15 per cent of gross revenues (as determined

according to the licence agreement with the DoT) for all categories of circles.

•In September 2001, the DoT changed the licence fees payable by the existing or future

cellular service providers to 12 per cent of adjusted gross revenues (AGR) in

metropolitan areas and category A circles, 10 per cent in category B circles and 8 per

cent in category C circles.

•The licence fees were effective with retrospective effect from January 26, 2001.

Third and fourth cellular licences•The government allotted the third cellular operator's licence to MTNL in Mumbai and Delhi, and to BSNL for the rest of India. MTNL commenced its cellular services in its circles in February 2001. BSNL commenced cellular services in Kolkata, Tamil Nadu and Bihar in July 2002. In the remaining circles, it introduced cellular services in November 2002.•In October 2001, the government issued licences (corresponding to the fourth operators' slot) to successful bidders for cellular services. •Licences were issued to the Bharti Group in eight circles, Escotel in four circles, Hutchison Essar in three circles, and Reliance (through Reliable Internet) and Idea Cellular in one circle each. •The entry fees for the fourth cellular licence in the four metros and 13 circles aggregated Rs 16.33 billion, with the highest fees being quoted for the Karnataka circle at Rs 2,060 million. Almost all operators holding the fourth cellular licencecommenced services during 2002-03.

Fourth cellular licence (entry) fees

Limited mobility services

•Limited mobility is provision of mobile services within a short distance calling area

(SDCA) and has reduced features compared to cellular services.

•These service providers used the CDMA-based wireless in local loop (WLL) platform

for providing mobility services. Under limited mobility service, the important

‘roaming' feature is not available.

•After a long tussle between basic and cellular service providers over the introduction

of limited mobility services, the Telecom Dispute Settlement Appellate Tribunal gave

the final go-ahead to the introduction of limited mobility service by basic phone

companies.

•With effect from June 2006, the DoT included WLL services under wireless service

Unified access licensing regime

•Limited mobility services competed almost directly with mobile services, on account

of two reasons: first, only a small proportion of the mobile subscribers used roaming

services and second, one of the operators provided features like call forwarding and

multiple registration, which effectively resulted in the subscriber getting roaming

facility.

•As the licence fees paid by limited mobility providers (the basic service operators)

was substantially lower than that of the cellular providers, they could offer cheaper

rates. This led to a litigation between the erstwhile cellular service providers and the

basic service providers.

•The disputes resulted in operators, particularly GSM operators, holding back their

•investment plans and thus hampering the growth of the industry.

Unified access licensing regime

•In November 2003, the government ended this dispute by introducing the Unified

Access Service Licence (UASL).

•A UASL operator is free to provide access services based on any technology.

According to the guidelines of the UASL, a basic operator can migrate to UASL in any

circle by paying the difference between the entry fees paid by the fourth cellular

operator and the entry fees paid by him.

•The cellular licencees do not have to pay any additional money to migrate to UASL.

Reliance Communications and Tata Teleservices migrated to UASL soon after UASL

was implemented by paying the prescribed entry fee of Rs 15.42 billion and Rs 5.45

billion, respectively to the government, and started offering fully mobile services to

subscribers.

Fixed/basic services

•In June 2006, the DoT changed the definition of fixed segment, where it included only

the fixed wireline segment.

•The fixed wireless segment would not be included in the fixed segment as it has

become part of wireless service.

•Basic services were a state monopoly till 1995. MTNL provided fixed line services in

Delhi and Mumbai, while BSNL provided services in the rest of India.

•The process of deregulation of fixed-line telephony services in India began in June

1995, when the first round of bidding was held for 21 telecom circles (each telecom

circle roughly corresponds to a state of the Indian Union).

•Two further rounds of bidding were completed in January and April 1996,

respectively, resulting in private fixed-line telephony operators being licensed in six

circles.

Fixed/basic services

•The response from the private sector to the auctions was far below expectations,

•as the licence fees payable were quite steep, meaning a long payback period.

•The NTP 1999 envisaged the opening up of basic telephone services to unrestricted

competition.

•The government also decided to switch from the fixed licence-fee regime to a

revenue-sharing arrangement linked to the operators' gross annual revenues.

•In January 2001, the government opened up the fixed-line telephone services segment

to unrestricted competition. Any operator who met the eligibility requirements

(discussed in the policy chapter) and paid the entry fees could register and start

operations.

National long distance

•NLD services were a state monopoly until mid 2002, with BSNL being the sole

provider of national long-distance services.

•The NTP 1999 envisaged the opening up of the national long-distance market to

private players.

•Subsequently, the government decided to open up the NLD segment to competition

without any restriction on the number of players from August 2000.

•In 2002-03, the sector witnessed some serious competition as Bharti Airtel Ltd

aggressively slashed NLD prices. In 2005-06 again, the competition heated up in the

segment with the introduction of One India plan.

•Under the One India plan, call from anywhere to anywhere in the country is charged

at Rs 1 per minute.

National long distance•MTNL dropped its intra network fixed line call charge between Delhi and Mumbai to Rs 1.20 for a 3-minute call effective from June 1, 2006.•Currently, apart from the incumbent BSNL, Bharti Airtel Ltd, Reliance Communications Ltd and VSNL are providing NLD services. •While BSNL, Bharti Airtel Ltd and Reliance Communications Ltd have an extensive pan-Indian optic fibre cable (OFC) network, VSNL has laid fibre only to connect key cities.•During 2006-07, some of the domestic and international companies received NLD licences. Indian companies include Power Grid Corporation of India Ltd, Shippingstop Dot Com (India) Pvt Ltd, HCL Infinet Ltd, Hughes Communications,•Tulip IT Services Ltd, i2i Enterprise Ltd., MTNL, RailTel Corporation of India and Oil India Ltd, Tata Teleservices, Spice Telecom, Hutchison-Essar (now Vodafone-Essar), Sify Communications, Idea Cellular, Dishnet wireless. •AT&T Global Network Services India Pvt Ltd and British Telecom are the International companies who received NLD licence.

International long distance

•State-owned VSNL had the only ILD licence in India till April 2002.

•The NTP 1999 envisaged the opening up of the International long-distance service to

the private operators by 2004.

•The government later decided to open the international long-distance service without

restrictions on the number of operators from April 1, 2002 onwards.

•Thus, the monopoly of VSNL came to an end. Data Access, Reliance Communications

and Bharti Airtel (erstwhile Bharti Televentures) applied for licences and received

them shortly after the government issued the detailed guidelines and licence

conditions in January 2002.

•In November 2005, the government eased licence fee norms for the ILD segment and

slashed the entry fee from Rs 250 million to Rs 25 million. .

International long distance

•The government also changed the revenue share from 15 per cent of aggregate gross

revenue (AGR) to 6 per cent of AGR.

•Data Access and Bharti commenced ILD operations in July 2002, while Reliance

Communications commenced its ILD operations in late 2003. BSNL and MTNL also

obtained their ILD licences.

•With India possessing a lucrative market for ILD services, some of the international

as well as domestic players are seeking licences to start ILD operations in India.

•In April 2007, international telecom major AT&T Global Network Services India

launched its ILD services in the country where it is planning to offer international

voice and data services to multinational enterprises in India.

•Other companies that bagged ILD licences included Tulip IT Service Ltd, Cable and

•Wireless Ltd., Spice Telecom, British Telecom and Sify Communications Ltd

79

Demand and Revenues outlook

Review

Strong subscriber growth continues to expand wireless base

•The telecom services sector has grown at a rapid pace in the last 5 years, largely on

the back of robust growth in the mobile services segment.

•In 2009-10, mobile subscriber base shot up to 584 million from 57 million in 2004-05,

•translating to a tele-density of around 50 per cent at the end of March 2010.

•Post 2006-07, mobile subscriber net additions moved along a completely different

growth trajectory.

•While the industry added 95 million subscribers in 2007-08, net additions were an

astounding 193 million in 2009-10.

•Net additions further accelerated in the first 11 months of 2010-11 with service

providers cumulatively adding 207 million subscribers averaging around 18.8 million

monthly additions.

Total mobile subscriber base

Rising dominance of circle B and circle C

•The subscribers in circle B and circle C states accounted for over 50 per cent of the

total wireless base.

•There has been a noted increase of about 200 bps in the subscriber share of these

circles as a proportion of the total base.

•These circles have seen a strong subscriber growth to the tune of 10.5-11.0 per cent

CAGR in the last 6 quarters.

•Circle B and C are comprised largely of rural population (circle B - 75 per cent and

circle C - 85 per cent) and have low tele-density of 40-50 per cent as on September

2010. A slew of new operator launches together with increased thrust on the relatively

underpenetrated circles by existing operators has translated into a strong performance

in these circles.

Circle-wise subscriber base

High proportion of inactive subscriber base pulls down real tele-density

•The Telecom Regulatory Authority of India (TRAI) started reporting the active

subscriber base details based on the data recorded by the visitor location register

(VLR). VLR is a temporary database of the subscribers who have roamed into the

•particular area which it serves.

•It provides details on active customers at any given point of time, excluding switched

off and out of coverage area customers.

•As on February 2011, only 71.1 per cent of the total base constituted active

subscribers. Wireless tele-density on the reported subscriber base stood at 66.4 per

cent in February 2011.

•However, after factoring in the active wireless subscriber base, this number came

down to 47.2 per cent.

High proportion of inactive subscriber base pulls down real tele-density

•This wide gap can be attributed largely to the multiple-SIM card phenomenon and

non-uniform subscriber reporting practices adopted by the operators.

•As can be seen from the table, a majority of new operators have low proportion of

active subscriber base.

•On account of high prevalence of the multiple-SIM phenomenon and high churn rate

in urban areas, it is estimated that the urban regions, especially the metros, have a

much higher proportion of inactive subscriber base than the industry average.

Active subscriber base - operator-wise

Rural tele-density on the rise

•Rural subscriber base registered substantial growth following greater focus on rural

operations by telecom service providers.

•In 2010-11, rural India added almost 82 million wireless subscribers, accounting for

around 37 per cent of total wireless subscriber net additions.

•Consequently, as of February 2011, rural subscribers accounted for 34 per cent of the

•total mobile subscriber base.

•Large untapped population coupled with relatively lower penetration has prompted

the telecom companies to fine-tune their focus on rural areas.

•As a result, rural tele-density has risen from 18 per cent in September 2009 to 33 per

cent in February 2011.

•Urban subscriber base too has been growing significantly taking urban tele-density to

almost 150 per cent in February 2011, as against about 102 per cent in September 2009.

Trend in rural and urban wireless subscribers

Hyper-competition in wireless market decelerating industry revenues

•Growth in telecom industry revenues, comprising access revenues (wireless + fixed)

and long distance, have considerably slowed down in light of the ongoing

competition and the consequent pricing pressure faced by operators in the wireless

sector.

•The wireless segment constitutes about 70 per cent of the overall revenues.

•Over the last 2 years, the growth rate has plunged to 3-4 per cent from the earlier

average of about 20 per cent.

Trend in telecom revenues (gross)

Trend in telecom revenues (gross)

•Increase in competitive intensity in the wireless space following the new operator

launches has caused a marked decline in revenue growth as realisations took a huge

hit.

•Growth rate fell from historical highs of 11-14 per cent in the first half of 2009-10 to

negative growth rate in the last 2 quarters of the year.

•During 2010-11, growth bounced back, albeit at a moderate pace.

•The high growth rate in the third quarter is attributable to the low base effect.

Wireless revenues trend (Adjusted gross revenues)

Peaking out of competitive intensity cushions the fall in RPMs

•The extended phase of hyper-competition in the wireless space had led to consistent

deterioration in key operating metrics like ARPU, MoU and RPMs.

•However, as evident from the graph below, in the last 2 quarters, the decline in

•realisations reflected in RPMs has bottomed out.

•This indicates that the price erosion in the form of tariff cuts has already occurred and

there is very little possibility of a further downward pressure on the headline tariffs

going forward.

•This can be attributed to the unsustainable decline in profitability and worsening

balance sheet indicators of all the operators on account of price competition.

•We don't anticipate any further value destruction and the operating parameters may

well be on their way to recovery.

Decline in operating metrics

Wireline subscriber base continue to fall•The fixed wireline segment has witnessed a declining trend in subscribers over thepast 4 years. •This, we believe, is largely attributable to the widespread adoption of mobile services. The wireline subscriber base stood at 41.4 million as of 2004-05; at the end of February 2011, this number declined to 35 million primarily due to a consistent fall in the•subscriber base of PSU operators, who account for almost 80 per cent of the total market. •Private operators like Bharti Airtel, Tata Teleservices and Reliance Communications have been recording month-on-month growth in their wireline subscriber base. •This is because, unlike the mass market approach adopted in the mobile services segment, private players follow a cherry picking strategy in the wireline segment and have restricted themselves to the top 100 cities which see a moderate growth in the enterprise client segments.

Operator subscriber base


•While the fixed wireless subscriber base is declining on an overall basis, there is wide

disparity between the net addition patterns across circles.

•An analysis of the circle-wise wireline subscriber additions/deletions indicates that

the metros (Delhi and Mumbai) are the only circles reporting a net increase in the

subscriber base, while all the other circles have been losing subscribers at a varied

pace.

•Between March 2010 and February 2011, Delhi added just over a lakh subscribers to

reach a total of 2.8 million, whereas Mumbai added about 36,000 subscribers, taking

its total base to 2.9 million.

•The focus of private players in the large cities is also reflected in the circle-wise

wireline subscriber trend.


•The magnitude of decline in the wireline subscriber base has been arrested to a

certain extent with rising adoption of wireline broadband services through digital

subscriber line (DSL).

•Most of the private operators have a healthy proportion of their landline customers

doubling as broadband customers.

•The broadband thrust is the primary reason for private operators to expand

operations in the business districts because of its high ARPU earning potential.

101

Growth Outlook

Mobile subscriber growth momentum to sustain•Research expects the growth momentum in mobile subscriber additions to remain robust in the medium term.•After heavy net additions of about 225 million in 2010-11, we expect total net additions in the years 2011-12 and 2012-13 to come down to 140 and 130 million, respectively. •The sustained growth in subscribers will arise from increasing and deeper penetration by existing and new operators, especially in the rural areas.•However, post 2012-13, the pace of subscriber additions is likely to slow down, primarily on account of the limited scope for coverage expansion by the operators, decline in the usage of multiple SIM cards and consequent decline in the•proportion of inactive subscribers. •We project the proportion of inactive mobile subscribers to come down from 30 per•cent in 2010-11 to 15-20 per cent by 2015-16. By this time, we expect the mobile subscriber base to touch 1,230 million.

Mobile Subscriber forecast

Rural net additions to outgrow urban additions

•With urban areas approaching saturation (teledensity of around 154 per cent as of

February 2011), we expect rural India (teledensity of around 33 per cent as of February

2011) to increasingly account for proliferation of net additions.

•While the share of rural subscribers to the total subscriber base is expected to increase

from 34 per cent in 2010-11 to 42 per cent by 2015-16, the proportion of rural net

additions to the total net additions is likely to grow significantly, from 36 per cent in

2010-11 to 87 per cent by 2015-16. By 2012-13, we expect rural net additions to

outgrow urban net additions.

Rural net additions

3G services to witness strong uptake

•Post the 3G auction in April-May 2010, most of the operators have begun roling out

their services in a phased manner.

•Research expects operators to initially rollout 3G network in the lucrative metro

circles and other top cities facing spectrum crunch.

•We estimate the 3G subscriber base to touch 236 million by 2015-16, which translates

into 19 per cent penetration (amongst total mobile subscriber base).

•However, we expect the demand uptake to be back-ended and in the initial 2 years

(2011-12 and 2012-13), we expect the 3G subscriber base to account for a negligible

fraction of the 2G subscriber base.

Projected 3G subscriber base

Projected 3G subscriber base

We expect the following factors to be the key determinants of 3G penetration in India:

• Extensive proliferation of 3G-enabled handsets

Research opines that handsets proliferation would be the single biggest driver of 3G

services, at least in the preliminary phase. On account of the rising competition and

economies of scale, 3G handset prices are likely to come down drastically, thereby

increasing affordability and the addressable market size. This would lead to

proliferation of 3G handsets, thus widening the target base for 3G service providers.

• Level of spectrum management by operators

3G would offer operators an opportunity to manage their 2G spectrum more

efficiently in the top 40 cities or so, which are currently facing a spectrum crunch. We

expect the operators to market 3G services aggressively in these cities and

consequently alleviate some pressure on the 2G spectrum. This would offer a two-fold

advantage to operators, namely, increased penetration of 3G services and

accomodation of a higher number of 2G subscribers on the bandwidth released (after

some high usage 2G subscribers move to the 3G network) without significant

additional investments.

• Gamut of services and applications offered

At the outset of the 3G launch, operators are likely to earn higher ARPUs from

subscribers, by providing bundled voice and data services to their 3G users. With the

cost of making voice calls on 3G technology being cheaper as compared to 2G, most

operators have bundled minutes at a fixed monthly tariff, thereby lowering the cost

per call for a subscriber and also enhancing player revenues.

Wireline subscriber base to continue to decline

•With the mobile subscriber growth story expected to continue, growth prospects of

wireline services is expected to take a hit.

•We believe that voice traffic on the wireline segment would be under pressure due to

lower tariffs of the mobile segment.

•The downward trend in wireline subscribers is majorly contributed by reducing

subscriptions in the rural areas where substitution effect of mobile services is more

pronounced owing to increasing affordability of wireless services.

•Wireline services are witnessing a meagre growth in a select few urban cities

including metros like Delhi and Mumbai.

•Private operators in this segment are increasing thrust on landline services in the

central business districts, where the enterprise segment is concentrated.

Wireline subscriber base to continue to decline

•Their focus is on increasing the broadband penetration as a percentage of the

•wireline subscribers, helping them earn higher ARPUs.

•However, Research does not believe gross additions by private operators will

cushion the fall.

•We expect the wireline base to fall to about 29 million by 2015-16 from the current

•base of 35 million as at the end of 2010-11.

•The wider proliferation of broadband services and increased focus from private

players is expected to moderate the fall in wireline subscribers post 2012-13.

Wireline subscriber base forecast

14%8%Others

11%7%Idea

11%9%Tata Tele Services

11%20%BSNL

17%15%Vodafone

17%20%Reliance Communications

20%20%Bharti

Market share in 2011

Market Share in 2006Player

Player wise Market Shares

Industry revenues to grow at a moderate pace

•Research expects the telecom services industry revenues to grow at a moderate pace

over the next 5 years; we project a 11.3 per cent CAGR in revenues between 2010-11

and 2015-16. Industry revenues are comprised of revenues from mobile services

(which comprise over 70 per cent of industry revenues), followed by revenues from

fixed services, NLD and ILD revenues.

Mobile services to regain traction although at a slower rate•Historically, mobile services revenues have grown significantly at almost 25 per cent CAGR from 2006-07 to 2008-09.•However, in the past 2 years of intense competition, revenue growth of wireless services had slowed down drastically to a muted 7-8 per cent. •We believe that the competitive intensity in the sector has peaked and the subsequent years will see considerable easing in pressure on revenue growth. •We still expect revenues from mobile services to grow moderately between 2010-11 and 2015-16 at a CAGR of around 14 per cent. •We believe that near-term decline in ARPU due to the low-usage nature of incremental subscribers are responsible for the modest revenue growth. •The launch of 3G services is unlikely to contribute to revenue growth significantly. •We project incremental revenues from 3G services to contribute close to 9 per cent of total mobile services revenues by 2015-16.

Revenues from fixed line, NLD and ILD

•Revenues from fixed line services are expected to decline at a CAGR of 4 per cent

from 2010-11 to 2015-16, primarily on the back of decrease in subscriber base and

falling ARPUs. While revenues from ILD are expected to grow at a slow pace of

around 1 per cent annually, the revenues from NLD are expected to grow at a 7 per

cent CAGR from 2010-11 to 2015-16.

Forecast of industry revenues

119

Market dynamics

Consolidation imminent in the mobile services space•Over the past year, competition in the mobile services sector has scaled new heights with operators engaging in price wars to acquire subscriber market share. •With players building capacity well ahead of the rollout, the resultant overcapacity•in the system has aggravated the competitive intensity. •Consequently, the consistent downward pressure on tariffs and dropping usage has adversely impacted profitability and cash flows of all players across the board. •An interplay of the above-mentioned elements coupled with factors like scarcity of 2G spectrum, auction of 3G spectrum and implementation of mobile number portability (MNP) leadsResearch to believe that the mobile services industry will consolidate over the next 12-18 months. •Post this, we anticipate key operating metrics to improve as the number of players per circle is likely to fall to 6-7 from 10-12 expected in 2011-12.•In following paragraphs, we have elaborated on the rationale for consolidation and assessed the key trigger points.

ARPUs of new entrants at a heavy discount to that of incumbents

Following the predatory pricing strategies adopted by new operators, the operating

metrics on an industry level have plummeted drastically.

Yet, there is a stark difference in the ARPUs realised by the incumbent operators and

new operators.

The ARPU for new entrants, ranging between Rs 40-60 per month for the last 6

quarters, are at nearly 65 per cent discount to that of top four incumbent operators.

For the purpose of assessing the ARPU levels of different categories of mobile

operators, we have classified the players into 3 broad categories:

• Top 4: Bharti Airtel, Vodafone, Reliance Communications, Idea Cellular

• Mid-sized: Tata Teleservices, BSNL + MTNL, Aircel

• New entrants: Uninor, Shyam Sistema (MTS), Videocon, Etisalat, STel


•We have estimated the ARPUs for the players based on the gross revenues reported

by TRAI in its quarterly financial reports.

•The primary reason for the lower ARPUs of new entrants vis-a-vis that of strong

incumbents is their high proportion of inactive subscriber base (around 50-55 per cent)

and low quality of subscribers.

•Given the capital intensive and high fixed cost structure of the industry, we believe

that the new operators will be unable to justify such a discounted price positioning for

long encouraging them towards consolidation.

Gross ARPU trend of operators

Insignificant revenue share of new entrants

•The revenue data published by the regulator indicate that the new entrants have been

unable to garner significant revenues.

•Even after 3 years of acquiring a telecom license, they account for just 2 per cent of

industry revenues as against 5 per cent of subscriber market share.

•The top 4 mobile operators have maintained their revenue share despite the intense

price competition in the market, which reflects their dominant competitive position in

terms of quality and revenue potential of subscriber base.

•Going forward, with 3G services emerging as a key revenue differentiator, we believe

that new operators will continue to lag in revenue share.

Revenue share of operators

Subscriber share of operators

Stronghold of incumbent operators on 3G - a key differentiator

•As 3G spectrum is majorly held by the strong incumbents, the competitive power

shifts to the larger players as we expect the next leg of growth in telecom services to

be derived from data services.

•Research believes that the availability of 3G services will act as a key differentiator in

this predominantly commoditised voice business.

•There exists a strong demand for bandwidth heavy sophisticated data services, which

can be offered over the 3G platform.

•In the wake of MNP implementation, the operators will be compelled to enhance

their services in all regards to retain their premium, high revenue earning subscribers.


We believe, the two primary incentives for a subscriber to switch operators

would be as follows:

• Access to high-end value added services

• Better service quality

With the help of 3G, the successful operators will be able to decongest the 2G

spectrum by migrating the voice and data traffic on the 3G network.

This will aid them in enhancing their network quality without necessitating

incremental capital expenditure for network augmentation.

3G services will enable operators to manage their ARPUs better as there is a huge

scope of differential pricing in premium 3G-based services.


•Research conducted a comparative analysis of data charges for 3G vis-a-vis other

data alternatives like GPRS, CDMA and wireline broadband and observed that most

•operators charged a high premium for 3G data plans.

•Below is an indicative list of data charges across services.

•For the purpose of uniformity, we have considered rates for 1-2 GB usage for all

service verticals.

Data plans of operators

Cash flow and profitability positions of the new operators not sustainable

•New entrants are saddled with a high cost structure, making it difficult for them to

compete with the incumbents.

•These operators typically generate low inter-network traffic, leading to high

interconnect and roaming charges.

•Thus, in the initial phase of expansion, new operators struggle with very high

operating costs per minute owing to below average utilisation and predominantly

fixed nature of the operating costs.

•Over the years, with increasing scale, the older operators have successfully managed

to bring down the operating cost per minute which has in turn helped them cut

•tariffs without suffering heavy losses.

•The figure below exhibits falling operating costs for the strong incumbents.

•As against the average of 30-32 paise, the new operators are estimated to incur about

Rs 2-3 per minute.

Operating cost per minute for incumbents

Operating cost per minute for incumbents

•High operating cost per minute coupled with predatory pricing strategies has caused

the new entrants to suffer from a much higher than estimated cash burn.

•In addition, the new operators will be required to spend incremental capital

expenditure to expand network coverage and augment their capacity to enhance the

network quality.

•Worsening cash flow positions of these new players will limit their competitive

maneuverability, which will eventually result in consolidation.

Free cash flow for incumbent operators

Free cash flow for mid-sized operators

Free cash flow for new operators

Regulatory policies need to provide more clarity on consolidation•In January 2008, the government issued new licences prohibiting promoters from selling their stake in the company for 3 years. •We believe that the expiry of this condition along with the anticipation of colossal losses and an intensifying competitive environment would promote consolidation in the industry. •The lock-in period imposed on promoters of new licensees and the intra-circle merger and acquisition (M&A) norms are critical to the process of consolidation. •We believe that the current norms don't encourage consolidation as the market share cap and spectrum ceiling conditions are restrictive. •The soon-to-be-announced New Telecom Policy is expected to provide more clarityon the consolidation norms. •Relaxation of critical specifications and amenable M&A policy will lead the way for consolidation in the sector.

Existing M&A policy norms: key points

Intra-circle M&A norms

• There must be atleast 3 players in a circle after the merger / acquisition

• Market share of a player in one circle should not exceed 40 per cent

• Post-merger, the combined entity should not hold over 15 MHz in one circle

• End of 3 year lock-in period for new operators

• New entrants were issued licenses in January 2008

Post consolidation, operating metrics will rationalise albeit at a sluggish

pace

As mentioned earlier, Research expects consolidation in the mobile services sector to

occur over the next 12-18 months. We believe that post consolidation, key operating

metrics, MoU and ARPU, which are expected to be beaten down over the near-

medium term, would start witnessing an upswing, but at a moderate pace. While

MoU is expected to increase by 1 per cent CAGR over 2013-16, overall ARPU is

estimated to jump up by 8 per cent CAGR. On the back of improving realisations, we

anticipate the revenue growth in mobile services to grow at a healthy 14.5 per cent, a

noticeable progress from the muted growth of 7-8 per cent witnessed in the past 2

years.

Post consolidation, operating metrics will rationalise albeit at a sluggish

pace

Our view is driven by the following factors:

• Reduced competition limiting price arbitrage

• Reduction in number of multiple SIM card holders

• Decline in proportion of inactive subscribers from the current levels of 30 per cent

• Uptake of 3G services

Profitability and leverage metrics worsen for mobile operators

•The past year saw a margin erosion to the extent of 500 bps for the industry set

comprising major players prompted by the excessive pricing pressure.

•The industry average for operating margins has fallen from 35.3 per cent in December

•2009 to reach 30.2 per cent in December 2010.

•The margin decline can be mainly attributed to muted revenue growth and consistent

pace of operating costs.

•Along with profitability, the leverage metrics for the major players have also

worsened owing to the huge debt taken for 3G auction and roll-out plans.

Profit margins for listed players

Leverage indicator for major players

3G services to be margin dilutive in initial years

•Research expects profitability of a player having a 15 per cent market share to dip by

250-300 basis points (bps) over the next 2 years and touch 27.6 per cent by 2012-13.

Our assessment of the competitive environment suggests that ARPUs are expected to

decline by 10 per cent in the next year and stay at around the same level in the year

after that.

•Moreover, addition of marginal subscribers diluting the subscriber quality will bring

down the usage and realisations of the operator.

Key assumptions

Revenue and margin forecast for operator with 15% market share

Revenue and margin forecast for operator with 15% market share

•Additionally, service providers would be faced with rising operating costs, especially

network operating costs (NOC).

•The 3G roll-out and expansion in rural areas will tantamount to higher network

operating cost, which is expected to increase by 250 bps as a percentage of sales.

Operators will aggressively market 3G services, which in turn will push up

•the subscriber acquisition cost.

•On the brighter side, the adoption of 3G services will free up 2G bandwidth, which in

turn will enable the operator to accommodate new 2G subscribers with limited capital

expenditure or alternatively improve their QoS.

•We expect 3G services to contribute a meager 12 per cent to the total operator

revenues by 2012-13 due to its paltry adoption in the initial phase of the roll-out.

However, we are bullish on the pickup in demand for 3G services and expect 3G to

buoy operator profitability in the later years.

148

Pricing and minutes of use


•Over the past few years, increasing competition has resulted in a downward pressure

on tariffs, which has translated into declining ARPUs for the players.

•Likewise, per minute call rate has also witnessed a sharp fall amidst increasing

•competition, fall in operating costs, continuously declining equipment costs and

reduction in regulatory levies.

•Until 2007-08, the fall in tariffs was more than offset by increasing MoU and growing

subscriber base, leading to expansion in operating margins for mobile service

providers.

•However, with several new operator launches and the consequent heightened

competitive situation in the sector has led to a continuous decline in tariffs in the last 6

quarters.


•Owing to the commoditized nature of the predominantly voice driven telecom

business, the new operators positioned themselves at low price points compelling

other players to follow suit and in the process causing a severe price erosion.

•The net RPMs have fallen by about 24 per cent in the last 6 quarters to reach

Rs0.29/min as of September 2010.

Industry RPM trend

Industry RPM trend

•Furthermore, there has been a constant downward pressure on MoUs due to the

acceleration in the multiple-sim phenomenon.

•The per-subscriber usage has declined to 355 minutes as on September 2010 from its

earlier level of 427 minutes as on June 2009.

•Another reason for minutes splitting is the large proportion of inactive subscribers in

the wireless base.

•As of December 2010, only about 70 per cent of the subscriber base has been recorded

as active.

•Deterioration in RPMs and MoUs has resulted in a massive fall in ARPUs at an

industry level. The Net ARPU (gross ARPU less interconnection costs) saw a fall of 30

per cent on a y-o-y basis as on September 2010.

Industry MoU trend

Industry Net ARPU trend

Per subscriber usage expected to rise marginally

•Going forward, we expect the MoUs to decline to 320 by 2012-13 and then increase at

a gradual pace to 330 by 2015-16.

•Despite our expectations of a reasonable 25-30 per cent traffic growth, the structural

decline in per subscriber usage will continue as the incremental subscriber additions

would be predominantly low-end users.

•Nearly 98 per cent of the current net additions are in the pre-paid segment, of which

around two-thirds are life-time validity users.

•These subscribers tend to use their mobile phones lesser than regular pre-paid or

post-paid subscribers, resulting in lower traffic generation.

Per subscriber usage expected to rise marginally

•We expect MNP implementation to restrict multiple-sim phenomenon and as a result

reduce minutes splitting which will aid in MoU to rise.

•Consolidation in the sector is also perceived to boost usage to a considerable extent.

As the subscriber base gets older on the network, we believe the subscriber vintage

would kick in inching the usage up from its current levels.

Industry MoU Forecast

ARPU to continue its southward journey till 2012-13, before improving

•In the light of intense price competition and innovative tariff plans, e.g. per second

billing, call tariffs have been on the decline for players across the board.

•We don't foresee major downward pressure on the RPMs as we believe the

competitive intensity in the sector has peaked out. So, the RPMs will drop marginally

in 2011-12 and start rising from 2013-14.

•The favourable movement in RPM is on the back of better realisations from premium

3G services and increasing proportion of 3G subscribers on the total wireless base.

With the telecom industry likely to witness consolidation in 2011-12, we expect net

RPM for the industry to gradually increase and stabilise at Rs 0.36 by 2015-16.

ARPU to continue its southward journey till 2012-13, before improving

•Research believes that the industry net ARPU will continue its southward journey till

2012-13 to touch Rs.94/month which is primarily due to low usage and stagnant

RPMs.

•Post this, ARPUs will increase at a steady pace to reach Rs.118 by 2015-16 in line with

the forecast in usage and realisation metrics.

Industry ARPU and RPM Forecast

161

Investments

Rapidly expanding subscriber base fueled investments

•The telecom sector is highly capital intensive with front-ended investment and

returns accruing only after the operator achieves a threshold subscriber base.

•Over the past 5 years, strong subscriber additions, deeper penetration in urban areas

and expansion in the under-penetrated rural areas have necessitated heavy

investments in network augmentation by all the operators.

•Additionally, several new operator launches in the past 2 years have accelerated the

growth in investments in this sector.

•As a result, cumulative investments of about Rs 2.8 trillion have been channeled into

this space in the last 5 year period.

•Of the total investments made in the sector, around 90 per cent has been invested in

the mobile services space.

Rapidly expanding subscriber base fueled investments•Over the last 3 years, existing operators have actively ramped up capacity as well as coverage. •They have not only penetrated the urban market but also gradually expanded their footprint into the semi-urban and rural areas. •Between 2006-07 and 2010-11, the population coverage of established operators has grown to more than 80 per cent from 58 per cent.•The rapid network rollout has provided a thrust to the passive infrastructure business, which accounted for around 20 per cent of the total mobile industry investments in 2010-11. •The number of installed towers increased swiftly, especially over the past 3 years, from 125,000 towers as of March 2007 to estimated 318,000-320,000 towers as of March 2010. •The tower base has further expanded to around 345,000 by December 2010.

Installed tower base

Cumulative investments to touch Rs 2 trillion over next 5 years

•Research estimates that the telecom space will attract cumulative investments of Rs 2

trillion between 2010-11 and 2015-16.

•With the mobile subscriber base expected to expand at a 9 per cent CAGR during the

period, over 90 per cent of the projected investments are expected to be pumped into

the mobile services sector.

•Meanwhile, the balance will be channeled into the creation of wireline and

broadband infrastructure in remunerative areas, and setting-up infrastructure for the

provision of long distance and data services.

•Within wireless investments, we anticipate active infrastructure, primarily

comprising radio equipment and backhaul, to account for about 80 per cent of the

investments.

Cumulative investments to touch Rs 2 trillion over next 5 years

•We expect the base stations to increase from their current levels of 600,000 to about 1

million units by 2015-16.

•Expansion in network sites will be mainly driven by 3G and rural roll-outs.

•Greater tower sharing and an anticipated slowdown in the rollout of towers will

moderate spending towards passive infrastructure.

•Post telecom industry consolidation, we foresee a controlled roll-out of towers, with

the estimated number of towers reaching 460,000 by 2015-16.

•Also, tenancy ratio is expected to increase from 1.7 as of 2010-11 to 2.3 by 2015-16.

Tower forecast

Tower forecast

•Research believes that investments in the telecom space will be driven by network

expansion by operators in the rural areas that are as yet underpenetration and are at a

teledensity level of around 30 per cent, as on February 2011.

•Also, in the wake of the MNP implementation, in order to retain subscribers,

operators will seek to enhance their network quality by expanding their networks and

rolling out in uncovered pockets to ensure seamless pan-India service.

•Additionally, 3G services roll-outs by operators with 3G licences will fuel investment

growth in the mobile services segment.

•Given that the operators have shelled out exorbitant sums of money to acquire 3G

spectrum, we believe that they will roll-out 3G services in a phased manner, starting

with the urban and semi-urban regions, which are expected to yield higher uptake in

premium 3G services and consequently higher ARPUs.

Tower forecast

We thus anticipate a calibrated roll-out by 3G operators in 2011-12 and comprehensive

pan-India coverage in 2012-13.

As a result, a larger proportion of investments pertaining to 3G services will occur in

2012-13, a time when telecom investments will peak and thereafter slow down.

While forecasting investments in the sector, we have only considered expenditure

incurred by service providers in the creation of tangible assets.

We have not included any entry fee payable (for instance, fees paid towards acquiring

2G, 3G or long distance licences) by operators for the provisioning of services and

costs incurred by subscribers or operator on customer premise equipment. Our other

assumptions include:

• The rollout of 3G services by private players would begin largely in 2011-12

Tower forecast

• Wireless subscribers in urban areas would gradually shift to advanced technologies

such as 3G / High Speed Packet Access. In rural areas, however, subscribers would

largely ride on 2G networks

• The need for better QoS in an environment of heightened competition post MNP

implementation will compel service providers to augment network capacity

• Private players would invest in the creation of fixed-line infrastructure in areas

where it is economically viable.

The wireline service would be positioned as a triple play offering i.e. capable of

simultaneously providing voice, video and data facilities on the same network

• No significant shift in government policy and disruptive technological change

would occur causing existing networks / investments to be rendered redundant or

have lower utility.

Projected investments in telecom services

Risks to investments

Hyper-competition

•The intense competition in the mobile services space has led to a drastic fall in

profitability of all the operators.

•In addition, the high 3G and BWA auction fees have deteriorated the leverage metrics

of operators, weakening their balance sheet strength.

•Furthermore, the 3G roll-out and rural expansion will entail an increase in capital

•and operating expenditure causing a drag on the cash flows of operators.

•All these factors are expected to constrain the ability of operators to raise finance for

their expansion projects

• Spectrum-related

Service providers are currently facing a dearth of spectrum to provide mobile services,

especially in the top 40 cities. Consequently, the QoS offered has dropped significantly

leading to poor user experience. The lack of availability of 2G spectrum would hinder

service providers from expanding their operations.

• Government policies

Uncertainty regarding policy decisions by the government could make it difficult for

operators to plan future expansions. Lack of a long-term framework, especially in the

case of spectrum and licensing allocations, could inhibit growth in the sector.

• Technology changes

Bein a highly technology intensive industry, players are always exposed to the risk of

technology obsolescence. Thus, newer technology might necessitate fresh investments

or the rejigging of existing networks. Therefore, while planning investments, players

have to take into account not only the upfront investments but also technological

advances that could impact returns.

175

Technology view

3G services to witness high adoption

•Research believes that 2G, which is currently the dominant wireless technology in

India, will continue to account for a large proportion of total wireless subscribers for

the next 5 years.

•However, due to high network congestion and limited availability of the 2G

spectrum, 3G technology, which has about 3 times the bandwidth capacity of 2G, will

offer

•an attractive proposition to operators.

•Additionally, given the small amount of new subscriber additions, there is very

•limited scope for revenue expansion in pureplay 2G offering, which hinges primarily

on conventional voice services.

•On the other hand, 3G enables operators to provide differentiation in service offering

through the inclusion of several datacentric services and also additional

maneuverability to manage ARPUs.


•New operator launches and the consequent hyper-competition in the wireless space

have further restrained the revenue prospects of this segment.

•Thus, we believe the 3G spectrum is critical for operators to sustain their competitive

position in the market.

•The exorbitant bid prices offered at the recent 3G auctions exhibited the immense

value that the operators perceive in 3G services.

•The pan-India bid for 3G license went for Rs 168 billion, about 5 times its reserve

price of Rs 35 billion.

•The metros (Mumbai and Delhi) and a few southern states in Circle A category

commanded a much higher multiple in the range of 10-14 - a reflection of the data

potential in these regions.

3G services to witness high adoption•3G is a globally proven technology and has seen commercial success in several developed countries. •With proliferation of 3G-enabled smart phones due to the increasing affordability and latent demand for data services, we foresee a healthy pick-up in demand for 3G and expect the 3G subscriber base to reach 236 million by 2015-16, accounting for about 20 per cent of the total wireless base in that year.•In the initial years, 3G spectrum will be mainly utilised to migrate the voice traffic to ease congestion on 2G networks.•Apart from 3G, the last year also witnessed the BWA auctions, which raked in about Rs 385 billion for the central government as auction price. •The pan-India bid price, at Rs 128 billion, was about 7 times the reserve price of Rs17.5 billion, reinstating our belief that the next leg of telecom revolution will be witnessed in data services.


•WiMax and LTE are the two technology alternatives for BWA.

•WiMax lacks an established precedent of commercial success, except in a some

countries, and is majorly constrained by an inadequate vendor ecosystem.

•Intel, the global chipset major, is one of the few players backing the WiMax

technology.

•We believe, WiMax is unlikely to witness mass rollout, especially at the retail level,

considering operators would need to incur a high capital expenditure for its rollout.

Moreover, globally, the ARPU generated from WiMax is relatively low and we believe

it is unlikely to justify the investment required.

•LTE, on the other hand, has keen support from major equipment vendors such as

Ericsson, Nokia and Motorola and major operators across Europe and US.


•It is currently in a very nascent stage and has been launched by a few players,

especially in the Scandinavian countries, on a trial basis.

•In India too, RIL-backed Infotel Broadband, a pan-India BWA license winner,

•along with most other operators have announced their plans to roll out LTE on the

BWA spectrum.

•However, given the early stage of evolution of the technology, we expect BWA roll-

outs in India to be launched only by mid-2012.

Snapshot: Technology view

183

Growth Projections: Summary

Executive Summary

•Over-capacity and hyper-competition thereof has led to unsustainable deterioration

of key operating metrics, which are likely to expedite consolidation in the telecom

industry.

•Post-consolidation, CRISIL Research expects the number of players per circle to fall to

6-7, leading to lower competitive intensity, thereby improving growth prospects of

mobile service providers. We believe the key trigger factors to be as follows:


•Following the predatory pricing strategies initiated by the new operators, the

operating metrics on an industry level has plummeted drastically.

•Yet, there exists a stark difference in the ARPUs realised by the incumbent operators

and those earned by new operators.

•ARPUs for new entrants, ranging between Rs 40-50 per month for the last 6 quarters

are at nearly 65 per cent discount to that of top four incumbent operators.

Insignificant revenue share of new entrants

•Despite the rock-bottom prices offered by new entrants, they have been unable to

garner significant revenues.

•After 3 years of acquiring licenses, new entrants account for just 2 per cent of the

industry revenues.

Stronghold of incumbents on 3G - a key differentiator

•As the 3G spectrum is majorly held by the strong incumbents, the competitive power

shifts to the larger players as we expect the next leg of growth in telecom services to

be derived from data services.

•Research expects the 3G platform to enable operators to better manage their ARPU

and enhance service quality, thus pitching a value proposition that cannot be matched

by the new entrants.

Cash flow and profitability position of new operators not sustainable

•New entrants have suffered from a much higher than estimated cash burn due to the

prevailing intense price competition.

•Worsening cash flow positions of these new players will limit the competitive

maneuverability, which will eventually result in consolidation.

Post-consolidation, operating metrics will rationalise albeit at a sluggish

pace

•We expect competitive intensity to moderate post consolidation, which will aid the

operating parameters to improve.

•Industry ARPUs are expected to decline to Rs 94 per month by 2012-13 from the

current average of Rs 105 per month and increase to Rs 118 per month by 2015-16.

•The increase in realisations is primarily attributable to the premium charges on 3G

services as well as bottoming out of rates for 2G services.

•On the back of improving realisations, we anticipate the revenue growth in mobile

services to grow at a healthy 14.5 per cent, a noticeable progress from the muted

growth of 7- 8 per cent witnessed in the past 2 years.

3G services to be margin dilutive in initial years

•The past year saw a margin erosion to the extent of 500 bps for the industry set,

comprising major players, prompted by the excessive pricing pressure.

•Over the next 2 years, we expect the operating margins for the industry to further

drop by 280 bps. 3G roll-out and expansion in rural areas will tantamount to higher

network operating cost, which is expected to increase by 250 bps as a percentage of

sales.

•Operators will aggressively market 3G services, which in turn will push up the

subscriber acquisition cost.

•We expect 3G services to contribute a meager 12 per cent to the total operator

revenues by 2012-13.

•However, we are bullish on the pickup in demand for 3G services and expect 3G to

buoy operator profitability in the later years.

Investments intensity seen to be decreasing

•Research estimates cumulative investments of Rs 2 trillion to be channeled into the

telecom space over 2011-16, which is considerably lower than the quantum of

investments of about Rs 2.8 trillion expended in the last 5 years.

•The mobile services segment is anticipated to attract 90 per cent of the total

investments with a large proportion flowing towards active equipments, since greater

tower sharing will reduce investments on the passive infrastructure side.

191

Player Profiles

Bharat Sanchar Nigam Ltd

Profile•Bharat Sanchar Nigam Ltd (BSNL) is a public sector undertaking, wholly owned by the government of India. •It was formed in October 2000 through the corporatisation of DoT. •The company has an authorised share capital of Rs 175 billion (equity capital of Rs100 billion and preference capital of Rs 75 billion). •Its paid up capital is Rs 125 billion (Rs 50 billion equity capital and Rs 75 billion preference capital).•BSNL provides telecom services throughout the country, except Delhi and Mumbai. Services provided by the company include fixed line, GSM mobile, CDMA mobile, national long distance, international long distance, Internet, MPLS-based virtual private network (VPN) services, ISDN, leased line, intelligent network, telex/telegraph and electronic private automatic branch exchange (EPABX) services.

Operations

Fixed services

•BSNL is the largest fixed services operator in the country.

•It was the only provider of fixed services in India till the segment was opened up to

competition in 1995.

•As of December 2010, BSNL had a total of 25.65 million subscribers for its fixed

services, representing about 73 per cent of the total fixed services subscriber base in

the country.

•However, the incumbent is facing stiff competition from private mobile as well as

fixed players, which has hampered its fixed services subscriber growth.

National long distance

•BSNL monopolised the national long distance segment until 2001.

•However, owing to competition, its NLD tariffs declined largely after the entry of

private players in the sector.

Mobile services•BSNL entry into the mobile market was quite late. •The company received the GSM licence for operating as the third player in 1999. However, BSNL launched its services only in October 2002, more than a year after the fourth cellular operator licences were auctioned. •As a result, it was the third or the fourth cellular operator in most of the circles.•At the end of December 2010, BSNL had 81.39 million GSM mobile subscribers across 21 circles having risen from 63.5 million in March 2010. •The company stands fifth in terms of the largest GSM operator as of December 2010, with a market share of 10.8 per cent in the GSM market. •In March 2009, BSNL commercially launched 3G mobile services. In 2009-10, the company's 3G service was available in 450 cities with a subscriber base of 1.3 million. For fiscal year 2010-11, the company expects to cover about 750 cities and further add around 3 million customers.

Financial performance

•In 2009-10, the company's revenues declined by 7.5 per cent, with a 4.3 per cent

decline in revue from the mobile segment.

•Net profit of the company also plummeted by 417.1 per cent. BSNL's debt-equity

remained low at 0.02 times

Annexure

Bharat Sanchar Nigam Ltd: Area-wise mobile subscriber base

Bharat Sanchar Nigam Ltd: Area-wise market share in mobile services

Bharat Sanchar Nigam Ltd: Financials

Bharti Airtel Ltd

Profile

•Bharti Airtel Ltd (BAL) is an integrated telecom service provider offering services like

fixed, mobile, ILD NLD, VSAT, Internet and network solutions.

•The company was incorporated in July 1995. In April 2006, the company became

‘Bharti Airtel Ltd' from ‘Bharti Tele-ventures Ltd'.

•BAL has broadly divided its business into three segments namely, mobile, broadband

and telephone (B&T), enterprise services and the hived off passive infrastructure

services.

•As of January 2011, Sing Tel, largest shareholder in Bharti Airtel, holds a stake of

32.15 per cent.

Operations

Mobile services

•BAL commenced its services in December 1995 and went on to become the only

private player to operate in all 22 telecom circles.

•The company pioneered in launching ‘lifetime validity' scheme in prepaid segment,

charging a one-time fee of Rs 999 for the scheme.

•BAL took the lead in bringing down the ‘lifetime validity' charges to Rs 495 and then

to Rs 199, which it further slashed to Rs 99 with effect from January, 2009 owing to

intensifying competition BAL is the largest mobile operator in India, with a subscriber

base of 127.62 million as of March 2010 translating into a market share of 22 per cent -

the largest in the mobile segment.

.

Operations

Mobile services

•The company's subscriber base further grew to reach 152 million accounting for about

20 per cent of the total wireless subscriber base.

•Its mobile subscriber base grew at a high CAGR of 76 per cent between March 2003

and March 2009, mainly due to expansion in coverage and introduction of new and

innovative schemes.

•In July 2006, BAL started providing fixed wireless services under the brand ‘Airtel

Mega' on large scale, starting with Kerala, Assam and Andhra Pradesh and Madhya

Pradesh.

•The company's fixed wireless service was provided on a CDMA platform.

Operations

Mobile services

•However, the company surrendered the CDMA spectrum after the government's

decision to vacate radio frequency of those companies where it is not being used.

Therefore, BAL migrated all its customers using CDMA-based

•services to GSM-based services.

•Over the years, BAL has used the acquisition route to expand its presence in the

mobile business.

•The company acquired the equity stakes of JT Mobile (Andhra Pradesh and

Karnataka), Evergrowth Telecom (Punjab), Spice Cell (Kolkata), Skycell

Communications (Chennai) and Hexacom (Rajasthan).

Operations

Mobile services

•With an investment plan of around Rs 10 billion over the next 5 years, Bharti Airtel

launched its 2G and 3G mobile services in Sri Lanka in January, 2009.

•Bharti Airtel was at the forefront in bidding for the critical 3G spectrum, emerging as

the highest spender with an outgo of Rs 12,295 crore for spectrum in 13 circles.

•The company has been successful in acquiring the spectrum in its top revenue

grossing circles, which accounts for nearly 65 per cent of their subscriber base and

about 70 per cent of their total revenues from the wireless segment.

•However, BAL has restrained itself from going all out during the wireless broadband

bidding, acquiring spectrum in just four circles with a total payout of Rs 3,314 crore.

Operations

Mobile services•In January 2011, BAL introduced 3G services in India by launching services in Karnataka and Tamil Nadu. •It is scheduled to roll out 3G operations in the 13 circles where it has won spectrum. •It is also expected to work out interconnect alliances with other operators to enable a pan India 3G coverage.•In January 2010, BAL acquired 70 per cent stake in Warid Telecom of Bangladesh, which provides mobile services across 64 districts in the country. •The company rebranded its services as Airtel Bangladesh in December 2010.•In June 2010, Bharti Airtel acquired the African operations of Kuwait-based ZainTelecom for a total consideration of $9 billion. •In August 2010, BAL also went on to acquire operations of Seychelles Telecom. After acquiring Zain Telecom and Seychelles Telecom, BAL has started penetrating Africa with presence in 16 countries across the continent.

Fixed services

•In June 1998, BAL became the first private service provider in India to offer fixed

services by launching services in Madhya Pradesh. Subsequently, it acquired licences

and started providing services in various circles.

•Currently, the company provides fixed wireline services in 15 circles – Andhra

Pradesh, Chennai, Delhi, Gujarat, Haryana, Karnataka, Kerala, Kolkatta, Madhya

Pradesh, Maharashtra, Mumbai, Punjab, Tamil Nadu and Uttar Pradesh (East and

West).

•The company's wireline subscriber base stood at 3.26 million in December 2010 as

against 2.98 million in December 2009.

Fixed services

•They also provide broadband (DSL), data and telephone services (fixed line) in 87

cities with growing focus on the various data solutions for the Small & Medium

Business (SMB) segment.

•About 43 per cent of the wireline subscriber base also subscribes to its

broadband/Iinternet services. In this segment, BAL offers fixed-line telephones

providing local, national and international long distance voice connectivity and

broadband Internet access through DSL.

•It also offers IPTV services in Bengaluru and NCR region.

Long distance and enterprise services

•BAL is a leading provider of communication services to large Enterprise and Carrier

customers.

•It delivers end-to-end telecom solutions to India's large corporates by providing a full

suite of communication services across data, voice, network integration, and managed

services.

•In this manner, BAL serves as the single point of contact for all telecommunication

needs.

•Bharti launched its NLD and ILD services in January 2002 and July 2002, respectively.

Bharti has been successful in garnering a large part of the traffic originating from the

cellular networks.

•Its captive subscriber base (in fixed as well as mobile) is a huge market in this respect.

Long distance and enterprise services

•Bharti launched global data and Internet services in June 2003. In 2005-06, BAL

•launched and commissioned under sea cable system - Southeast Asia, Middle East

and Western Europe- 4 (SEA- MEWE-

•4) — in the country. Bharti is a part of 16-company consortium that has developed

and funded this new cable system; it lands in India at Bharti's landing station in

Chennai. Its international infrastructure also includes investments in new cable

systems such as Asia America Gateway (AAG), India Middle East and Western

Europe (IMEWE), Unity North, EIG (Europe India Gateway) and East Africa

Submarine System (EASSy) expanding its global network to over 225,000 Rkms,

covering 50 countries across five Continents.

•Additionally, it has terrestrial express connectivity to neighbouring countries

including Nepal, Pakistan, Bhutan and China..

Passive Infrastructure services

•The company hived off its passive infrastructure business into a subsidiary, Bharti

Infratel Ltd (BIL), with effect from February 2008.

•BAL owns 93 per cent in BIL, which in turn owns a 42 per cent stake in Indus Towers,

a joint venture company along with Vodafone and Idea Cellular across 16 common

circles of operation.

Bharti Airtel Ltd.: Area-wise mobile subscriber base

Bharti Airtel Ltd: Area-wise market share in mobile services


Bharti Airtel Ltd: Financials

BPL Mobile Communications Ltd

BPL Mobile Communications Ltd: Area-wise mobile subscriber base

HFCL Infotel Ltd

Profile

•HFCL Infotel Ltd was the first basic telephony services provider in Punjab; it

launched its service in October 2000. HFCL Infotel, a single circle operator, provides

wireline, fixed wireless and CDMA mobile services in the Punjab circle.

•The company has applied for GSM spectrum for offering mobile services in circles

other than Punjab.

•The company was the first operator in the country to launch a CDMA-based prepaid

mobile service in 2002.

Operations

•HFCL Infotel has a minuscule share of the mobile market of Punjab.

•At the end of March 2010, it had 0.32 million subscribers, representing about 0.1 per

cent of the total mobile subscriber base.

•The subscriber base increased to 1.6 million by the end of December 2010 with a

market share of 0.2 per cent.

•In the wireline space, the company had 0.17 million subscribers as of March 2010,

which increased to 0.19 million at the end of December 2010.

HFCL Infotel Ltd: Area-wise mobile subscriber base

HFCL Infotel Ltd: Area-wise market share in mobile services


HFCL Infotel Ltd.: Financials

Vodafone-Essar group

Profile

•The Vodafone-Essar group, providing GSM-based mobile services, has a pan India

presence across all 22 circles of the country.

•The company went through major transformation in February 2007 where Vodafone

Ltd, a leading UK-based telecommunications services provider, acquired a controlling

stake of 67 per cent in Hutchison-Essar group for an enterprise value of $18.8 billion.

The remaining stake is held by the other partner, Essar Ltd.

•The company changed its name officially to Vodafone-Essar from Hutchison-Essar in

July 2007.

•The Foreign Investment Promotion Board (FIPB) cleared Vodafone's application for a

pan India NLD, ILD and an ISP licence in June 2009. Previously, Vodafone held an ISP

licence only in the circle of Gujarat.

Operations

•The Vodafone-Essar group rolled out operations in Orissa, Assam, North East,

Madhya Pradesh, Bihar, Himachal Pradesh and Jammu and Kashmir in the fiscal year

2008-09, thereby, completing its pan India roll out.

•The group acquired a 64 per cent stake in BPL Communications in 2005-06, the

holding company for BPL Mobile Communications and BPL Cellular.

•At the end of March 2010, the subscriber base of the Vodafone-Essar Group stood at

101 million. At the end of December 2010, the subscriber base had risen to 124.3

million, translating into a market share of 16.5 per cent.

•Similar to Bharti, the group used acquisitions to expand operations in the mobile

business.

Operations

•The group bought equity in companies with operations/licence to operate in Delhi

(erstwhile Sterling Cellular), Kolkata (Usha Martin Telekom), Gujarat (Fascel), Punjab

(Escotel),Chennai (Aircel), Kerala, Maharashtra and Tamil Nadu (all BPL Mobile)

circles.

•The company hived off its tower assets to Indus Towers, a joint venture company

along with Bharti Airtel and Idea Cellular to share their tower portfolio.

•It has a stake of 42 per cent in Indus Towers.

•Ortus Towers, a wholly owned subsidiary of Vodafone Essar, owns Vodafone's share

in Indus towers.

•It also owns Vodafone's towers in the remaining circles where Vodafone has not

entered into a joint venture with Idea cellular and Bharti Airtel.

Operations

•In May 2010, the company won 3G spectrum in nine of the 22 telecom circles in the

country.

•Development of the 3G network plan is currently under way; the company is

expected to launch the commercial plan by the quarter ended March 2011.

Vodafone Essar: Area-wise mobile subscriber base

Vodafone-Essar: Area-wise market share in mobile services

Vodafone Essar: Financials

Idea Cellular Ltd

Profile

•Idea Cellular's antecedents date back to 1995, when the Aditya Birla Group and

AT&T (through Birla AT&T - Maharashtra, Gujarat) and the Tata Group (through Tata

Cellular- Andhra Pradesh) came together to set up cellular networks.

•The company, then called Birla AT&T Communications Ltd, began offering cellular

services in the Gujarat circle in January 1997 and in the Maharashtra circle in March

1997.

•In 2000, the company merged with Tata Cellular and subsequently, acquired RPG

Cellcom, the cellular operator in Madhya Pradesh.

•In May 2001, the merged entity of Birla AT&T and Tata Cellular was renamed Birla

Tata AT&T Communication Ltd.

Idea Cellular Ltd

Profile

•In May 2002, the company was rechristened as Idea Cellular Ltd.

•The Tatas wholly exited from the company post the group's acquisition of 48.1 per

cent of holdings from Tata Group.

•Aditya Birla Nuvo Ltd and its subsidiaries acquired 15 per cent of the 48.1 per cent

holdings; Birla TMT Holdings Pvt. Ltd acquired the balance.

•With this, combined holdings of the Aditya Birla Group companies increased to 98.3

per cent.

•In November 2006, the Aditya Birla group offloaded 33 per cent of its holding in Idea

Cellular to private equity investors including Providence Equity Partners, Chrys

Capital, Citicorp, TA Associates and others.

Idea Cellular Ltd

Profile

•This deal brought down Aditya Birla Group's combined holding in Idea Cellular to

around 65 per cent from 98 per cent.

•The company came out with an IPO in March 2007.

•In May 2007, US-based Providence Equity Partners picked up 20 per cent stake in

Aditya Birla Telecom (ABTL), a subsidiary of Idea Cellular, for $640 million.

•Idea Cellular also holds a 16 per cent stake in Indus Towers, a JV company it formed

along with Vodafone Essar Ltd, Bharti Airtel Ltd to share their passive infrastructure

assets.

•In July 2008, Idea Cellular acquired 40.8 per cent stake in Spice Communications at a

price of Rs 21.76 billion.

Idea Cellular Ltd

Profile

•This move helped the company gain a foothold in Punjab and Karnataka circles,

where Spice Communications was present.

•Idea Cellular has withdrawn the scheme of arrangement filed with the Gujarat High

Court for demerging the Unified Access Service (UAS) licences in Karnataka and

Punjab service areas.

•It has also withdrawn the scheme of arrangement, which was earlier filed by Spice

Communications with the Delhi High Court, for demerging UAS licences in Delhi,

Haryana, Maharashtra and Andhra Pradesh service areas.

Operations

•At the end of March 2009, Idea Cellular provided GSM mobile services in 13 circles -

Andhra Pradesh, Delhi, Gujarat, Haryana, Himachal Pradesh, Kerala, Madhya

Pradesh, Maharashtra, Rajasthan and whole Uttar Pradesh.

•The company entered the Haryana, Uttar Pradesh (West) and Kerala circles by virtue

of its acquisition of Escotel Mobile Communications Ltd (in January 2004).

•It launched its mobile services in Mumbai in August 2008 and GSM services in Bihar

in September 2008.

•Following this, the service provider launched services in the Orissa circle and the

Tamil Nadu circle in April and May 2009.

•In 2009-210, Idea Cellular started consolidating results for Spice Communications.

With these launches, Idea cellular is currently present in all 22 circles across the

country.

Operations

•Idea Cellular also received GSM spectrum in Punjab under the dual technology

policy.

•Idea Cellular is the fifth largest GSM mobile operator and its total mobile subscriber

base as of March 2010 stood at 57.92 million, representing 9.9 per cent of total mobile

subscriber base.

•The subscriber base further increased to 81.8 million by December 2010.

•In April 2010, the company received a licence for providing pan India Internet

Services (ISP Licence).

•In May 2010, Idea Cellular won 3G spectrum in 11 service areas namely Maharashtra,

Gujarat, Andhra Pradesh, Kerala, Punjab, Haryana, Uttar Pradesh (E), Uttar Pradesh

(W), Madhya Pradesh, Himachal Pradesh and Jammu & Kashmir.

•It intends to roll out 3G services in these circles in the next few months.

Idea Cellular Ltd: Area-wise mobile subscriber base

Idea Cellular Ltd: Area-wise market share in mobile services


Idea Cellular Ltd: Financials