Telecom sector

Telecom Growth Story

PHASE 1:- TAKE OFF PHASE (From FY 1991 to 2001)
Prior to 1991 the telecom industry was state-

owned.
In 1995, two licenses were issued for four

metropolitan Circles
Fixed annual license fees. Revenue sharing based license fees.

PHASE 2:- HIGH GROWTH PHASE (FY 2001 to 2004)
In 2001, GOI published guidelines regarding

the fourth license for each circle.
FDI was increased to 49%. WLL (wireless in local loop) technology. 2003 - Transition to calling party pays (CPP)

PHASE 3:- ONGOING PHASE (FROM FY 2004 ONWARDS)
In 2005 FDI hiked to 74% In 2007 GOI allowed providers to apply for

Cross Over Spectrum.
New license issued 12 players per circle

Indian Telecom Industry – A Lucrative Option Indian Telecom Industry – Facts

 One of the fastest growing cellular markets in the world in terms of number of subscriber additions – 120.00 million (in FY 2009)  Expected to reach total subscriber base of about 500 million by 2010 (i.e., more than one phone for every household)  More GSM subscribers than fixed-line subscribers.

*USD=50

• Data Source TRAI 2009 Report

Indian Telecom Market Overview

As on 31st March 2009

Telecom Subscribers

- Fastest growing mobile markets in the world

Mobile telecom services provide an unprecedented growth opportunity for companies

Minutes of Usage per Month – Mobile Services
USA
838

India China

461

303

Despite a low teledensity of approximately 34percent, India has the second highest minutes of usage per month. This offers huge growth opportunity to telecom companies.

Russia

88

ARPU* in India – Mobile Services

The declining ARPU implies that India Inc. is tapping a large market at the bottom of the pyramid by reducing tariffs.

* Average Revenues per
User

• Data Source TRAI 2009 Report

ARPU
CDMA Prepaid 72 75 98 82 Postpaid 393 342 360 403 A B C Metro Prepaid 188 175 184 175 GSM Postpaid 534 501 506 587

Estimates for ARPU * • Sharp decline by 18% to reach Rs 150 by FY 2010 • Rs 136 by FY 2011 * Source: Crisil Research

Circle Wise ARPU Trend

MOU (Minutes Of Usage)

The exposure to Telecom sector as on 31 March 2009

is around Rs.9590.97 crore

TELECOM SECTOR

Telecom Services

Telecom Infrastructure

TELECOM SERVICES
Fixed Landline
Subscriber Base (in 000s) Mobile Fixed TOTAL 2004-05 56973 41407 98380 2005-06 98834 41540 GSM 140374

Mobile Service
2006-07 2007-08 2008-09 166051 40780 206831 251806 39309 333586

39909 CDMA 373495

291115

Few Terminologies
Spectrum ARPU – Average Revenue Per User MOU – Minutes of Usage ADC – Access Deficit charges IUC – Inter Connection Usage Charges

Mobile Service Operators
GSM
Lower Tariff plans

CDMA
Higher tariff plans

and cheaper handsets 74% Market Share CDMA players venturing into GSM

and expensive handsets 26% Market Share Low acceptability. Few variety of handsets

Market Structure for Wireless Service (GSM)
 Divided into 22 circles  4 metros  19 circles  Further divided into A, B and C category based on economic parameters and revenue potential  Each circle has a licenses  Twelve operators per circle are allowed
Jammu & Kashmir Himachal Pradesh Punjab Haryana Uttar Pradesh W North Eastern States

DELHI Rajasthan Uttar Pradesh E Bihar Gujarat Madhya Pradesh West Bengal

Maharashtra MUMBAI

Orissa

KOLKATA

Existing Players • Bharati Airtel • Vodafone • Reliance • Idea • Tata Teleservice • Aircel • Bsnl(includes Mtnl)

New Players • Datacom Solution • S Tel • Loop telecom • Shyam Telelink • Etisalat DB India (Swan Telecom) • Unitech

Andhra Pradesh

Karnataka

METRO Circles
CHENNAI Tamil Nadu

A Circles B Circles C Circles

Kerala

Source :COAI & TRAI

OPERATOR Bharati Vodafone IDEA

TECHNOLOGY SPECTRUM No of Circles GSM GSM GSM 900 1800 1800 900 1800 13 9 22 7 15 8 13 22 22 22 22 Pan India

Status of Rollout

Pan India rollout in next 12 to 18 months Already Launched Present in 5 markets, rollout in 2 in next 6 months and rest by fiscal end Pan India with both GSM and CDMA.

RCOM

GSM CDMA

900 1800 800 800 and 1800 1800 1800

Tata Teleservice Aircel BSNL(incl MTNL)

CDMA and GSM GSM GSM

CDMA pan India presence, pan India GSM rollout planned Present in 7 markets, pan India GSM rollout by 24 months Pan India

New Players foreign tieups

MARKET SHARE

Wireless Penetration - Circle wise

* Figures in millions

Telecom Regulatory Framework
The Department of telecommunications (Government of India) is the main governing body for the industry. Telephone Regulatory Authority of India (TRAI) assists the Government of India (GoI) to take timely decisions and introduce new technologies in the country.

Indian Telecom Industry Framework
Indian Government Bodies Wireless Planning Handles spectrum and Coordination allocation and management (WPC) DoT – Licensee and Department of Telecommunications frequency management for telecom

Independent Bodies Telecom Commission Group on Telecom and IT (GoT-IT) Exclusive policy making body of DoT Handles ad hoc issues of the telecom industry

Regulatory Framework provides level playing field for all operators
The Department of telecommunications (Government of India) is the main governing body for the industry. Telephone Regulatory Authority of India (TRAI) assists the Government of India (GoI) to take timely decisions and introduce new technologies in the country.

Indian Telecom Industry Framework

Independent Bodies Telecom Regulatory Authority of India (TRAI) Telecom Disputes Settlement and Appellate Tribunal (TDSAT)

Independent regulatory body Telecom disputes settlement body

Ministry of Communication & Information Technology
Licensor Dept of Telecom Regulator Telecom Regulatory Authority of India Judiciary Telecom Dispute Settlement Appellate Tribunal

Unified License Operators Fixed Line Operators National Long Distance Operators International Long Distance Operators Wireless Operators GSM 900 & 1800

CDMA 1800Mh z

Various important regulations and laws have been passed in the Indian telecom industry post-liberalisation era INDIA
BSNL was established by DoT ILD services was opened to competition Go-ahead to the CDMA technology 2002 2000 Internet telephony initiated Reduction of licence fees 3G Spectrum Was Auctioned. In April Airtel launched 3G Service and MTNL in December 11

Private players were allowed in Value Added Services 1994 1992

Independent regulator, TRAI, was established

Calling Party Pays (CPP) was implemented 2003 Unified Access Licensing (UASL) regime was introduced Reference Interconnect order was issued

Intra-circle merger guidelines were established Attempted to boost Rural telephony 2004 2005

Number portability was proposed (pending)

1999 1997

2007 2006 2008

National Telecom Policy (NTP) was formulated

NTP-99 led to migration from highcost fixed license fee to low-cost revenue sharing regime

Broadband policy 2004 was formulated— targeting 20 million subscribers by 2010

Decision on 3G services (awaited) FDI limit was increased from 49 to 74 percent

ILD – International Long Distance

- Financials and Snap shot

PEER COMPARISION
Bharti Airtel Revenue EBITDA EBITDA Percentage PAT ARPU Market Cap 36961 15188 41.10% 8490 305 159002 R- Com 22235 8581 38.50% 5908 224 55243 IDEA 10144 2830 27.90% 901 254 23591.72 6564.3
* Figure in Crores

TTML 2065 624 30.21% 174

Bharti Airtel
FINANCIALS
Revenue 36961 Crore EBITDA 15188 Crore EBITDA Percentage Highest market share Bharti is the best placed

41.1% PAT 8490 Crore ARPU 305 Market Cap 159002.26 Crore

operator : it has access to spectrum in the 900 MHz band in 13 circles Well placed to exploit rural opportunity

R- Com
FINANCIALS
Revenue 22235 Crore EBITDA 8581 Crore EBITDA Percentage 2nd largest Player Recent rollout of GSM

40.5% PAT 5908 Crore ARPU 224 Market Cap 55243.68 Crore

service in 14 circles. Most aggressive tariff plans. Huge capex requirement. Signed tower Sharing agreement with Etisalat

Subscriber & Revenue Share (FY 09)

Idea Cellular
FINANCIALS
Revenue 10144 Crore EBITDA 2830 Crore EBITDA Percentage 27.9 5th Largest player Acquired Spice Telecom -

Crore PAT 901 Crore ARPU 254 Market Cap 23591.72 Crore

Punjab and Karnataka circles.

TTML
FINANCIALS Revenue 2065 Crore EBITDA 624 Crore PAT 174 Crore ARPU Market Cap 6564.30 Crore
Late entrant in the

Market. Foray into GSM will further erode profitability.

Active Infrastructure :-

INFRASTRUCTURE
 Consists of antennas, cables, filters, switches and

transmission systems.  It accounts for 55% of the total capex that is spent on infrastructure.

Passive infrastructure: Includes towers (racks, battery back-up etc)  It accounts for 45% of the total capex.  Passive in fracture in semi urban and rural areas is

likely to be shared so as to reduce the capital expenditure and make the service more affordable.

 

TELECOM TOWER COMPANIES
 The telecom tower market size in India is valued at INR 775 bn.  Estimated requirement of 321,000 in 2010 and 554,000 by 2015.  Projected growth rate of 17% p.a. from 2008-2015.  All leading mobile service operators are expanding and increasing their

coverage by:
 Increasing their network  Increase coverage through tower sharing  Using independent tower networks

TYPES OF TOWERS
Ground-based tower (GBT) Towers are erected on ground Height of the towers are in between 200 – 400 feet GBTs are ideally suitable for rural and semi-urban areas Capex involved is in between INR 2.4 – 2.8

TYPES OF TOWERS
Roof-top tower (RTT)  Towers are placed on roofs of buildings  In terms of height these towers are shorter than GBTs  RTTs are ideally suited for Urban areas and metros Capex involved is usually in between INR 1.5 – 2 mn

Tower Capex Demystified

 Shelter houses the AC, Battery rack and Base transceiver stations  Microwave antennas are used for tower to tower communication  Cell site also includes a cabin for security guard  Electrical works costs consists of cost of Servo stabilizer, DC power plant, Connection, Installation and Cabling Charges  Pre- Opex expenses include expenses for local approvals, Muncipal deposits, civil works for gate and fence.

Major tower companies in India
New entrants
American Tower

Corporation Ramboll Tower Vision Crown Castle

Independent tower companies – Value Unlocking
Highly capital-intensive High depreciation and interest cost makes it

unviable for telecom operator to operate towers on their own.
Tower companies can earn revenue in the

form of rentals and recoverable expenses (like fuel and electricity charges) from tenants.

The tower business may not be profitable if

the tower has just one tenant.
Cost of adding an incremental tenant is quite

low, the new tenant would primarily add to the EBITDA.
Hence, as the tenancy increases the company

starts realising higher margins.
Tenancy Ratio drives the payback period.

900 MHz v/s 1800 MHz
Higher Frequency Higher cost 900 MHz
Larger coverage area and lower base station

requirement. Less capex and lower operating expenses.  BTS coverage area is 15 to 20 km

1800 MHz
BTS coverage area is 4 to 5 km. Operating cost is 2.5 times of 900 MHz.

  Share of net Additions Subs Market Share Revenue (mn)

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 9% 9% 657 15% 14% 3625 20% 16% 6551 24% 18% 9212 27% 19% 29% 20% 30% 21% 31% 21% 32% 22%

Year 10 33% 22%

11529 13500 15157 16541 17706 18693

Untapped Rural Markets
Urban markets are saturated with teledensity

of approx 80% Rural markets are less penetrated with teledensity of 13.5%

POSITIVES
Untapped market Churn rate is lower. Service provider is

NEGATIVES
Profitability is 7 to

net recipient of termination charge. (Rs 0.20 pm) Customers are relatively less prone to travel - operator to save on roaming charges.

10 % lower than urban. ARPU is low in rural areas – High operating Cost. Inadequate grid power and quality of power supply increases the fuel cost.

Particular Population Avg Subs ARPU Revenue (mn) Cost as a % of revenue Passive Capex Active Capex EBIDTA EBIDTA Margin (%) IRR

Operator with 900 Mhz in rural market with 12000 population FY09e FY10e FY11e FY12e FY13e FY14e FY15e FY16e FY17e FY18e FY19e FY20e 12000 12120 12241 12364 12487 12612 12738 12866 12994 13124 13455 13388 900 2036 2479 2866 3206 3506 3770 4005 4214 4401 4507 4722 150 155 160 163 166 168 170 172 174 176 178 180 1.62 3.8 4.75 5.6 6.38 7.07 7.71 8.28 8.81 9.31 9.67 10.2

50% 37% 0 13% 69%

21% 28% 2 51%

17% 27% 3 56%

15% 27% 3 59%

26% 27% 3 48%

23% 27% 4 50%

21% 27% 4 52%

30% 27% 4 43%

28% 27% 4 45%

26% 27% 4 47%

25% 27% 5 48%

24% 27% 5 49%

Particular Population Avg Subs ARPU Revenue (mn) Cost as a % of revenue Passive Capex Active Capex EBIDTA EBIDTA Margin (%) IRR

Operator with 1800 Mhz in rural market with 12000 population FY09e FY10e FY11e FY12e FY13e FY14e FY15e FY16e FY17e FY18e FY19e FY20e 12000 12120 12241 12364 12487 12612 12738 12866 12994 13124 13455 13388 900 2036 2479 2866 3206 3506 3770 4005 4214 4401 4507 4722 150 155 160 163 166 168 170 172 174 176 178 180 1.62 3.8 4.75 5.6 6.38 7.07 7.71 8.28 8.81 9.31 9.67 10.2

101% 37% -1 -36% 6%

43% 28% 1 29%

34% 27% 2 38%

29% 27% 2 44%

38% 27% 2 35%

35% 27% 3 38%

32% 27% 3 41%

39% 27% 3 34%

37% 27% 3 36%

44% 27% 3 29%

42% 27% 3 31%

40% 27% 3 33%

3G
A multitude of data related VAS services like
o Mobile TV o Location surveillance o Streaming Video on Demand o Gaming etc. o Video Telephony – Customers can watch and

talk simultaneously through Video Call Significant capacity Currently MTNL and BSNL operate 3 G services. Will help to differentiate services.

Mobile Number Portability
Large and established service providers

witness an increase in their churn rate.
More impact in Urban Saturated Markets. Positive for new players

Value Added Services (VAS)
Person to Application & Application to Person SMS, 15% Ringtone Dow nload, 35% Person to Person SMS, 40% Game & Data, 7% Others (MMS etc.), 3%

Regulatory Issues
Spectrum Allocation. Auction of New licenses. License fee on Tower Firms 3 G allocation

Future Outlook
End of CDMA. Technological Innovations Tariff Wars Consolidation

CONCLUSION
Pressure on Margins Focus on B and C circle – Low Tele density Success of 3 G services. Selective approach should be applied.

ANY SUGGESTIONS ???

Thank You!!!