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  • 1. CONFIDENTIAL Penetration of Mobile Telephony in India & Value added services in Indian Mobile Telephony market October, 2006 This report is solely for the use of Zinnov client and Zinnov personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from Zinnov LLC.
  • 2. AGENDA • Penetration of Mobile Telephony in India • Value added services in Indian Mobile Telephony market • Zinnov Research Overview 1
  • 3. India is one of the fastest growing mobile markets in the world, in April 2006 mobile subscriber base crossed 100 million mark Indian Mobile Telephony Market 26 million mobile subscribers Around 2 added in the million monthly last 9 months mobile of 2005 Total mobile subscriber subscribers additions base of 10.5 0.05 to 0.1 million million average monthly Mobile services subscribers launched in India addition commercially August 1995 1995-2001 December 2002 2004 2005 2
  • 4. Growth of mobile subscriber base has sky-rocketed in last 6 years 120 100.0 100 Mobile Phone Subscribers (millions) 80 76.0 60 48.0 40 28.0 20 10.5 5.5 1.1 1.6 3.1 0.0 0.2 0.8 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006* *Data for 2006 is till April 3
  • 5. Exponential increase in Mobile Tele-density is a strong indicator of growing penetration 10.0 9.1 9.0 8.0 7.0 6.9 Mobile Tele Density* 6.0 5.0 4.4 4.0 3.0 2.6 2.0 1.0 1.0 0.5 0.2 0.3 0.0 0.0 0.1 0.1 0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006** *Mobile Tele-density: the number of Mobile phones per 100 inhabitants **Data for 2006 is till April 4
  • 6. More than two-third of mobile subscriptions are with GSM operators Total Mobile Subscribers = 75.94 Million 100% = Total Subscribers in 2005 CDMA* 17.45 Million CDMA, GSM* 23% 58.49 Million GSM, 77% *Data till year 2005 5
  • 7. The share of Mobile telephony has been increasing and is considered the market of the future millions Mobile Phones (CAGR – 86%) Mobile telephones will rule the Indian Fixed Phones (CAGR – 11%) telecom market in next five years 48.01 Mobile phones are no more a luxury, but a necessity. 33.7 Even a auto rickshaw driver 13 owns a mobile now 6.43 3.58 1.88 1.2 38.59 41.31 0.88 35.29 34.27 32.7 0.34 26.65 21.61 17.8 14.54 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: Annual Report 2004-05, Department of Telecommunications (DOT), India 6
  • 8. India is well poised for a strong growth in the telecom sector in the coming years due to the expanding middle class Illustrative Mobile subscriber base (2004- 2010) Mobile Market Value (2004- 2009) millions millions 200 24 CAGR: CAGR: In the mobile space, 33.7% 36.9% both GSM and CDMA will co-exist 5 35 2004 2010 2004 2009 Tele-Density (2004- 2008) 22.5 India is expected Indian cellular market would to have the third CAGR: account for 11% of largest mobile 33.8% the overall Asia user base, 7.02 Pacific and Japan behind China and market by 2009 the US, by 2007 2004 2008 Source: Economic Intelligence Unit (EIU; Gartner; Telecom Regulatory Authority of India (TRAI) 7
  • 9. AGENDA • Penetration of Mobile Telephony in India • Value added services in Indian Mobile Telephony market • Zinnov Research Overview 8
  • 10. Indian mobile telephony market has seen explosive growth in subscriber base but low tariffs keep building margin pressure on operators… 120 Per Minute Cellular Tarrifs (in US cents) 100.0 Mobile Phone Subscribers (millions) 14.4 100 11 11.4 80 76.0 8.4 60 48.0 6.5 6.5 40 3.5 28.0 2.5 20 10.5 5.5 0.2 0.8 1.1 1.6 3.1 0.0 0 di a na sh al n ka an s hi de ep ta an ut ve In is di C la N k iL Bh al ng Pa Sr 95 96 97 98 99 00 01 02 03 04 05 * M 06 Ba 19 19 19 19 19 20 20 20 20 20 20 20 *Data for 2006 is till April Source: Telecom Regulatory Authority of India, Industry News, Zinnov Analysis 9
  • 11. …this is because average revenue per user (ARPU) is going down due to falling call prices Effective margin/min, Effective Margin/min Illustrative End 2005 Curently 1.6 1 ARPU (2005) ARPU (2005) 1.4 0.9 0.08 0.25 0.8 •• India has one of the lowest mobile India has one of the lowest mobile 1.2 0.7 phone tariffs in the world resulting in phone tariffs in the world resulting in 1 low Average Revenue Per User low Average Revenue Per User 0.6 (ARPU) (ARPU) 0.8 0.5 0.95 •• The problem is that despite the The problem is that despite the 1.5 0.87 average use of mobile phones being 0.4 average use of mobile phones being 0.6 1.25 the highest at 287 minutes a month, the highest at 287 minutes a month, 0.3 India has an average rate per user India has an average rate per user 0.4 0.2 (ARPU) of around $8 compared to (ARPU) of around $8 compared to 0.2 global average ARPU of $ 21. global average ARPU of $ 21. 0.1 •• There was a decline of 7.4% in There was a decline of 7.4% in 0 0 ARPU in 2005 since 2004 ARPU in 2005 since 2004 Cost per Margin Effective Cost per Margin Effective •• The ARPU would continue to drop The ARPU would continue to drop by about 5% while tariffs will by about 5% while tariffs will minute rate per minute rate per decrease further by 15% decrease further by 15% minute minute *Value are mentioned in Indian National Rupees Source: Businessworld magazine, Industry News, Voice & Data, Zinnov Analysis 10
  • 12. Value-added services (VAS) are likely to save the day for mobile service providers Lucrative for Operators • At 14 cents per minute, some VAS services make much more money than the average 3-4 cents per minute that voice does. • Typically, data sells at anywhere between 4-65 cents • India’s churn rate is between 3.5 per cent to 6 per cent per month, one of the highest in the Asia- Pacific region Many parties make money Customer is Ready • Media companies e.g. Star, Sony and • More than 100 million people armed with BCCL are betting big mobiles want to be entertained when • Aggregators (mobile content providers or they are traveling, waiting or simply mobile solutions companies) living • Application Service Providers • And they are willing to pay for it • Network infrastructure providers and Value Added system integrators Services Mobile Music Booms Host of Hot services • The mobile music industry is set to • The pushing and shoving to offer the next overtake legal conventional music level of services -- mobile TV, Internet and industry in India commerce -- has already begun • Some examples are ring tones, caller • The demand for more localized, regional ringback tones content is increasing • Bollywood content download, and Mobile Gaming is already big Source: Businessworld magazine, Industry News, Zinnov Analysis 11
  • 13. VAS is ringing in money for mobile operators and is expected to see high growth 2006 2009-2010 VAS Discussion COAI* has projected that VAS will contribute up to $ 500 million (This 20% of total telecom includes texting and is revenue within three years Revenues not just operator share) Media, mobile Parties operators and involved aggregators Today VAS contributes about 9-10% of total telecom revenues VAS Discussion Revenues $10 billion (by 2010) Media, mobile Parties operators, aggregators, involved banks, Enterprises *Cellular Operators Association of India Source: COAI, TRAI, Industry News, Zinnov Analysis, Lehman Brothers report 12
  • 14. Mobile infotainment, gaming and email are the Killer Applications Mobile Music Mobile Videos & Animation clips Mobile music, comprising of Indians are crazy about Bollywood ring tones, caller ringback movies and music. Today there are tones and music clippings, is 10, 20, and 30 second music video registering a growth of 40- clips available for download and 50%. Mobile music industry is will soon expand to include movie expected to be $157 million trailers, sports highlights, mid next year bigger than animation conventional music industry Mobile Gaming Mobile Contests/Voting According to the projections, TV channels like Star and Sahara, as many as 78.6 mn people announce short codes for SMS- will be playing mobile games based contests based on their TV by 2009, and game downloads serials. Also vote for the Miss will have increased more than World, Indian Idol through your tenfold from current levels mobile to choose winners is big Mobile Email News Alert/Match Scores Mobile users send and receive Mobile subscribers get news email and hook into corporate alerts on the go. Cricket match computer networks. Email is scores is another big expected on every 4th phone to application in India be sold in India in next 4 years Source: Businessworld magazine, Industry news, Voice and Data 13
  • 15. Mobile Music is set to take over the conventional music industry in India Revenue Comparison 350 Discussion Discussion 300 •• Mobile music comprises ringtones, Mobile music comprises ringtones, caller ringback tones and music caller ringback tones and music 250 clippings. clippings. 157 •• India is known for its strong affinity to India is known for its strong affinity to 109 Bollywood music as well as Bollywood music as well as 200 devotional music, is registering a devotional music, is registering a $ Million healthy growth of 40-50% in the healthy growth of 40-50% in the 150 mobile music segment mobile music segment •• These Revenue figures have been These Revenue figures have been estimated based on the assumption estimated based on the assumption 100 that the use of is in direct proportion that the use of is in direct proportion 152 157 to the number of subscribers. to the number of subscribers. 50 •• Airtel has a subscriber base of 20 Airtel has a subscriber base of 20 mn, out of which six million use mn, out of which six million use mobile music services. During the mobile music services. During the 0 last financial year, the company last financial year, the company 2005-2006 2006-2007 registered about 50 mn downloads. registered about 50 mn downloads. Years Conventional Music Industry Mobile Music Source: Industry news, Voice and Data , TRAI, Indiatimes.com 14
  • 16. Mobile Gaming is expected to be the next big thing Revenue – Indian Mobile Gaming Discussion Discussion 400 •• As the market for mobile gaming in India As the market for mobile gaming in India 350 matures, consumers too are beginning to matures, consumers too are beginning to move beyond simple Java based games to move beyond simple Java based games to more exciting rich content and action more exciting rich content and action 300 packed 3D games packed 3D games 8% •• According to the projections, as many as According to the projections, as many as 11 250 78.6 mn people will be playing mobile 78.6 mn people will be playing mobile GR Million Dollars games by 2009, and game downloads will games by 2009, and game downloads will CA 200 have increased more than tenfold from have increased more than tenfold from 336 current levels. current levels. 150 •• Its also evident that the mass-market Its also evident that the mass-market consumer is drawn by brands and popular consumer is drawn by brands and popular themes that they are familiar with, like themes that they are familiar with, like 100 cricket and Bollywood movies. cricket and Bollywood movies. 50 15 0 2005 2009 Years Source: Economic Times, Web Search, Zinnov Analysis 15
  • 17. Some of the major content providers, and application service providers are benefiting from this VAS market… Mauj.com Hungama Mobile IMImobile Mauj Telecom is the #1 VAS Hungama Mobile is South India's leading mobile VAS Company in India Asia's leading Mobile enabler and content aggregator • Its wap portal wap.mauj.com is the Entertainment Company leader in the mobile gaming, mobile • IMImobile is providing its content and • It is the largest aggregator, publisher music, mobile video space in India technology services to over 40million and developer of Bollywood mobile subscribers though its agreements • Employs approximately 160 people entertainment and gaming content. with operators in its offices in Mumbai, Delhi, • It has developed over 350 Mobile • It has developed its own Messaging Chennai, Dubai, London, and New Marketing Campaigns for as many as Centers, Gateways, Content York 125 Fortune 1000 Brands. Management Systems, Service • Mauj investors include Intel, Sequoia delivery platforms, client and server and Westbridge capital side applications and Voice Portals Mobile-2-win OnMobile Indiagames It is into wireless content - Wireless Infrastructure It is a global mobile content sourcing, creating & Software Provider publisher mainly focused on distributing! . Gaming • They provide technology, aggregated • Mobile2win creates innovative content, and complete end-to-end mobile marketing solutions for brands managed services to telecom • Indiagames' key investors seeking to tap into the Indian operators, media houses, enterprise includes TOM Online Inc. which is consumer markets. clients a leading wireless Internet • Based in Mumbai, India, Mobile2win • OnMobile was incubated by Infosys company in China , Macromedia, provides unparalleled reach to over to Technologies Inc. , and Cisco Systems, Inc. over 26 million mobile consumers through its gateway (SMS) Source: Telecom Regulatory Authority of India, Websites, Wireless forum 16
  • 18. …Others are also riding the wave and tapping the opportunity Smarttrust ACL Wireless Bharti Telesoft Swedish Company is into It is the leading provider of Bharti Telesoft is the software Mobile terminal management, wireless instant messaging venture of India's leading value added services, Mobile application to mobile operators telecommunication group business solutions Bharti Enterprises : • Founded in early 2000, ACL has • The company has implemented its its wireless R&D center in India • Architect and deploy operator’s thin client software for Indian telecom • The company presently employs VAS service delivery platform and operators such as Bharti, BSNL and over 60 people collaborate with key players in the Escotel VAS value chain to operate and • ACL has successfully marketed its ACL Wireless Instant manage the service Messenger to 11 leading mobile operators in Asia Jatayu Software Air2web.com Activemedia The company produces telecom Wireless ASP and enterprise Activemedia Technology is a products like Gateways/Servers development wireless marketing and (WAP, SMS, SyncML, VoiceXML, technology solutions provider: • The company offers networking WTA), Browsers (WML, XHTML), • One of the leading providers of and server software for delivering Clients (SMS, e-Mail, Chat, mobile content , applications and Web pages, e-mail, and other SyncML), and Stacks (WAP2.0 marketing solutions to operators, data to wireless devices and TCP/IP) . brands and media in India • Mobile Media Websites use • It employs over 200 specialists in Air2Web Content Gateway to • Mobile operators like Hutch are its mobile technology Offer Custom Designed Ring customers in India • Jataayu Software is a subsidiary Tones, Games and Graphics of Integra Micro Systems Source: Telecom Regulatory Authority of India, Websites, Wireless forum 17
  • 19. AGENDA • Penetration of Mobile Telephony in India • Value added services in Indian Mobile Telephony market • Zinnov Research Overview 18
  • 20. Zinnov – About us Company Overview Market Research Knowledge Services • We are a knowledge • Research services • Dedicated Knowledge services and consulting Customized market studies Centers (DKCs): company with offices both Competitive Benchmarking We provide dedicated teams that in US and in India. Data Analytics help our customers in the areas of market research, competitor • We help our clients reduce Market Intelligence analysis, business research, data the time, money and risks analytics and pre-sales support. involved in organizational • Go-To-Market Services: DKCs act as an augmentation to initiatives using our customer teams and provide Help companies enter the India cost effective and high value combination of consulting market by helping them scope services. and knowledge solutions and segment the market, We have provided our research delivered by global teams. provide on-ground sales and and consulting solutions to more marketing support to tap into the than two dozen customers. Today, local market. our client roster included reputed NASDAQ listed companies, small to medium sized independent software vendors, strategy consulting firms and other large enterprises in domains such as BFSI, IT services and Infrastructure management. 19
  • 21. Zinnov research team can help clients with market intelligence, competitor analysis and go-to-market strategy • Market News & Information tracking Market • Pricing analysis Intelligence • Factors driving and restraining the market • Market trends/ Technology trends/Regulatory trends • Market sizing (revenues) • Forecasting (revenue forecasting, others) • Other Information/Research on demand • Case studies – spanning various domains • Competitor information (processes, clients etc.) Competitor • Competitive analysis (company profiles, market shares, Zinnov Analysis product comparisons, benchmarking) • Pricing analysis • Customer/competitor financials • Regulatory & legal information on the market Go-to-market • Market summary & Market analysis (competitive scenario) strategy • Market sizing • Untapped or under-tapped potential customers profiling • Target customer evaluation and analysis 20
  • 22. A. Market Research: Zinnov has a very strong Market Research Capability with expertise across the value chain, specifically in the high end space Illustrative Go- to- Market Analytics Strategy Zinnov’s Differentiators Competitive Competitive Customized Benchmarking Intelligence • Rich experience with Market Studies High end market Industry Growth research enabling Zinnov Experience and Expertise Dynamics Forecast strategic decisions such as go-to-market Customized Market Studies strategy • Excellent primary and secondary research capability Customized Customized • Excellent pool of Market Studies Market Studies resources with strong capability to create customized reports for clients in any sector Level of Complexity 21
  • 23. B. Financial Analysis: Zinnov has a strong Financial Analysis Capability which complements both market and business research Illustrative Profitability ratios Turnover ratios • Returns - Return on • Total Asset turnover Financial equity; Return on • Fixed asset turnover Statements Assets, etc. • Working capital • Margins - Gross turnover Business • Balance Sheet Margin; Net Margin • Inventory turnover Research – • Income Ratio Company Statement Analysis Liquidity ratios Solvency ratios Performance Evaluation • Cash Flow • Current ratio • Debt to equity • Quick ratio • Debt to total capital Statement • Cash ratio • Interest Coverage • Total Coverage Market Market Valuation Trading Multiples Research – Competitive • Share Price Bench- Multiple marking and • Market Value Analysis Intelligence of Equity • Enterprise Transaction Multiples Value 22
  • 24. C. Technical Research: Owing to its rich and diverse experience with multiple IT R&D companies, Zinnov also has a strong Technical Research capability Illustrative Zinnov’s Differentiators Research on Technology • Rich experience with Technology R&D sectors companies • Rich experience with recruitment outsourcing for technical (IT) requirement for some of its clients gives Zinnov a very good exposure to researching technical questions Researching technical Rich questions Expertise Zinnov’s Capabilities • Zinnov has the requisite research expertise to do IP research • Zinnov has also written a whitepaper on Patent IP protection environment in India Searches 23
  • 25. D. Business Research: Zinnov has a strong Business Research Capability as well, covering various facets of business Illustrative Financial Analysis SWOT Business Analysis Strategy/ Plans Strong M&A Executive capability Analysis Business Movement to do Research Business Research Era Analysis Projections Best Practice Analysis 24
  • 26. E. Market Mapping – Competitive Mapping and Benchmarking Illustrative Financial Strength and Soundness Capability Analysis Margins - Gross Management Team Expertise Margins - Operating Technological Capability Competitive Margins - Net Products/ Services Benchmarking Returns on Equity Quality Processes Returns on Assets Market Share Returns on Capital Employed R&D Investment/ Initiatives Solvency ratios - Debt to equity Marketing Strategies Solvency ratios - Debt to total capital Geographical Presence Solvency ratios- Interest Coverage Years of existence Liquidity ratios - Current Ratio Personnel Best Past successes and failures Practices Liquidity ratios – Quick Ratio Liquidity ratios - Cash Ratio Future strategies/ plans Top line - Compounded annual growth rate Clientele (CAGR) Alliances/ Partnerships/ M&A Trading Multiples Enterprise Business Solutions 25
  • 27. Our clients are benefited by cost and time effective research that Zinnov offers Customized Market Intelligence Go-to- Competitor market analysis - strategy to customized enter new Increased focus on research & markets core-competencies for analysis Client Higher Client Impact at lesser cost 26
  • 28. Zinnov is proud to maintain 100% client references. Our clients include reputed consulting firms and industry organizations Your comprehensive report on our Thanks for the quick turnaround of the survey competitors enabled us to make informed analysis. We look forward to your help in and objective decisions on penetrating producing similar reports for all our industry global markets surveys -SVP, Marketing - Executive Director Incentive Management Software Industry Organization You help us compete with McKinsey in India - Principal, Management Consulting Firm The level of details you capture and analyze is The quantitative analyzer is one of the most great. flexible model I have ever seen. We used it for analyzing ‘what if’ scenarios in our - VP, Operations meeting with the client and they loved it! Employment Screening Company - Principal Management Consulting Firm 27
  • 29. Thank You ! Zinnov Contact www.zinnov.com info@zinnov.com 29/4, 3Rd Floor H M Strafford 575 N. Pastoria Ave 138, South Queenscliff Cir 7th cross, Vasanth Nagar Sunnyvale The Woodlands Bangalore 560052 CA – 94085 TX-77382 India Phone: +91-80- 51127925/6 Phone: 408-716-8432 Phone: 832-326-3854 Disclaimer: The information contained in this paper including, without limitation, text, graphics and links, are provided on an “as-is” basis with no warranty. The information contained here has been obtained from sources believed to be reliable and responsible. To the maximum extent permitted by law, Zinnov disclaims all representations and warranties, express or implied, with respect to such information including but not limited to warranties of merchantability, fitness for a particular purpose, title, non-infringement and implied warranties arising from course of dealing or course of performance. Zinnov will not be liable for any damages of any kind arising from the use of this information including but not limited to direct, indirect, incidental punitive and consequential damages, Zinnov does not represent or warrant that the information provided is accurate, complete or current. 28