telecom_industry.pdf

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TABLE OF CONTENTS

INDUSTRY BRIEF ............................................................................................................. 3

KEY GROWTH DRIVERS ................................................................................................... 4

KEY OPERATING METRICS .............................................................................................. 4

PLAYERS PROFILE ........................................................................................................... 5

BHARTI AIRTEL ......................................................................................................... 5

VODAFONE INDIA*................................................................................................... 6

IDEA CELLULAR ........................................................................................................ 7

RELIANCE COMMUNICATION .................................................................................. 8

RELIANCE JIO INFOCOMM ....................................................................................... 8

OUTLOOK ....................................................................................................................... 9

CONCLUSION .................................................................................................................. 9

REFERENCES...... .......................................................... .................................................10

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INDUSTRY BRIEF The telecom sector, one of the most promising sectors in India, has experienced tremendous growth over the past

years, in terms of number of subscribers and revenues. The strong growth in the industry can be attributed

primarily to the country’s large population, healthy economic growth, affordable handsets, and most importantly

low tariffs. With urban teledensity reaching 166%, it is showing signs of maturity. However, the rural teledensity

is only 40%, and hence there lies tremendous scope for penetration. Also, with advent of new telecom policy, and

fresh spectrum auction, the sector is again becoming active.

Graph 1: Subscriber Growth

Source: Cellular Operators Association of India

It has always been a capital intensive industry, requiring investments right from buying spectrum, to setting up

necessary infrastructure to support services. But, with rise in number of subscribers at a tremendous rate, the

revenue generated is also terrific, as indicated by the graph below.

Graph 2: Capital Expenditure and Revenue

Source: Euromonitor International

206

300

429

621

846

951

0

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300

400

500

600

700

800

900

1000

2007 2008 2009 2010 2011 2012

Number of Subscribers(million)

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It mainly consists of two types of technologies;

GSM (Global System of Mobile Communication): It is the de factor global standard for mobile

communication, being used in 219 countries and territories. In India, the frequency of use for this technology

are the 900 MHz, 1800 MHz, and 2100 MHz bands

CDMA (Code Division Multiple Access): This technology allows users to share the same frequency band,

avoiding collision through the use of code division multiplexing. In India, the frequency of use is the 800 MHz

band.

Majority of the players are present in the GSM segment, with only Reliance Communication, BSNL, Tata

Teleservices in the CDMA segment and GSM segment, whereas others are only there in GSM segment.

KEY GROWTH DRIVERS 1. Regulatory support

Policies relating to spectrum frequency, usage charges, base price, mergers and acquisition, foreign

investment, services that can be offered etc.

2. Technology

Adoption of modern technology such as 3G, 4G, LTE, and offering them to customers at affordable rates is

the key.

The signal quality and network coverage, decide customer satisfaction and retention, leading to substantial

attention to number of towers

3. Rural Demand

Rural demand and the rising rural income, with low rural penetration at present, allowing for wide scope

for expansion

4. Demographic shift

Increasing population of youngsters, leading to increasing internet usage, leading to rise in data usage and

demand for services on mobile

KEY OPERATING METRICS

Average Revenue Per User: It is defined as the total revenue generated divided by the total number of

subscribers for the applicable period. It is usually reported on a monthly basis.

Revenue Per Minute (RPM): It is defined as the total net revenue divided by the number of minutes of traffic

over the network for the applicable period. It is usually reported on a monthly basis.

Table 1: Operating Metrics (December 2013)

GSM CDMA

Average Revenue Per User(ARPU) Rs 105 Rs 71 Average Revenue Per Minute(RPM) Rs 0.29 Rs 0.30

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PLAYERS PROFILE

BHARTI AIRTEL Company Information Bharti Airtel is an Indian multinational telecommunication company, operating in 20 countries across South Asia, Africa, and the Channel Islands. It initially came into existence in 1986, in form of Bharti Telecom Limited, which became the first company in India to offer push-button telephones, and later went on to offer telecom services. Bharti Airtel was founded in July, 1995. Key Features World’s 4th largest telecom operator by subscribers, with over 272 million

subscribers across 20 countries. It is India’s largest operator, and 2nd largest in-country operator in the world by subscribers after China Mobile.

It is the first Indian telecom service provider to achieve Cisco Gold Certification

It covers over 465,000 villages and towns in India, to have daily data usage of 271 TB, daily voice usage of 3,263 million[3]

It deploys, owns and manages passive infrastructure pertaining to telecom operations through its subsidiary, Bharti Infratel Limited, which owns 42% in Indus Towers Ltd. Together, Bharti Infratel Ltd and Indus Towers Ltd are the largest passive infrastructure service providers in India.

It acquired Kuwait-based Zain, African cellular operations for $9 billion, to gain access to 15 African nations

Recent Developments It acquired 115 MHz of spectrum in India for Rs 185.3 billion in the auction

conducted in February 2014, with an upfront payment of Rs 54.25 billion, and the remaining in ten equal annual instalments of Rs 13.1 billion, starting from 2016.[4]

In February 2014, it signed an agreement to acquire Loop Mobile’s three million customers and its 2G network, to replace Vodafone India as the number one operator in Mumbai

Vodafone Group Plc may have to sell its stake worth $1 billion in Bharti Airtel Ltd, if rules no longer allow telecom operators to keep stake in competitors. Vodafone has 4.4% stake in Bharti Airtel Ltd.[5]

Key Financials Revenue: Rs 803 bn EBITDA: Rs 248.7 bn Net Profit: Rs 22.7 bn Net Debt: Rs 638.4 bn Operating Free Cash

Flow: Rs 113.4 bn

Key Fundamentals Market Capitalisation:

Rs 136,291 cr CMP: Rs 340 P/E: 20.65 52 week high/low:

373.5/277.1 ROE: 5.04

Operating metrics

ARPU: Rs 192

RPM: Rs 0.29 1 Year Price Chart

22.6%

18.3%

14.8%

14.6%

12.2%

8.0%

7.2%

1.4% 0.6% 0.4%

Market Share(Number of Subscribers)

Bharti Airtel

Vodafone India

Idea Cellular

Reliance Communications

BSNL

Tata Teleservices

Aircel

MTS

MTNL

Loop

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VODAFONE INDIA*

Company Information Vodafone India is a subsidiary of Vodafone Group Plc that is headquartered in London, and having equity interests in 27 countries and partner network in 48 more countries, serving 434 million customer worldwide . The Indian subsidiary is headquartered in Mumbai. It came into existence through acquisition of 67% stake of Hutchinson in Hutchinson-Essar, for $11.1 billion in 2007. In 2011, it bought additional stake from Essar to own 76% in Vodafone India, for $ 5 billion[6]. Key Features It is the 2nd largest mobile network operator in India by subscriber base, with

160 million subscribers.

It offers total communications package including voice, data, fixed-line and wireless services through 2G, 2.75G, and 3G services.

It has over 100,000 base stations; 120,000 kms of fibre optic cable, and over 300 Point-Of-Present points in 130 cities[7]

Recent Developments In 2014,it became wholly owned subsidiary, by buying stake from Analjit Singh

and Neetu Analjit Singh for Rs 101.5 bn, and further 11% stake from Piramal Group, to obtain 100% ownership[8].

Vodafone is facing tax claims and interest totalling more than Rs 27,000 crores in India, including Rs 14,200 crores for the acquisition of Hutchinson and claims worth Rs 9,900 crores related to transfer pricing, and a one-time spectrum charge[9].

It spent Rs 19,200 crores to acquire spectrum in the 2014 spectrum auction. It renewed its licenses in 900 MHz band in Mumbai, Delhi, and Kolkata, which were to expire in November 2014. Apart from this, it bought spectrum in 1800 MHz band in 11 circles.

It plans to spend around Rs 7000 cr to expand its data network and coverage, in addition to the capital expenditure of Rs 5000 cr, over the next few years.

Key Financials(2013) Revenue: Rs 356 bn EBITDA: Rs 106.5 bn Operating Free Cash

Flow: Rs 63 bn Capex: Rs 47.3 bn Net Debt: Rs 300 bn

Operating metrics:

ARPU: 178 RPM: Rs 0.446

* Vodafone India is an unlisted subsidiary, and hence, key fundamentals and price chart is not available

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IDEA CELLULAR Company Information Idea cellular is an Indian mobile network operator based in Mumbai. It came into existence in 2000, when Tata cellular and Birla-AT&T merged to form Batata, which was later renamed as Idea. Later, both AT&T and Tata exited, to leave Idea with only one promoter, the AV Birla Group, which current holds 49.1% stake in the company[10]. Key Features It ranks 7th in the world based on number of subscribers in single country

operations, and ranks 3rd in India based on subscribers.[11]

It serves 136 million subscribers across India

It owns 9,446 towers, and a 16% stake in Indus Towers through its subsidiary, and has 82000 km optic fibre cable network

It offers 2G in 22 circles, 3G services in 12 out these 22 circles, and is capable of offering 4G services in 8 of these 22 circles

Recent Developments In the February 2014 auctions, it acquired 5 MHz in the 900 MHz band , and

60.2 MHz of spectrum in 1800 MHz band, out of which 45 MHz is contiguous spectrum that can be used to offer 4G services

It got approval from Reserve Bank of India, relating to increasing the investment limit for overseas investors to 49% from current 24% under the portfolio investment scheme

Obtained access to long-disputed permits in Punjab and Karnataka zones, originally held by Spice Communications, which it had acquired in 2008. It will help Idea launch 3G services in Punjab, where airwaves were bought, but services not started.

Key Financials Revenue: Rs 265.2 bn EBITDA: Rs 83.3 bn Net Income: Rs 19.7 bn Net Debt: Rs 192.2 bn Cash Flow from

Operations: Rs 62.9 bn

Key Fundamentals:

Market Cap :

Rs 48,995 cr CMP: Rs 137 P/E : 23.35 52 week high/low:

188.4/125.1 ROE: 12.77

Operating Metrics:

ARPU: 173 RPM: Rs 0.436

1 Year Price Chart

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RELIANCE COMMUNICATION Company Information It is an Indian mobile phone operators, based in Mumbai. It was initially known as Reliance Mobile, launched in 2002, which later became Reliance Communication, offering both CDMA and GSM services. It operates in several segments; wireless, broadband, Direct-to-Home(DTH). It has several subsidiaries, such as Reliance Telecommunication Limited, Reliance Tech Services, Reliance Digital TV etc. Key Features It has over 130 million subscribers over India, covering 24,000 towns and

600,000 villages in India It operates CDMA in 22 circles , 2G in 22 circles, and 3G in 13 circles in India It has the largest network of backhaul fibre optic cable among private players

in India, running around 190,000 kms, and the world’s largest private submarine cable system owner with over 70,000 kms of sub-sea fibre

It provides Ethernet services, reach in more than 163 countries, more than 30,000 managed sites being serviced, and over 1,000 MNC customers

It has LTE capable spectrum in 850 MHz, 900 MHZ, 1800 MHZ, and 2100 MHZ bands, with additional access to 2300 MHz band due to reciprocity agreement with Reliance Jio

Recent Developments Entered into comprehensive business co-operation agreement with Reliance

Jio, including sharing of 45,000 towers; sharing of 120,000 kms of inter-city cable, with RCOM having reciprocal access to towers and cable built by Reliance Jio

It won 1 circle in the February 2014 auctions, with a total payout of $44 mn over ten years

7 circles in the 900 MHz band will be up for renewal in 2016, requiring payout of $255 mn, and other circles will be up for renewal in 2022 for $186 mn

Key Financials Revenue: Rs 223.2 bn EBITDA: 67.7 bn Net Income: Rs 11.37

bn Net Debt: Rs 400.2 bn

Key Fundamentals: Market Cap :

Rs 30,981 cr CMP: Rs 151.35 P/E : 29.55 52 week high/low:

164.5/105.6 ROE: 3.16

Operating Metrics ARPU: Rs 128 RPM: Rs 0.432

1 Year Price Chart

RELIANCE JIO INFOCOMM Company Information It is the latest to enter the telecom sector in India, though it has still not begun operations. It was formerly known as Infotel Broadband Services Limited, and later changed its name in January 2013. The company was incorporated in 2007, and is based in Mumbai. It operates as a subsidiary of Reliance Industries Limited. Recent Developments The only player to have pan-India 4G license, obtained through BWA auctions in 2010 for Rs 12000 crores It acquired spectrum in the 1800 MHz band in 14 circles across India, for Rs 11,054 crores in the February

2014 auctions. It plans to offer 4G services, as well as voice services on the network, which could play a game changer not

only in the data segment, but in the voice segment too. It has not started services yet, nor has it detailed its planned to its investors, though it has invested $5 billion to build infrastructure for offering the service

It has signed multiple tower sharing agreements with Bharti Infratel Ltd., Reliance Infratel Ltd., Viom Networks Ltd., Tower Vision India, and ATC India Tower Corp, apart from building its own towers. It also has optic fibre sharing agreements with Bharti Airtel Ltd. and Reliance Communications Ltd[12].

Reliance Industries Ltd., through Independent Media Trust, acquired the stake of Indian partner of Viacom Inc. for $ 678 million, to gain news and entertainment content for Reliance Jio Infocomm. It will control 73.1 percent of Network 18 Media and Investments Ltd., and 55 percent of TV18 Broadcast Ltd.(TV18)[13]

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OUTLOOK Growth in subscribers

Number of subscribers expected to increase from 961 million to 1.2 billion by FY2016.

Rural teledensity to increase

Rural penetration expected to increase from 41% to 70% by 2017

Increasing clarity related to regulations

Relaxed FDI norms, reduction in SUC, and increase in M&A from liberal norm of up to 35% market share of

resultant entity for merger or acquisition, subject to presence of 12 or more providers in that circle, leading

to consolidation in the industry, and boarding well for the industry

Consolidation in the sector

With new companies bidding for spectrum in the recent auctions, the price-war is set to resume, with fierce

competitors such as Reliance Jio Infocomm, Sistema etc, with increasing possibility of takeovers of smaller

players

Increasing internet usage

With rising number of mobile applications, smartphones, and internet-related services, the use of internet is

bound to rise, leading to greater use of data on mobile network.

CONCLUSION Telecom sector has seen the highs of the telecom boom, and the lows related to aggressive pricing war coupled

with regulatory hurdles. There are still certain issues that need to be sorted by the government, such as the

refarming clause requiring operators from 900 MHz band to move to 1800 MHz band; sharing of spectrum for

roaming that will allow operators to offer services even in those circles where they do not have spectrum. Clarity

of the government on these issues is vital for the progress of the sector. Also, with the recently concluded

spectrum auction, companies have shelled out large amounts of money, leading to not so comfortable debt levels.

However, with consolidation happening in the sector, operators increasing the prices, and the vast amount of

untapped rural population, there is still a long way to go for the telecom sector.

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REFERENCES 1. “National Telecom Statistics”- Cellular Operator Association of India

http://www.coai.com/Statistics/Telecom-Statistics/National/Nationalhttp:/

2. “Technology, Communications and Media: India”, Euromonitor International

3. Annual Report 2013- Bharti Airtel Limited

http://www.airtel.in/about-bharti/investor-relations/results/annual-results/

4. “Bharti Airtel Ltd acquires prime spectrum to lead data growth story”

http://in.reuters.com/finance/stocks/BRTI.BO/key-developments/article/2921934

5. “Vodafone Group Plc may sell stake in Bharti Airtel Ltd”

http://in.reuters.com/finance/stocks/BRTI.NS/key-developments/article/2997422

6. Vodafone Group Plc Annual Report 2014

http://www.vodafone.com/content/annualreport/annual_report14/downloads/full_annual_report_2014.

pdf

7. https://www.vodafone.in/business/pages/whyvodafone.aspx

8. “Vodafone Takes Full Control of Indian Business”

http://in.reuters.com/article/2014/04/11/vodafone-piramal-stake-idINDEEA3904520140411

9. “Vodafone Facing Tax Liability of Over Rs 27,000 crore in India”

http://profit.ndtv.com/news/corporates/article-vodafone-facing-tax-liability-of-over-rs-27-000-crore-in-

india-441524

10. http://economictimes.indiatimes.com/idea-cellular-ltd/infocompanyhistory/companyid-3154.cms

11. Investor Relations Presentation, March 2014

http://www.ideacellular.com/wps/wcm/connect/bbc09e5a-2686-4a48-9a60-

a14fcda3e193/Investor+Presentation_19May+2014.pdf?MOD=AJPERES&CACHEID=bbc09e5a-2686-4a48-

9a60-a14fcda3e193

12. ” Inside Reliance Jio’s plan for Telecom, Information, and Entertainment”

http://www.livemint.com/Companies/x9bETJVXMoNYQBOdjcGe0O/Inside-Reliance-Jios-plans-for-

telecom-information-entert.html

13. “Mukesh Ambani Buys Viacom’s India Partner for 4G content”

http://www.bloomberg.com/news/2014-05-29/reliance-to-spend-40-billion-rupees-for-control-of-

network-18.html

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