Telecom Industry – An Overview Ankur Agarwal- KH08JUNMBA-062 (Mob-9323933903) Himanshu Ranjan-KH08JUNMBA-069 (Mob-9867690439) Prasanna Devadiga-KH08JUNMBA-087 (9833900809) Dr.Gulnar Sharma – Macro Economics ITM EMBA- BATCH NO.13 B Source: Telecom Today/TRAI/DOT/ www.ustelecom.com

Agenda Indian Market Structure India as Fastest Growing Nation and status of telecom sector Innovations in Indian context Innovation in Technology Current Market Situation Emerging Trends Impact of Telecom Industry on US Economy

Indian Market Structure

India as Fastest Growing Nation and status of telecom sector

Innovations in Indian context

Innovation in Technology

Current Market Situation

Emerging Trends

Impact of Telecom Industry on US Economy

Market Structure Divided into 23 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 Licenses are saleable North Eastern States Source :COAI METRO Circles Gujarat Rajasthan Maharashtra Orissa Andhra Pradesh Karnataka Tamil Nadu Kerala Madhya Pradesh Uttar Pradesh E Bihar West Bengal Punjab Himachal Pradesh Haryana Jammu & Kashmir Uttar Pradesh W CHENNAI MUMBAI DELHI KOLKATA C Circles B Circles A Circles

Divided into 23 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

Licenses are saleable

Current Industry Structure FDI in telecom recently revised to 74%. Government gets 15% of revenues from Unified Licensing Ministry of Communication & Information Technology Regulator Licensor Judiciary Telecom Regulatory Authority of India Telecom Dispute Settlement Appellate Tribunal Dept of Telecom Unified License Operators Fixed Line Operators GSM 900 & 1800 Wireless Operators National Long Distance Operators International Long Distance Operators CDMA 1800Mhz

Policy Environment Broad guidelines of the National Telecom Policy 1999 Licence fees on revenue sharing basis Achieved a 7% teledensity by 2005 and Targetting 15% by 2010 Rural teledensity targeted at 4% by 2010 Calling Party Pays (CPP) regime Incoming calls free Outgoing calls - multi-level tariffs

Broad guidelines of the National Telecom Policy 1999

Licence fees on revenue sharing basis

Achieved a 7% teledensity by 2005 and Targetting 15% by 2010

Rural teledensity targeted at 4% by 2010

Calling Party Pays (CPP) regime

Incoming calls free

Outgoing calls - multi-level tariffs

Connectivity Subscriber growth in Indian telecom has largely been driven by voice services SMS is the most popular data service Internet is catching on in popularity driven by broadband players As per the TRAI consulting papers, data is likely to be the growth driver in future Rural telephony is expected to be driven by data than voice Data services would provide essential services like education and healthcare But primarily demand would be driven by growth in the rural economy The key question, however, is are these efforts scalable?

Subscriber growth in Indian telecom has largely been driven by voice services

SMS is the most popular data service

Internet is catching on in popularity driven by broadband players

As per the TRAI consulting papers, data is likely to be the growth driver in future

Rural telephony is expected to be driven by data than voice

Data services would provide essential services like education and healthcare

But primarily demand would be driven by growth in the rural economy

The key question, however, is are these efforts scalable?

Scalability…. … ...Requires Technology/Connectivity Business Model Organization focused on rural markets

… ...Requires

Technology/Connectivity

Business Model

Organization focused on rural markets

Connecting India’s 638,000 villages BSNL (state owned incumbent operator) has fibre connectivity to most Country towns and fibre has almost infinite bandwidth capacity 85% of villages within 15-20 Km radius of these taluka towns In India, typically 300 villages in 30 Km radius wireless systems can connect most of these villages wireless technologies are continuously evolving 300 villages

BSNL (state owned incumbent operator) has fibre connectivity to most Country towns

and fibre has almost infinite bandwidth capacity

85% of villages within 15-20 Km radius of these taluka towns

In India, typically 300 villages in 30 Km radius

wireless systems can connect most of these villages

wireless technologies are continuously evolving

Last Mile Access Technologies CorDECT Wireless in Local Loop provides a telephone line and 35/70 kbps Internet connection in a 30 Km radius Exchange and tower in town Power requirement: 1 KW start-up costs very low ($ 200 per line) VSAT Technology Satellite connectivity provides a shared 128 kbps connection Start up costs are high ($3200 per connection)

CorDECT Wireless in Local Loop

provides a telephone line and 35/70 kbps Internet connection in a 30 Km radius

Exchange and tower in town

Power requirement: 1 KW

start-up costs very low ($ 200 per line)

VSAT Technology

Satellite connectivity

provides a shared 128 kbps connection

Start up costs are high ($3200 per connection)

Business Model Entrepreneur-driven operator assisted telephone booths (STD PCOs) introduced in India in 1987 Today in urban areas: 950,000 such PCOs covering every street of smallest town generate 25 % of total telecom income 300 million people use these PCOs Lessons for Rural Connectivity To serve the telecom needs of rural people with incomes < $ 1 per day, aggregate demand and allow an entrepreneur to run it. Business Model Aggregate demand to a village internet centre to provide voice/computer and internet services Allow a local village entrepreneur to run it Create an organisation to provide the connectivity and content linkages

Entrepreneur-driven operator assisted telephone booths (STD PCOs) introduced in India in 1987

Today in urban areas:

950,000 such PCOs covering every street of smallest town

generate 25 % of total telecom income

300 million people use these PCOs

Lessons for Rural Connectivity

To serve the telecom needs of rural people with incomes < $ 1 per day, aggregate demand and allow an entrepreneur to run it.

Business Model

Aggregate demand to a village internet centre to provide voice/computer and internet services

Allow a local village entrepreneur to run it

Create an organisation to provide the connectivity and content linkages

Business Models Are primarily service providers Revenues are driven by connectivity and content services provided Focussed on Direct procurement of agri-commodities from farmers No revenue model.Earnings are from savings in procurement costs Provide marine and agriculture services E-government services are the primary drivers

Are primarily service providers

Revenues are driven by connectivity and content services provided

Focussed on Direct procurement of agri-commodities from farmers

No revenue model.Earnings are from savings in procurement costs

Provide marine and agriculture services

E-government services are the primary drivers

India - Fastest Growing Nation GDP grew at 9.8% during 2007, aiming double digit growth Today India is a services superpower in the making. the 12 th largest economy in world. Strong investment momentum Market capitalization up from USD 140 Bn in FY 2001 to > USD 1.58 Trn recently FDI on the rise - USD 7.6 Bn (06) and USD 19.4 Bn (07) FII investment - USD 6.5 Bn in 2006-07 140 + public traded companies with market cap > USD 1 Bn GDP GDP composition – FY 2007 By 2050, India projected GDP is US$ 70 Trillion Source: CMIE

GDP grew at 9.8% during 2007, aiming double digit growth

Today India is a services superpower in the making. the 12 th largest economy in world.

Strong investment momentum

Market capitalization up from USD 140 Bn in FY 2001 to > USD 1.58 Trn recently

FDI on the rise - USD 7.6 Bn (06) and USD 19.4 Bn (07)

FII investment - USD 6.5 Bn in 2006-07

140 + public traded companies with market cap > USD 1 Bn

Indian Telecom World’s fastest Growing Telecom Market - 8 Million plus subscriber addition per month Third largest in the world after China and US- soon to overtake US 264.8 Mn. Subscribers, Mobile 225.5 Mn., 153.3 Mn GSM tele-density 23.21 % Fastest sale of a million mobile phones – 1 Week World’s cheapest mobile handset made in India – US$17.2. Reliance plans web enabled phone at $12. World’s Most affordable color phone made in India – US$27.42 Internet Subscribers 9.27 Mn. Internet Mobile 31.30 Mn. Broadband 2.56 Mn.

World’s fastest Growing Telecom Market - 8 Million plus subscriber addition per month

Third largest in the world after China and US- soon to overtake US

264.8 Mn. Subscribers, Mobile 225.5 Mn., 153.3 Mn GSM tele-density 23.21 %

Fastest sale of a million mobile phones – 1 Week

World’s cheapest mobile handset made in India – US$17.2. Reliance plans web enabled phone at $12.

World’s Most affordable color phone made in India – US$27.42

Internet Subscribers 9.27 Mn. Internet Mobile 31.30 Mn. Broadband 2.56 Mn.

Indian Telecom…… Lowest tariff but highest profitability. Lowest Call Rates in the World at 2-3 US Cents, Declining ARPU, even then Rs 275 per month for GSM India ranks highest in Mobile monthly Minutes of Usages per subscriber in Asia Pacific Region and second to USA in the world….500 minutes per month Innovative approach of doing business at lowest operation costs. Innovative value added concepts…missed calls, rural applications, lowest prepaid charge of 2.5 cents.

Lowest tariff but highest profitability.

Lowest Call Rates in the World at 2-3 US Cents, Declining ARPU, even then Rs 275 per month for GSM

India ranks highest in Mobile monthly Minutes of Usages per subscriber in Asia Pacific Region and second to USA in the world….500 minutes per month

Innovative approach of doing business at lowest operation costs.

Innovative value added concepts…missed calls, rural applications, lowest prepaid charge of 2.5 cents.

The Future…. Electronic hardware market by 2015 USD 320 billion including production USD 150 billion and exports USD 21 billion. Telephone subscribers: 500 million by 2010 PC sales: 25 million; installed base 65 million by 2010 ITES & Software exports: USD 60 billion by 2010 40 million new internet connection; at least 50% broadband by 2010 Nationwide TV broadcast to be digital by 2015 beginning 2010: significant opportunity for STB consumption & manufacturing Over USD10 bn investment in E-Governance and National ID Card by 2010 2015: Total expected Market USD 320 bn; Domestic production USD 155 bn

Electronic hardware market by 2015 USD 320 billion including production USD 150 billion and exports USD 21 billion.

Telephone subscribers: 500 million by 2010

PC sales: 25 million; installed base 65 million by 2010

ITES & Software exports: USD 60 billion by 2010

40 million new internet connection; at least 50% broadband by 2010

Nationwide TV broadcast to be digital by 2015 beginning 2010: significant opportunity for STB consumption & manufacturing

Over USD10 bn investment in E-Governance and National ID Card by 2010

UNLEASHING INDIA’S INNOVATION The World Bank report released in October, 2007 says “India can innovate to $5 Trillion GDP” Present GDP of India is estimated at around 1 $ Trillion (Rs 40 lac crores) The Indian economy is flourishing, and the demand for telecommunications services has outpaced the legacy wired telecommunication infrastructure.

The World Bank report released in October, 2007 says “India can innovate to $5 Trillion GDP”

Present GDP of India is estimated at around 1 $ Trillion (Rs 40 lac crores)

The Indian economy is flourishing, and the demand for telecommunications services has outpaced the legacy wired telecommunication infrastructure.

Innovation in technology… Communications and broadcasting are converging together. TV can be used for internet and voice and likewise mobile can be used for anything. Terrestrial TV, cable TV, CAS and now DTH, further moving to digitalization. IPTV, Mobile TV going to change lives and the way we think traditionally. Indian Telecom most innovative….hello tones, Ring back tones, missed call, maximum music download, mobile in hand a fashion not elsewhere in world.

Communications and broadcasting are converging together.

TV can be used for internet and voice and likewise mobile can be used for anything.

Terrestrial TV, cable TV, CAS and now DTH, further moving to digitalization.

IPTV, Mobile TV going to change lives and the way we think traditionally.

Indian Telecom most innovative….hello tones, Ring back tones, missed call, maximum music download, mobile in hand a fashion not elsewhere in world.

Innovation in technology… Today experts talk of open innovation centered around customer services and developed as inter operable platforms. The path to innovation…. E.g.. Apple computer to Home ,IPOD Digital Music player to I Phone- multimedia hand phone with camera, internet, music player, WIFI A group of Google, Intel, Dell, HP and Microsoft collectively formed the White Space Coalition and delivered to FCC two WIFI devices that operates in this spectrum without interfering with high-definition TV.

Today experts talk of open innovation centered around customer services and developed as inter operable platforms.

The path to innovation…. E.g.. Apple computer to Home ,IPOD Digital Music player to I Phone- multimedia hand phone with camera, internet, music player, WIFI

A group of Google, Intel, Dell, HP and Microsoft collectively formed the White Space Coalition and delivered to FCC two WIFI devices that operates in this spectrum without interfering with high-definition TV.

Fisherman Vegetable Vendor Textile Merchant Adult Education E-Medication I am in Queue Matter of Heart Checking best rates “Mobile” Vendor Rediscovering Life

Current Market Situation Declining revenues make it hard to justify the large capital investments made in the recent past Market suspicion of large corporations will hinder the raising of new capital Service providers are hesitant to invest in new opportunities that cannot provide immediate benefits Data services not delivering on high expectations Wireless spectral investments have crippled growth opportunities domestically as well as internationally Network services and applications limp along as enterprises curb spending Regulation continues to bandwidth hindrance to truly competitive markets and lower cost structures

Declining revenues make it hard to justify the large capital investments made in the recent past

Market suspicion of large corporations will hinder the raising of new capital

Service providers are hesitant to invest in new opportunities that cannot provide immediate benefits

Data services not delivering on high expectations

Wireless spectral investments have crippled growth opportunities domestically as well as internationally

Network services and applications limp along as enterprises curb spending

Regulation continues to bandwidth hindrance to truly competitive markets and lower cost structures

Emerging Trends Wireless revenues continue to increase as long distance revenues decline and local calling revenues stagnate Globalization Long distance Wireless Emergence of the “Total Communications Service Provider” Convergence of Enterprise and telecom networks Networks and applications

Wireless revenues continue to increase as long distance revenues decline and local calling revenues stagnate

Globalization

Long distance

Wireless

Emergence of the “Total Communications Service Provider”

Convergence of

Enterprise and telecom networks

Networks and applications

Impact of the Telecom Industry on the US Economy

How does the Telecom Industry benefit the US Economy

Impact of Telecom Services on the US Economy Telecom Services will provide a major stimulus to the US economy over the next 10 years of more than $617 billions in productivity savings from data and additional $750 billion consumer surplus from voice use and $450 billion GDP contribution from a Telecom industry. All amounts in billions of dollars

Telecom Services will provide a major stimulus to the US economy over the next 10 years of more than $617 billions in productivity savings from data and additional $750 billion consumer surplus from voice use and $450 billion GDP contribution from a Telecom industry.

Annual Productivity Benefit from Data and Voice Application are Growing to more than $80 billion In 2005 data and voice services only contributed $8 billion in productivity benefits to the US economy – roughly the size of Bahrain. By 2015 these benefits have grown to more than $80 billion per year, which is approximately as big as the economy of the Philippines. All amounts in billions of dollars

In 2005 data and voice services only contributed $8 billion in productivity benefits to the US economy – roughly the size of Bahrain.

By 2015 these benefits have grown to more than $80 billion per year, which is approximately as big as the economy of the Philippines.

Components of Future Economic Benefit The two major components that will drive the future economic benefit are: More Efficient Management and Documentation Heath Care Efficiency Enhancements Followed by still sizable benefits in: Field Service Automation Inventory Loss Reduction Field Sales

The two major components that will drive the future economic benefit are:

More Efficient Management and Documentation

Heath Care Efficiency Enhancements

Followed by still sizable benefits in:

Field Service Automation

Inventory Loss Reduction

Field Sales

A consumer surplus of $157 billion – almost all from wireless voice Consumer surplus measures how much US businesses and consumers are prepared to pay in excess of what they pay Consumer surplus from use of wireless services was running at $157 billion at end 2004 Almost all of this surplus is associated with voice We expect this surplus to grow: To $260 bn by 2010 To over $300 bn by 2015

Consumer surplus measures how much US businesses and consumers are prepared to pay in excess of what they pay

Consumer surplus from use of wireless services was running at $157 billion at end 2004

Almost all of this surplus is associated with voice

We expect this surplus to grow:

To $260 bn by 2010

To over $300 bn by 2015

More details on supply side effects

GDP Contribution of Cellular services in Comparison with other Industries

3.6 million US Jobs Depend on the Telecom Industry

$63 billion in Government Revenue are Generated by the Telecom Industry $14.6 billion in federal, state, and local sales and transaction taxes and surcharges on wireless services; $0.9 billion in sales taxes on handset purchases; $9.0 billion in employer-paid social security payments; $9.0 billion in employee-paid social security payments; $26.5 billion in income tax from workers dependent on the wireless services industry; $2.6 billion in contributions to federal and state Universal Service funds.

$14.6 billion in federal, state, and local sales and transaction taxes and surcharges on wireless services;

$0.9 billion in sales taxes on handset purchases;

$9.0 billion in employer-paid social security payments;

$9.0 billion in employee-paid social security payments;

$26.5 billion in income tax from workers dependent on the wireless services industry;

$2.6 billion in contributions to federal and state Universal Service funds.

Thank you very much!