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Indian Cellular Industry-Ti, May'07

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Submitted By hitesh98
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The Indian Mobile Industry

May 8, 2007 @ Dallas T V Ramachandran, Director General, COAI

CONTENTS
I. II. ABOUT INDIA THE INDIAN TELECOM SCENARIO

III. KEY PERFORMANCE INDICATORS IV. INDUSTRY INITIATIVES V. TELECOM MANUFACTURING

VI. GROWTH POTENTIAL OF THE SECTOR VII. AFFORDABLE ACCESS FOR RURAL AREAS VIII. KEY CHALLENGES IX. LOOKING AHEAD

2

ABOUT INDIA

3

THE WORLD’S SECOND LARGEST MARKET
Area – 3,287,263 Square kilometers Population (2006) – 1.11 Billion 22 National Recognized Languages Literacy Rate (2005) – 65% Average Annual Growth Rate – Population – 1.3% (growth is slowing) – GDP- 8.5% Trade (2006) – Total Exports – USD 103 Billion – Total Imports – USD 142 Billion Forex Reserves (including gold) =USD 200 Billion

INDIA INDIA

Source : FICCI/ Exim bank

4

….& ONE OF THE FASTEST GROWING ONES
One of the fastest growing economies in Asia. Annual GDP growth rate of ~8% over next 5-10 years Set to emerge as 3rd largest economy in the world by 2020 Major global hub for IT & IT enabled services By 2010 – Literacy Rate: 80% Middle Class: 32% (exploding) Poverty: 16% (declining)

5

“I visualize a prosperous India well before the year 2020. We expect the people below the poverty line to come to near zero, our literacy must be nearly 100% and tele-density will reach over 75%.”
APJ Abdul Kalam The President of India
6

THE INDIAN TELECOM SCENARIO

7

INDIAN TELECOM GROWTH

Even though the world has just discovered it, Indian telecom growth story is >10 years old.

8

INDIAN TELECOM GROWTH STORY
NTP 1994 License issued for 4 Metros Circles opened up for Cellular Private sector participation for supplementing the efforts of the Government CPP introduced Explosive growth of wireless Steep reduction of tariffs Unified access license regime introduced IUC implemented Licence fee reduced USO Fund Established Intra-Circle M&A guidelines announced

The Telecom Regulator (TRAI) established Six basic services licenses signed

4th cellular license issued 25 basic licenses issued Dot corporatised NLD sector opened TDSAT formed

1994

1995

1996

1997

1999

2001 2002

2003

2004 2005

Start of operations in 4 Metros License issued for 20 circles

Start of operations of cellular services in circles ISPs started operations at a notional entry fee.

NTP 1999 Migration to revenue sharing making industry viable BSNL and MTNL third operator in cellular Tariff rebalancing Open competition Technology neutral

4th Cellular operator starts operations ILD sector opened up Internet telephony partially allowed

FDI limit Increased to 74% Indigenous manufacturing by global players Initiated Broadband policy Revision in NLD/ILD policy 9

POLICY INITIATIVES IN THE PAST HAVE ENABLED GROWTH
Effective charge (in Rs. Per min) 16 14 12 10 8 6 4 2 0.88 0 1998 1999 2000 2001 1.2 1.88 6 3.58 3.58 2 6.5 2002 13 1.6 2003 0.44 0.4 2004 2005 0.4 2006 0
Introduction of CDMA 3rd & 4th Cellular Operator

Subscriber Base (in mn)

Lowering of ADC from 10% to 1.5% of the revenue

14

14

NTP'99

Lowering of ADC from 30% to 10% of the revenue CPP Introduced

120 100 96.63 80 60

51.53 33.31

40 20

All points of inflexion have yielded positive benefits for the industry as well as the customers

10

INDIA WITNESSING ROBUST GROWTH IN OVERALL TELECOM REVENUES
Indian Telecom Services S. No. Service Categories Revenues (in US$million) 2004-05 1. 2. 3. 4. 5. 6. 7. Fixed Cellular NLD ILD Internet Access VSATs Radio Trunking 7,160 4,992 1,365 839 349 81 7 14,791 2005-06 7,386 7,860 1,975 1,581 355 97 8 19,261
1USD=Rs. 45.6

Total Services Revenue
Source: Voice & Data, July 2005 * COAI Estimates

Overall Telecom Revenues growing @~30%, with Cellular Revenues growing @ ~60%

11

INDIA JOINS THE 100 MILLION MOBILE SUBSCRIBER CLUB IN MID 2006
180 160 140 120
Subs (millions)

GSM

CDMA

100 80 60 40 20 0
1999 2000 2001 2002 2003 2004 2005 2006 2007

Year ended March

Mobile Subscriber Base reaches 166 Million in March 2007

12

INDIA 2nd HIGHEST IN 12-MONTH SUBSCRIBER ADDITIONS
Net adds over the four quarters to the end of September 2006, (in million) (starting Oct 05 to end of Sept 06)
China India Russia USA Pakistan Ukraine Brazil Indonesia Nigeria Bangladesh

Total additions global million Share of top 10 56%

484
0 20 40 60 80

Globally highest monthly additions of 7 – 8 million
Source: Wireless Intelligence, Sept. 2006

13

GROWTH FACILITATED BY SHARP SPURT IN MOBILE COVERAGE IN 2005 - 2006

Doubling of Pop. Coverage and Trebling of Geographical Coverage over last 12 months
Source: GSMA

14

MOBILE HAS BECOME AN INTEGRAL PART OF EVERYDAY LIFE

Mobile also facilitating business productivity and e-initiatives

15

The recent growth achievements stem from industry’s confidence in Government’s forward looking policies, enabling regulation & fair play for all players

16

KEY PERFORMANCE INDICATORS

17

INDIAN MOBILE TARIFFS THE LOWEST GLOBALLY
0.5 0.45 0.33 0.24

Call Charges per min (in US$)

0.4 0.3 0.2 0.11 0.1 0 0.04

Average (0.20)

0.03

Australia

Tariffs have fallen further to around 0.01 USD levels
Source: TRAI Recommendations on Growth of telecom services in rural India, October 3, 2005

Switzerland

Japan

China

Brazil

India

18

LOW CALL CHARGES HAVE LED TO RISING MINUTES OF USE s OU M
287 368 341

Minutes/Subscriber/Month

245 204 175 220 192

1999

2000

2001

2002

2003

2004

2005

2006

Constantly rising MoUs
Source: COAI-PWC Benchmarking Reports

19

THE CHALLENGE OF CONSTANTLY DECLINING ARPUs
29.3 26.1

USD/Subscriber/Month

18.4 16.5

11.4 8.7 7.9 7.0

1999

2000

2001

2002

2003

2004

2005

2006

Indicator of increasing affordability of services
Source: COAI-PWC Benchmarking Reports

20

MET PARTLY BY CONTINUOUSLY IMPROVING EFFICIENCIES
22.4 19.1

USD/Subscriber

Op ex .p er su bs cri be r
10.2 7.4 6.5 4.7 3.6 3.2

1999

2000

2001

2002

2003

2004

2005

2006

Opex per sub brought down by 80% in last 5 years
Source: COAI-PWC Benchmarking Reports

21

TRENDS IN INDUSTRY REVENUES AND EBITDA MARGINS
Industry Revenue (USD Billion) EBITDA argin (% of Net Service Revenue) 350 300 250 200 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 27 36 15% 58 81 30% 36% 23% 149 202 44% 39% 311 43% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

Source: COAI-PWC Benchmarking Reports

22

REVENUES FROM VAS
VAS Revenue Break - Up
19% 5%

7% 6% 6%

57%

SMS

CLI

GPRS

Ringtones & Ringback Tones

Content Downloads

Other VAS

High share of SMS revenue attributed to high take up of SMS based services in the country
Source: COAI-PWC Benchmarking Reports

23

GROWTH OF DATA MARKET

Data market is expected to grow at a CAGR of 77% over CY 04-10 Major contributing factors will be Burgeoning youth population (60% of population below 30 yrs) Fast rising consumption and infotainment expenditure pie Social affinity to music and Bollywood
Source: Lehman Brothers Global Equity Research

24

SMS – KEY REVENUE STREAM % of subscribers using SMS at least once a week – 72% Indian subscribers highest at 90% Newspapers, Radio & Television channels get 40,000 – 45,000 SMSs a day Innovative services like SMS ticketing, booking of movie tickets & gas cylinders, etc. gearing up

200 180 160

180

SMS Volumes in billion

140 120 100 80 60 40 20 0 2004 2005 2006 2007 2008 12.3 33.1 20.6 50.7 89.4

140.2

2009

2010

SMS Volumes expected to grow in the next four years due to – falling prices, increasing mobile penetration, widening user demographic increasing number of SMS based services.
25

Source: Portio Research

BURGEONING MOBILE ENTERTAINMENT MARKET
MOBILE MUSIC Size of Indian mobile music industry larger than regular music industry 300 million ringtones downloads per annum. Sale of ringtones zoomed to USD 100 million, expected to double over the next 12-18 months. Indian mobile music industry will be largest at USD 800 million by 2009-10.

26

BURGEONING MOBILE ENTERTAINMENT MARKET
MOBILE TV Mobile Bollywood Initiative – short movies tailored for mobile devices MOBILE GAMING Indian mobile gaming market was at US$ 26 million in 2004 – Expected to grow by 66% in next 5 years to reach $336 million by 2009. Bollywood contributes 15% of total gaming market – Expected to reach 60% in next two years. Regional movies segment also on the move: Tamil, Bengali, etc.
27

3G IN INDIA

3G – To alleviate spectrum crunch in metros & big cities Useful for different stratas of society Fulfill content rich mobility experience in metros. Valuable tool to reach rural areas Cheapest way for Mobile Broadband Achieve social initiatives like e-education, telemedicine, etc. Adoption method should suit highly price sensitive Indian market

3G in India will help achieve Broadband penetration and mitigate spectrum availability problems
28

INDUSTRY INITIATIVES

29

INDUSTRY INITIATIVES IN 2006
Project “MOST” – Mobile Operators Shared Tower – Launch of shared sites in Delhi & later in Mumbai – Project extended to other parts of the country TRAI in its recommendations on Infrastructure Sharing has promoted it through: Proposed amendment in license conditions to enable backhaul sharing and active infrastructure sharing. Joint Working Group to take quick decisions with regard to infrastructure in critical locations. Laid emphasis on use of non-conventional energy. Subsidy per site to operators using non-conventional sources. Civic Authorities should encourage infrastructure sharing, by way of providing financial incentives to service providers who opt for sharing – total amount charged per tower should not be more than 1.2 times the amount charged from individual service providers.
30

INDUSTRY INITIATIVES IN 2006
Subscriber Verification Apex Advisory Council for Telecom in India 4 stage process for verification Reverification of existing prepaid subs – completed the task of re-verification of nearly 85 million subscribers in stipulated time of 10 months. This task is one of its kind, performed by Indian Operators, the likes of which have not been seen anywhere in the world.

31

INDUSTRY INITIATIVES – IN PROGRESS
Mobile Instant Messaging Provides a real time, fast-paced, multi-party conversation environment. Setting up of Interconnect Exchange Industry looking at interconnect exchange as a medium to a long term solution Setting up of Telecom Sector OMBUDSMAN
Low cost and expeditious redressal mechanism for consumer grievances

Co-operative Fraud Management Sharing of Bad Debt Database Mobile Money Transfer (MMT) Project Expeditious and cost effective way to remit money back home through a simple SMS
32

TELECOM MANUFACTURING

33

INFLUX OF GLOBAL PLAYERS

Alcatel – production facility in collaboration with ITI for GSM base stations in Manakpur (July’05) & Rae Bareilly (November ’05) in UP Ericsson - manufacturing facility for GSM Radio Base Stations in Jaipur, R&D facility in Chennai & a Global Services Delivery Centre (GSDC) in Gurgaon Motorola - R& D Centre, applied research lab in Bangalore Nokia - handset manufacturing facility & global network solution centre in Chennai. Samsung - mobile handset plant in India LG Electronics - GSM-based phone handsets. Sem India, AMD, Intel, Cisco, Flextronics, Siemens……….

Over the last 18 months, more than 10 MNCs have committed nearly $5 billion to telecom manufacturing in India. Another $2 billion is expected to be committed soon

34

LOWERING OF DUTIES ON HANDSETS
30 25 20 15 10 5 0 1999 2000 2001 2002 2003 2004 5 5 10 10 5 0 2005

%
25

Custom duty on handsets is eliminated

60 50 40 30 20

%
51

27

27

Overall duty on handsets has 10 been brought down
0 1999 2000 2001

14

14 5 4

2002

2003

2004

2005

Source: Crisil Research

35

GOVERNMENT’S TELECOM MANUFACTURING TARGETS
Making India a hub for telecom manufacturing by facilitating more & more telecom specific SEZs. Providing platform for export promotion of telecom equipment and services by setting up Export Promotion Council FDI of US $2 billion in telecom manufacturing by end 2007 Mobile handsets will be made available at a price of about Rs. 1,000 this year.

36

THE TELECOM CENTERS OF EXCELLENCE
Government has also proposed to set up 7 TCE’s The various disciplines are: Technology Integration & Dissemination Telecom Technology Management Telecom Infrastructure, Energy and Rural Application Telecom Applications and Security Telecom Policy, Governance & Regulation Next Generation Telecom & Network Technology Rural specific technologies

37

GROWTH POTENTIAL OF THE SECTOR

38

FUTURE GROWTH DRIVERS

Booming Knowledge Sector-major global hub for IT enabled services.

Burgeoning Middle Class100 MN added between 19952002

Younger Population- 51% population below age of 35

GROWTH High GDP Growth - 8% to 10% p.a. in next 5-10 years.

Rising Income Levels - 4th largest economy after USA, China & Japan (in terms of PPP)

Growing Urbanization - as infrastructure develops rural India will become increasingly

39

THE DEMOGRAPHIC DIVIDEND
The young ones : The adopters of wireless 54% of the population, i.e.. 555 million below 25 years age 45% of the population even below 19 years age The Working Age Group : The Users of Wireless India’s working age population is steadily burgeoning

– – –

2001 – 59% of total 2006 – 62% of total 2011 – 63.4% of total……………peak representing 747 million…….more than entire population of Europe that year!!

The Professionals : The Heavy Users Increasing number of Professionals who are less price sensitive and require hi-quality information as well as commerce & business services and applications
40

THE CONSUMPTION DIVIDEND
Rising savings rate - expected to grow from 23% to ~30%, - will result in increased consumer spending Improving levels of affluence – between 1995 & 2002, nearly 100 million people became part of the consuming & rich class Liberalization children driving consumer behaviour : Consumption vs. saving, accessing credit vs. living within means, different rankings of necessities and luxuries 462 million people in consuming & affluent classes by 2006-07, with another 472 million as climbers 70.5% of population is in ‘middle income’ in 2006-07 as compared to 56.7% in ’99-’00 High income group will rise to 11.7% from 6.9% Even at 6% CAGR based on PPP, market size will rise from USD 1500 billion today to USD 2700 billion by 2010 and to USD 3400 by 2015

41

RURAL INDIA IS GROWING

Increase in telephone expenditure in rural India Increased by whopping 515% since 1999-2000

Increase in proportion of households incurring expenditure on telephone in rural India Increased from 5% to 32% since 1999-2000

42

AFFORDABLE ACCESS FOR RURAL AREAS

43

AFFORDABLE ACCESS FOR RURAL AREAS
Because: 70% of population is in Rural Areas “Going forward, growth will be driven not so much by falling tariffs, but more on the back of rapidly increasing geographical spread”………. ………...Sheriar Irani, IDBI Capital Market Services Ltd. However, India getting urbanized – 2006: 26% India is urban – 2017: 77% India will be urban

44

AFFORDABLE ACCESS FOR RURAL AREAS
Improved rural connectivity is highest priority item for both the Government and the industry Government initiated a unique project in 2006 to provide subsidy support from the USO Fund for setting up shared wireless infrastructure in rural areas USO tenders announced in yearly 2007 & operators have actively participated in the bidding process Other steps by Service Providers: • Special tariff packages for rural areas • Micro pre-paid cards • Local language content

45

AFFORDABLE ACCESS FOR RURAL AREAS
Efforts are being made to lower the entry barrier for consumers. – Emerging Market Handset Initiative (EMHI) launched by GSM Association - sub USD 40 handset & USD 30 have been launched – The single chip cellphone solution launched by global renowned chipset suppliers like TI will also contribute to make available increasingly affordable mobile handsets to consumers. – Requirement of cost efficient handsets with latest features

Falling handset prices would continue to drive affordability for mobile services in rural areas
46

KEY CHALLENGES

47

THE CHALLENGE TO SUSTAIN GROWTH
Low ARPU & RPM coupled with high levies and duties lead to: industry operating on thin margins inadequate resources to fund network expansion Despite growing profits, operators are still in negative cash flows till 2008 Slowing penetration of service Infrastructure Sharing will play an important role

Telecom not to be treated as source of Government revenue but key infrastructure, vital for economic development
48

THE CHALLENGE OF HIGH REGULATORY COST
Indian cost structure one of the highest in the world As per TRAI, total levies on account of license fee service tax and spectrum charges are ~ 29% of the industry’s Adjusted Gross Revenues High costs coupled with low tariffs (lowest in the world) leave operators with inadequate free cash flows to fund their expansion & rollout plans

Lowering of levies would enable higher penetration and growth
49

THE CHALLENGE OF ADEQUATE SPECTRUM
Challenge of managing growth with limited spectrum met by putting in place a unique subscriber linked spectrum allotment procedure This eases pressure on Government to allot spectrum at one go & simultaneously facilitates efficient network planning and design Queuing mechanism & achievement of pre-defined subscriber targets triggers off eligibility for next round of spectrum allotments Roadmap prescribed for 15MHz for GSM and 7.5 MHz for CDMA. Need to extend further to sustain aggressive growth Govt. efforts underway for vacating of spectrum in 1800 MHz for 2G and in 2100 MHz to introduce 3G
50

LOOKING AHEAD

51

INDIA EXPECTED TO CONTRIBUTE HIGHEST TO NEXT HALF BILLION
Top ten countries by volume of net additions, Q4 2006 to Q4 2007 (in millions)

India China USA Russia Pakistan Indonesia Brazil Nigeria Ukraine Bangladesh

Total additions global Share of top 10

486 million 60%
0 20 40 60 80 100

Source: Wireless Intelligence, Sept. 2006

5 2

FUTURE GROWTH
575

600 500
Subs (millions)

400 275 300 190 200 100 0

Dec-06A

Dec-07P

Dec-10P

Mobile will be the key predominant in this telecom growth
53

INDIA’S TRYST WITH DESTINY
“I see a nation that has the capacity and confidence to address and resolve these challenges. The world believes that India, to quote the great Jawaharlal Nehru, has a tryst with destiny. The time has come to redeem that pledge.”

- James D. Wolfensohn, World Bank President, New Delhi Nov. 18, 2004

54

THANK YOU tvram@coai.in Please visit us at : www.coai.in

55

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