CHAPTER NO.

ANALYSIS AND INTERPRETATION OF DATA

3.1 INDIAN TELECOM SECTOR

The first wind of reforms in telecommunications sector began to flow in 1980s when the
private sector was allowed in telecommunications equipment manufacturing. In 1985,
Department of Telecommunications (DOT) was established. It was an exclusive
provider of domestic and long-distance service that would be its own regulator
(separate from the postal system). In 1986, two wholly government-owned companies
were created: the Videsh Sanchar Nigam Limited (VSNL) for international
telecommunications and Mahanagar Telephone Nigam Limited (MTNL) for service in
metropolitan areas.

Telecommunication sector in India can be divided into two segments: Fixed

Service Provider (FSPs), and Cellular Services. Fixed line services consist of basic
services, national or domestic long distance and international long distance services.
The state operators (BSNL and MTNL), account for almost 90 per cent of revenues from
basic services.

Cellular services can be further divided into two categories: Global System for
Mobile Communications (GSM) and Code Division Multiple Access (CDMA). The GSM
sector is dominated by Airtel, Vodafone, and Idea Cellular, while the CDMA sector is
dominated by Reliance and Tata Indicom.
The reduction in tariffs for airtime, national long distance, international long
distance, and handset prices has driven demand.

Recent Developments

The Indian telecom sector is characterized by stiff competition among 10 national level
players and two government owned firms. In spite of a difficult pricing environment,
Indian telecom sector is attractive. The key reason is vast population of India of over 1
Billion which makes it as one of the biggest telecom market in the world. After USA and
China, India is third biggest telecom market in the world.

The year 2009, saw the Indian telecom sector add 170 million phone connections
to take the total subscriber base to 550 million. The Indian telecom industry continued
to grow even when most other sectors grappled with a demand slowdown. Studies
have shown that in India, the telecom sector has been a major enabler of economic
growth. The year 2009 saw telecom players shift from per minute billing to per second
billing.

The mobile telecom market is forecast to grow at a compound annual growth rate of
around 15 per cent between 2009-10 and 2013-14. The report also indicates that the
advance of services such as Internet Protocol television (IPTV) and 3G are fuelling the
growth of the Indian telecom sector. Additionally, with 3G auctions held on February
13, 2010 is expected to set in motion the quick adoption of 3G-enabled handsets.

Indian mobile subscriber base grew by 9.07% in second quarter of 2009 reaching to total
427.29M subscribers. Bharthi Airtel is a clear market leader with 23% of market share,
Reliance and Vodafone are gaining market share on a continuous basis and has 19% and
18% market share respectively. TATA has recently launched new service in GSM space
and lower tariff plan (per second plan) in a bid to win additional market share but still
it is lagging behind with 8% market share.
Table : June 2009 Data (Source: TRAI)

Gross revenue by the end of June-09 quarter stood at US$8.5B, due to falling revenue
per subscriber overall gross revenue went down by 3.3%. India is second largest market
for cellular services but still teledensity stands at just 32% representing a huge revenue
potential for all the telecom operators.

SWOT Analysis
Strengths
 Strong mobile growth(around 10%) , with latest technology being offered at
faster pace
 An attractive business environment witnessed by number of foreign players
entering
Indian market
 A vast untapped rural population which needs telecom services at their
fingertips
Weaknesses
 Wireless business segment is growing faster than wire line and more demand is
coming for
pre-paid services.
 The falling SIM card, lower tariff plan led to lower APRU
 Delayed implementation of key policies because of dispute among TRAI, telecom
ministry
Opportunities
 All of the providers are keen to provide more content which provides great
opportunity for
content providers
 Regulator has recommended that foreign player can participate without any
local partner
 The government will cut the license fee by 33% for those operators which has
over 95%
residential coverage
Threats
 3 G spectrum charges are more and which will have negative impact on demand
for
licenses
 Due to price war , APRU is falling and further deterioration will lead to
significant decline
in top line growth
 Capacity constraint may hamper the expected growth in Mobile segment
 MNP will become reality in 2010, it will add further pressure to operator to
retain the
existing customer

Telecom Sector Trend Analysis

Based on Technology, In India, whole telecom sector can be sliced in four key
components. These four components are Wire line, Wireless (CDMA, GSM), Internet
and 3G.Out of twelve players; TATA, Reliance and SSTL offer CDMA and rest is
operating in GSM space. GSM market share stands at total 75% and thus clearly
emerged as a preferred way of communication in India. TATA has recently entered in
GSM space through TATA Docomo brand. Reliance is also expected follow it soon by
launching its own GSM services.

Wireless Market
There are total 12 operators operating in wireless (CDMA and GSM) space across India.
Total subscriber base grew from 287M in June 2008 to 427M in June 2009, representing
47.7% increase in market. Teledensity also improved positively, it was 24.95 in June
2008 and now stands at 36.6 in June 2009. At present GSM market is growing at 9.53%
whereas CDMA market is growing at 7.79%. WM services forecast that Indian telecom
market would grow at 9.59% and would cross 900M subscriber by 2011.

Mobile Market Segment (Source data: TRAI)

Market Segment Analysis (Source: TRAI)

Revenue Analysis (Wireless)

Due to stiff competition and in a bid to retain existing customers, Telecom player has
slashed down tariff significantly. Now most of the firms are offering “per second billing
“which will further put pressure on margins. There is good growth in subscriber base
(around 10.5%) but overall revenue per subscriber is falling. In spite of modest increase
in subscriber base, tariffs is going down in a bid to match prices offered by GSM players
for various services. Over all there is a positive growth in SMS segment but it is because
most of the key CDMA players are offering free SMS services to their customers.

Wire line Services

Indian wire line market and its potential revenue opportunity are not attractive in
comparison to wireless segment. Total wire line subscriber base declined from 37.96M
in March 08 to 37.53M at the end of June 09.
Fixed Line Subscriber growth
The growth in fixed line remains stable and is expected to remain that way. Over the
time, Indian consumer has shown strong preference towards wireless services over wire
line services. BSNL is leader in this segment with 77% market share followed by MTNL
with 9.41% market share. We forecast a very modest decline in fixed line usage going
forward. The total number of fixed line per thousands will decline from 37.5M in Jun 09
to 36.27M in 2012.

Indian Telecom Industry (Key Data Analysis)

Top Ten Firms operating in Telecom Sector (Market cap wise)

3.2.1 FUTURE GROWTH PROSPECTUS OF TELECOM SECTOR IN INDIA

Market shares of Major Public and Private Players

Both fixed line and mobile segments serve the basic needs of local calls, long
distance calls and the international calls, with the provision of broadband services in the
fixed line segment and GPRS in the mobile arena. Traditional telephones have been
replaced by the codeless and the wireless instruments. Mobile phone providers have
also come up with GPRS-enabled multimedia messaging, Internet surfing, and mobile-
commerce.

The much-awaited 3G mobile technology is soon going to transform the Indian

telecom market. The GSM, CDMA, WLL service providers are all upgrading them to
provide 3G mobile services.

Along with improvement in telecom services, there is also an

improvement in manufacturing. In the beginning, there were only the Siemens handsets
in India but now a whole series of new handsets, such as Nokia's latest N-series, Sony
Ericsson's W-series, Motorola's PDA phones, etc. have come up. Touch screen and
advanced technological handsets are gaining popularity. Radio services have also been
incorporated in the mobile handsets, along with other applications like high storage
memory, multimedia applications, multimedia games, MP3 Players, video generators,
Camera's, etc. The value added services provided by the mobile service operators
contribute more than 10% of the total revenue.

Changing Scenario

The Indian telecommunications has been zooming up the growth curve at a feverish
pace, emerging as one of the key sectors responsible for India's resurgent economic
growth. India is set to surpass US to become the second largest wireless network in the
world with a subscriber base of over 300 million by April, according to the Telecom
Regulatory Authority of India (Trai). The month of April 2009 saw India’ wireless
subscriber base that currently stands at 250.93 million surpassing that of the US to
become the second wireless network in the world.

The year 2008 saw India achieving significant distinctions: having the world's
lowest call rates (2-3 US cents), the fastest growth in the number of subscribers (15.31
million in 4 months), the fastest sale of million mobile phones (in a week), the world's
cheapest mobile handset (US$ 17.2) and the world's most affordable color phone (US$
27.42) and largest sale of mobile handsets.

Meanwhile, Bangladesh's telecom regulator granted approval to Indian telecom

operator, Bharti Airtel’s US$ 300 million proposed investment for a 70 per cent stake in
the Abu Dhabi Group's Warid Telecom of Bangladesh. This approval makes the
company the first Indian operator from the Indian telecom sector to foray into
Bangladesh's mobile market.
In another development in the Indian telecom sector, Tata Teleservices Ltd
(TTSL) has partnered Novatium Solutions Ltd to launch what is said to be the country’s
first cloud computing service over wireless broadband , ‘Nova Navigator'. The
Navigator is being described as a ‘zero maintenance' access device with features such as
3G support and plug and play printer support and multimedia support.

In a development that will provide fundamental benefits to services offered by the

Indian telecom sector, Tata Communications and China Telecom Corp are to jointly
build a 500-km optical fibre cable network between the two countries in 2010. Along
with the investments of Tata Communications in other subsea cable investments, the
India-China Terrestrial Cable will provide high-speed connectivity between Asia and
Europe.

Segment-wise growth
Wireless segment has emerged as the preferred mode of telephone service by the
consumers, reflected in the rising share of mobile phone connections to total
connections. The share of mobile phones has increased from 71.69 per cent at the end of
March 2007 to 87.29 per cent at the end of April 2009. While total mobile subscriber base
was 269.3 million, wire line subscriber base was 39.21 million. Consequently, overall
tele-density has increased to 26.89 per cent at the end of April 2009.

In fact, since 1999, mobile subscriber base has been growing at a CAGR of
around 85 per cent. And, while about 8 million new subscribers are being added every
month in mobile segment, there has been a decline in the total number of wire line
subscribers.

Also, private sector has become the dominant player in the industry. While
public sector companies added 53.6 million subscribers during 1998-2008, private
companies have added a whopping 133.58 million subscribers during the same period.
The dominance has been much more pronounced in the mobile market, where private
operators have added 124.68 million subscribers, while public sector operators added
only 31.79 million subscribers.

Investment Growth

The booming domestic telecom market has been attracting accelerating amount
of investment. In fact, the surge in mobile services market is likely to see investment
worth about US$ 24 billion by 2010, going by industry estimates owing to the growing
number of mobile subscribers which is estimated to increase to 60 billion by 2012,
according to Standard Chartered Bank, implying a mobile in the hands of every second
person in the country.

The cumulative FDI inflows from April 2000 to December 2008 have been US$
3.62 billion, accounting for 7.99 per cent of the total FDI inflows into the country. In fact,
the surge in mobile services market is likely to see investment worth about US$ 24
billion by 2010, going by industry estimates. This is understandable, when seen that the
number of mobile subscribers is estimated to increase to 60 billion by 2012, according to
Standard Chartered Bank, implying a mobile in the hands of every second person in the
country.

Buoyed by the rapid surge in the subscriber base, huge investments are being made
into this industry.

 Maxis Communications-owned mobile service provider Aircel is planning to

invest close to US$ 5 billion over the next four years in India for network
enhancement and expansion.
 Srei Group's Quippo Telecom Infrastructure Ltd (QTIL) plans to invest US$ 3
billion in 2008-09 to ramp up its telecom infrastructure business to grow both
organically and inorganically.
 The Central public sector enterprises (CPSEs) have lined up investments of US$
35.09 billion in infrastructure sectors like telecom energy and power for 2008-09.
 Vodafone Essar will invest US$ 6 billion over the next three years in a bid to
increase its mobile subscriber base from 40 million at present to over 100 million.

Manufacturing

India is emerging as a handset super-power as more manufacturers set up base

in the country, it is not only the world's fastest-growing telecom market but it is also
making remarkable progress in the telecom manufacturing space. Latest figures from
the Department of Telecom (DoT) indicate that revenue from the telecom
manufacturing sector is set to cross the US$ 6.5 billion mark in fiscal 2007-08. The Indian
telecom equipment manufacturing sector is set to become one of the largest globally by
2010.

Consequently, India is estimated to record highest growth in the Asia-Pacific

region with a handset production of more than 51 million. Nokia reached production
volume of 125 million in over two years of operations at its manufacturing unit in Tamil
Nadu.
Looking ahead, while mobile phone production is estimated to grow at a CAGR
of 28.3 per cent between 2006 to 2011 to total 107 million handsets by 2010, revenues are
estimated to grow at a CAGR of 26.6 per cent between 2006 to 2011 to US$ 13.6 billion.

Simultaneously, India's surging domestic market is also providing excellent

investment opportunities in other segments of telecom equipment industry. For
example, TRAI estimates that the country will need about 350,000 telecom towers by
2010, as against 125,000 in 2007.

This has in turn attracted many leading global telecom equipment manufacturers
to set up their base in India.

 Nokia Siemens Networks (NSN) is shifting its global services business unit
headquarters from Munich to India.
 Nokia set up its manufacturing plant in Chennai.
 Samsung has set up its GSM mobile manufacturing base in Manesar.
 Motorola has established a manufacturing plant in Sriperumbedur.
 Sony Ericsson has set up GSM Radio Base Station Manufacturing facility in
Jaipur and R&D centre in Chennai.
 LG Electronics set up plant of manufacturing GSM mobile phones near pune.

Impact of Budget 2010 on Telecom Sector

The increase in MAT rate from 15% to 18% in effective terms to 19.93% from 16.995%
would mean higher cash outflow for the companies like Bharti Airtel, Reliance
Communication and Idea Cellular .

 However, the companies would get MAT credit on the amount paid for the next
10 years and benefit of which would be taken when the company starts paying
tax on income tax profit rather than book profits. Currently the company would
create a deferred tax asset for the MAT paid.
 The proposal for extension of full exemption from Additional Duty of Customs
of 4% presently available up to 06.07.2010 on parts, components and accessories
for manufacture of mobile handsets including cellular phones up to 31.03.2011, is
positive for the telecom services industry as it will help in achieving the key
objective of the government to ensure fast spread of affordable connectivity to
the rural areas due to lower cost of mobile handsets.

 Further this exemption has been also extended to the mobile battery chargers
and hands-free headphones.

 The service tax rate has been remained intact at 10% while the general excise
duty rate has been increased by 200 bps to 10%. This is good for the telecom
service providers as well as subscribers, as there is intense price competition in
the sector which would have make it difficult for the service providers to pass
the increased service tax to specially pre-paid subscribers.

Outlook

The outlook for the sector remains budget neutral and in general the outlook for the
sector is cloudy. However, higher rural spend will be positive for the service providers
as most of the incremental subscribers are coming from rural areas.

The reduction in personal tax incidence, can facilitate higher spend on mobile usage
and value added services (VAS) usage by the subscribers. The lower mobile handset
prices will ensure fast spread of affordable connectivity to the rural areas.

3.2.2 Key players in Indian Telecom Industry

Bharti Airtel
Business profile
Established in 1995 by Sunil Mittal as a Public Limited Company, Airtel is the
largest telecom service provider in Indian telecom sector. With market capitalization of
over Rs. 1,360 billion, Airtel has 31% of total market share of GSM service providers.
Providing GSM services in all the 23 circles, Airtel was the first private player in
telecom sector to connect all states of India. Also, Airtel is the first mobile service
provider to introduce the lifetime prepaid services and electronic recharge
systems.After establishing itself in the domestic market, Airtel is now spreading its
wings in US by providing its mobile service under the name 'CALLHOME' to the NRIs.
Bharti Airtel is one of India's leading private sector providers of
telecommunications services based on an aggregate of 64,268,047 customers as on
March 31, 2008, consisting of 61,984,721 GSM mobile and 2,283,326 Bharti Telemedia
subscribers.
  The businesses at Bharti Airtel have been structured into three individual
strategic business units (SBU’s) - mobile services, telemedia services (ATS) & enterprise
services. The mobile services group provides GSM mobile services across India in 23
telecom circles, while the ATS business group provides broadband & telephone services
in 94 cities. The enterprise services group has two sub-units - carriers (long distance
services) and services to corporate. All these services are provided under the Airtel
brand.

The 700-million strong rural markets in India is the biggest single market in the world
and Airtel is rapidly expanding its footprint in the rural areas of the country. It has
already connected over 3.2-lakh villages and plans to reach 5 lakh by 2010.
Company shares are listed on The Stock Exchange, Mumbai (BSE) and The
National Stock Exchange of India Limited (NSE).
Recent news
-Airtel Introduces HTC Touch Diamond
The HTC Touch Diamond - a sleek and stylish phone with a new captivating 3D touch
interface called TouchFLO 3D

-Airtel launches Mobile Services in Lakshadweep

First Private Mobile Service Provider in the Islands
Services available to the entire population in Kavaratti, Agatti and Bangaram Islands
Special Introductory offers.
Financials
Bharti Airtel had total market cap as on 1 st March 2010 worth Rs 1.1 trillion and
revenue was more than more RS 4 lac billion.

Awards and recognition

Bharti Airtel was adjudged 'Best Carrier India' at 2008 Telecom Asia. It was recognized
as 'Best Cellular Service Provider' and 'Best Broadband Service Provider' at V&D 100
awards for 2008. In 2007, Bharti Airtel won 'Business Leadership Award' from NDTV
Profit.