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CC-CES - India's Second Mobile Revolution - Jan 2013
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CC-CES - India's Second Mobile Revolution - Jan 2013

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This presentation identifies all the supply side trends (early indicators & expected developments) across the value chain (chipsets & components, network equipment, carriers, devices, VAS & Apps) ...

This presentation identifies all the supply side trends (early indicators & expected developments) across the value chain (chipsets & components, network equipment, carriers, devices, VAS & Apps) analyses their current status, potential development and their alignment to drive the next growth phase of the Indian wireless telecom industry (driven by data based services).

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    CC-CES - India's Second Mobile Revolution - Jan 2013 CC-CES - India's Second Mobile Revolution - Jan 2013 Presentation Transcript

    • India’s Second Mobile Revolution… It’s Brewing! Presented at CES, Las Vegas January, 2013 Jayanth Kolla
    • Executive Summary •  In the first phase, Indian mobile industry has grown rapidly, focusing primarily on voice based services. The supply-side players have designed and successfully implemented unique business and operational models while growing rapidly, at low cost and yet profitably •  The internet penetration in India has only recently touched double digits and the current scenario is similar to country’s teledensity in 2003. Similar to penetration of phone connections primarily driven by wireless in the last ten years, internet penetration in India is also expected to be driven by mobile and this is expected to drive the next growth phase in Indian mobile industry •  Although, we expect mobile data driven growth phase to begin in 2014-15, the early indicators of industry readiness and key players’ alignment for this growth have already begun taking shape as early as 2010 •  We expect a few more requisite developments/enablers to be in place between 2013-15 •  Industry dynamics and trends across the value chain (chipsets & components, network equipment, carriers, devices, apps/VAS) are changing and in some or other way aligning to enable the mobile data services driven growth of Indian telecom •  This presentation covers the breadth of supply side activity, identifies key trends, analyses their potential contribution for growth and comments upon requisite strategy modification for key players in the value chain
    • Contents Highlights of the First Growth Phase of Indian Mobile Industry India’s Second Mobile Revolution Convergence Catalyst Credentials
    • Adoption of mobile services in India grew at unprecedented rate, aided by govt. regulations and competition Growth of Indian Mobile Subscribers and Key Milestones (2000-2012) 80% •  Supreme Court cancels licenses 76% 919 •  3G services issued in 2008 900 launched 68% 812 60% •  3G & BWA auctionsTotal Wireless Subs (Mn) •  MNP launched 50% 584 Wireless Teledensity1 (%) 600 •  122 new 2G •  Per 40% licenses second •  Dual technology billing 392 34% licenses awarded •  UASL introduced •  Calling Party Pays introduced 300 261 •  FDI limit 23% increased from 20% •  CDMA allowed to 49% to 74% be a mobile tech 165 15% •  Licenses fees were reduced 99 9% 52 34 5% 2 4 7 13 3% 0% 1% 1% 0 0% 0% Mar 00 Mar 01 Mar 02 Mar 03 Mar 04 Mar 05 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Wireless Subs (M) Teledensity (%) •  Mobile subscribers in India grew at a CAGR of close to 67% between 2000 and 2012, primarily driven by favorable policies and competition in the industry •  Carriers in India primarily focused on acquiring subscribers in the prepaid model (offering voice services) during this phase, which allowed them to acquire subscribers faster and realize revenues upfront –  Currently prepaid subscribers form about 96% of total mobile subscribers in India Sources: CC Research, TRAI 4 Note 1: In this case ‘Teledensity’ is defined as the total wireless subscribers as a % of population
    • This rapid growth was also a function of unique business and operational models adopted by Indian carriers Wireless Subscriber Growth in India (2003-2012) 1 Manufacturing low-cost minutes 919 2 Pushing high levels of network utilization 392 165 13Mar ‘03 Mar ‘06 Mar ‘09 Mar ‘12 Building low cost acquisition and 3 distribution models Sources: CC Analysis
    • Indian carriers leveraged scale to successfully design and implement the ‘Minute Factory Model’, to drive profitability Alignment of Carrier Organization to Offer Optimized Products & Services Driven by ‘Minute Factory’ 1 Measures Sales Consumer Brand/Customer Enterprise Multi-Tech MVNO Voice Products – Facing/ Marketing Services Offerings Offerings Services MaximumInterface RPM1 After Sales Service Technology Cost of Min-Enablers Factory Generating Minutes Lowest Cost IT producer of Network IT/Billing minutes CustomerSupport & HR Regulatory Finance SCM Service Delivered as Common Backend Shared per agreed Services Services Internal Revenue SLA2 Retail Devices Legal Audit Assurance •  Indian mobile carriers have continuously worked towards optimization of work force across platforms and businesses to ultimately achieve efficient delivery of products and services •  Indian carriers pioneered and mastered the “Minute Factory” to cater to large volumes of subscribers and minutes of use, profitably –  Profitability was achieved primarily by building large, integrated networks and sharing of passive infrastructure with other carriers and outsourcing network and IT implementation and operations to the network vendors on a revenue-share basis Sources: CC Research & Analysis Note 1: Revenue Per Minute; 2: Service Level Agreement
    • The low cost operations model was also coupled with high levels ofnetwork utilization by Indian carriers 2G Capacity Utilization Position of Leading Indian Carriers (by Circles) 2 23 23 23 100% 80% 60% 40% 20% 0% Airtel Vodafone Idea Well Above Capacity Above Capacity At Capacity Near Capacity Excess Capacity •  Indian carriers typically operate their networks at full capacities, which is an uncommon practice by global standards •  Primarily, this is to cater higher number of subscribers on limited spectrum allocated and also to reduce costs –  The goal is to treat most expenses as variable costs and track them against a minute of use –  Indian carriers use a methodology known as “Half Rate Coding” to achieve 100%+ utilization of (theoretical) capacity Sources: CC Research, TRAI, Bain & Co, Credit Suisse
    • Not only did Indian carriers focus on building large retail distributionnetworks, they’ve aligned it with their network expansion Rural Distribution Structure of a Leading Indian Carrier 3Urban / Semi- Carrier urban Area • 10 – 15 Sub-Distributors per Super Stockist Super Stockist • 150 – 200 Retailers per Sub-Distributor (Weekly servicing of Sub- Distributors by Super Stockist) Retailers in BTS Towns BTS Town •  Prepaid sales BTS Town • 15 – 20 Retailers per •  Recharge sales 10,000 population Rural Area ………………….. Sub-Distributor Daily Servicing of Retailers 
 BTS / Tower by Sub-Distributor • 1 Sub-Distributor per BTS Town Retailers in Villages • 1 – 2 Retailers 
 •  Prepaid sales per Village •  Recharge sales •  Adopting the “Matchbox Distribution Model”, Indian carriers have set up a distribution network of close to two million retail outlets, primarily focusing on acquiring prepaid customers (faster and upfront revenues) –  Carriers partnered with distributors of other verticals such as FMCG1, F&B2, etc for faster and cost-efficient rollout •  Indian carriers also focused on mapping their retail outlets expansion with their network expansion, thus ensuring faster and higher network capacity utilization Sources: CC Research & Analysis, Industry Inputs Note !: Fast Moving Consumer Goods; 2: Food & Beverages
    • Despite rapid growth of the industry and evolution of unique businessmodels, there exist some challenges for various players in the industry •  Retrospective tax imposition on Vodafone’s acquisition of Hutch is deterring many foreign investors •  Government’s objection to let carriers form Inter-Circle Roaming partnerships Regulatory Issues to offer 3G services, again in retrospect can be viewed as interference in business operations •  Govt’s suggestion/mandate of 900 MHz spectrum refarming could force increased Capex spends by the carriers •  Indian carriers offer services on severe spectrum crunch ­  While the global average of 2G spectrum per carrier is in the range of 22 MHz to 24 Lack of Adequate MHz, Indian carriers have an average of 6 MHz to 8 MHz per circle Spectrum ­  Indian carriers have 5 MHz of 3G spectrum, much below the global average of 15 MHz per carrier •  Indian carriers have leveraged themselves extensively in order to procure 3G Decreased Capex spectrum and retain/procure 2G spectrum, which has decreased/delayed their Spending by Carriers Capex spends especially in 2011 and 2012 •  With limited 3G spectrum, congested voice networks (and 3G spectrum being Slower Than Expected used for voice) and decreased Capex spending for network implementation/ 3G Uptake expansion, the 3G rollout in India is ad hoc at best and it reflects in the slow 3G subscriber additions and services uptake Sources: CC Analysis
    • Contents Highlights of the First Growth Phase of Indian Mobile Industry India’s Second Mobile Revolution Convergence Catalyst Credentials
    • The internet penetration scenario currently in India is similar to teledensityin 2003, and is expected to be driven by mobile in future Share of Connected Vs Unconnected Share of Internet Vs Non-Internet Users Population in India (as of Mar ‘03) as a % Population in India (as of Mar ’13E) 89.5% 94.9% 100% 100% 40% 40% 5.1% 10.5% Unconnected Non-Internet Share of Total Population Teledensity1 Total Population Population Share of Pop Internet Users •  In early 2003, the teledensity was only about 5% (with wireless penetration being 1%), with close to 95% of population having no access to a phone connection. In the last ten years, mobile industry grew rapidly to increase the teledensity to about 75% •  Currently, the situation of internet adoption is similar to teledensity in 2003, with close to 90% of the population yet to be connected to internet. We expect mobile to play a key role in increased adoption and usage of internet in coming years ­  While ~10% of Indian population are active internet users (as of Dec ‘12_, the % of broadband connections is only ~1.25% ­  Of the total ~120 Mn active internet users in India (as of Dec ‘12), mobile internet users are 87.1 Mn. This is about 118%% increase since Dec 2011 Sources: CC Analysis, TRAI, IAMAI; Note 1: Teledensity in Mar ‘03 includes penetration of both wireline & wireless subscribers as a % of pop
    • Mobile Internet is expected to drive the next phase of growth in theIndian mobile industry The next phase of Mobile Industry Growth in India will be driven by Increased Adoption of Data Services, Emerging Technologies, Evolving Business Models and Wider Customer Segments Sources: CC Analysis
    • While the building blocks for the next growth phase have started emerging since 2010, we believe all the enablers to be in place by 2015 Early Indicators Expected Developments •  Decrease in mobile subscribers •  Increase in mobile tariffs •  New services to be offered to wider customer •  Vodafone increasing the revenue segments share for app/content developers •  Revenues and stickiness of non-voice VAS services•  Strategic & judicious bidding of •  Increasing competition in the to increase 3G & BWA spectrum by carriers smart devices chipsets space •  Over-The-Top (OTT) players to enter the mobile•  Reliance’s re-entry into telecom •  Judicious bidding for 2G spectrum value chain (launching mobile-data driven services) 2010 2011 2012 2013 2014 2015 •  Collaboration among carriers •  Demand driven data consumption and VAS (co-opetition) adoption to increase •  End of Nokia’s stronghold on the •  Increase in apps adoption and consumption Indian mobile devices market •  Optimum use of big data analytics (CEM (increasing competition) implementation) by carriers •  Adoption of Wi-Fi for data offloading by carriers Key Triggers That Could •  Auction of 700MHz spectrum (currently slated for 2014) Expedite the Next Growth •  Tariff wars for mobile data services Sources: CC Analysis
    • And, we expect every player in the value chain to actively participate/drive the next growth phase of the Indian Wireless Industry India Wireless Industry Value Chain Chipsets & Network VAS Carriers Device Players Components Infrastructure Providers Early Indicators •  Increasing •  Judicious spectrum competition in bidding •  Increasing the smart •  Reliance’s re-entry competition (Nokia’s devices chipsets •  Collaboration among decreased share) space carriers •  Increased revenue share from Vodafone •  New services &Developments •  Provide CEM / •  Support increase customer segments Big Data apps & VAS •  Support OTT players Expected Analytics adoption •  Optimum use of big •  Support mobile •  Support demand data analytics/CEM data Wi-Fi driven VAS •  Adoption of Wi-Fi offloading adoption data offloading •  Increase revenues and stickiness of non-voice VAS services Sources: CC Analysis
    • Contents Highlights of the First Growth Phase of Indian Mobile Industry India’s Second Mobile Revolution Early Indicators Expected Developments/Trends Potential Triggers Convergence Catalyst Credentials
    • While the building blocks for the next growth phase have started emerging since 2010, we believe all the enablers to be in place by 2015 Early Indicators Expected Developments •  Decrease in mobile subscribers •  Increase in mobile tariffs •  New services to be offered to wider customer •  Vodafone increasing the revenue segments share for app/content developers •  Revenues and stickiness of non-voice VAS services•  Strategic & judicious bidding of •  Increasing competition in the to increase 3G & BWA spectrum by carriers smartphones chipsets space •  Over-The-Top (OTT) players to enter the mobile•  Reliance’s re-entry into telecom •  Judicious bidding for 2G spectrum value chain (launching mobile-data driven services) 2010 2011 2012 2013 2014 2015 •  Collaboration among carriers •  Demand driven data consumption and VAS (co-opetition) adoption to increase •  End of Nokia’s stronghold on •  Increase in apps adoption and consumption the Indian mobile devices •  Optimum use of big data analytics (CEM market (increased competition) implementation) by carriers •  Adoption of Wi-Fi for data offloading by carriers Key Triggers That Could •  Auction of 700MHz spectrum (currently slated for 2014) Expedite the Next Growth •  Tariff wars for mobile data services Sources: CC Analysis
    • The key strategy adopted by most carriers bidding for 3G spectrum (in2010) was to defend their market leadership position in various circles Strategic Bidding 3G Spectrum Winners-2G Market Share Leaders Mapping (as of Jun ‘10) for 3G Spectrum Market Share by Revenue Circle Other Winners Highest Second Highest Third Highest Delhi Airtel (37.6%) Vodafone (23.6%) RCOM (13.1%) Mumbai Vodafone (35.9%) Airtel (20.6%) RCOM (18%) Maharastra Idea (30.4%) Airtel (21.9%) Vodafone (20.7%) Tata Gujarat Vodafone (39.9%) Airtel (20.9%) Idea (18%) Tata A.P Airtel (39.6%) Idea (16.8%) Vodafone (12.6%) Aircel Karnataka Airtel (54.4%) Vodafone (15.9%) RCOM (9.7%) Tata, Aircel Tamil Nadu Airtel (32.9%) Aircel (20.4%) Vodafone (20.1%) Kolkata Vodafone (31.4%) Airtel (30.1%) RCOM (18.1%) Aircel Kerala Idea (28.4%) Vodafone (20.8%) Airtel (19.9%) Tata, Aircel Punjab Airtel (38.4%) Vodafone (17.85) RCOM (6.5%) Tata, Idea, Aircel Haryana Vodafone (19.4%) Idea (16%) Airtel (15.3%) Tata U.P.(East) Vodafone (31.05) Airtel (28.7%) RCOM (12.1%) Idea, Aircel U.P.(West) Idea (27.7%) Vodafone (23.7%) Airtel (18.2%) Tata Rajasthan Airtel (44.8%) Vodafone (22.8%) RCOM (8.2%) Tata M.P Airtel (30.3%) Idea (28.7%) RCOM (20.8%) Tata West Bengal Vodafone (36.5%) Airtel (28.6%) RCOM (13.3%) H.P Airtel (12.3%) RCOM (5.2%) Idea (1.8%) S Tel Bihar Airtel (24.7%) RCOM (9.9%) Tata (3.7%) Aircel, S Tel Orissa Airtel (17.6%) RCOM (7.5%) Tata (3.6%) Aircel, S Tel Assam Airtel (34.3%) Aircel (25.2%) RCOM (19%) North East Airtel (37.7%) Aircel (29.5%) RCOM (6.7%) J&K Airtel (46.6%) Aircel (21.6%) RCOM (3.3%) Idea Indicates 3G Spectrum Acquired •  As the competition led to increase in spectrum price during bidding, owning pan-India spectrum became a costly proposition •  Carriers then strategically bid for 3G spectrum in select circles where they had existing market leadership (defending their 2G subscriber base) or the circles with business viability (high ARPUs) Sources: Industry Reports, Companies Quarterly Results & Investor Presentations, CC Analysis
    • Reliance-Infotel (RIL) is the only player to procure a pan-Indiaspectrum footprint for launching mobile broadband services Strategic Bidding for BWA Spectrum •  Reliance-Infotel is the only pan-India BWA spectrum winner and is expected to lead the BWA1 ecosystem in India Delhi •  Airtel focused on circles where it had no 3G spectrum (for complimentary mobile broadband technologies) Kolkota •  Aircel focused on circles with high revenue contribution and its 3G circles to ensure adequate spectrum for mobile broadband servicesMumbai •  Qualcomm’s intent in bidding for BWA spectrum was to ensure the adoption of LTE technology. It has later sold part of its stake in BWA services Aircel, Reliance Infotel and BSNL company to Airtel Bharti, Reliance Infotel and BSNL Qualcomm , Reliance Infotel and MTNL Tikona, Reliance Infotel and BSNL Augere, Reliance Infotel and BSNL Source: Secondary Research, CC Analysis Note 1: BWA – Broadband Wireless Access
    • Being the only player with a pan-India spectrum suitable for mobile broadband,RIL is expected to lead the service offerings roadmap of the country Reliance’s Telecom Re-Entry RIL’s Pan-India BWA Spectrum Allocation Map •  In 2003, with offerings such as DAPO1 & Monsoon Hungama, Reliance commoditized mobile services & device ownership, and made them affordable for mass market consumers •  RIL is expected to bring similar disruptive offerings in the mobile broadband space as well •  RIL could potentially leverage its scale to control input costs and keep its Capex spending at optimum levels •  RIL is also expected to define and dictate the type of 4G services launched, their quality and pricing levels are expected to set precedents for other industry players Note 1: DAPO – ‘Dhirubhai Ambani Pioneer Offer’ was the first contract based device-service bundle offer in the Indian mobile industry Sources: CC Analysis
    • Despite being competitors on most business aspects, Indian carriers arewilling to partner with each other on key aspects (such as spectrum sharing) Collaboration Among Carriers Airtel’s 3G Services Inter-Circle Roaming (ICR) Circles-Partners Mapping ICR Circles ICR Partners •  With pan-India 3G spectrum price becoming unaffordable during auction, carriers strategically bid for select circles •  Madhya Pradesh •  Idea •  However, post the auction, carriers formed •  Kolkata •  Vodafone ICR partnerships with each other to launch 3G services in non-3G spectrum circles •  Punjab •  Vodafone •  This is a win-win situation as carriers sharing their 3G spectrum could optimize •  Haryana •  Idea & Vodafone their network resources and potentially recuperate their spectrum investments •  Gujarat •  Idea faster •  Uttar Pradesh (East) •  Vodafone •  Although DoT1 has asked the carriers to discontinue their ICR based 3G services, this collaboration among competing •  Maharashtra •  Idea & Vodafone carriers can be viewed as a positive step in terms of their willingness to offer seamless experience to consumers, while optimizing •  Kerala •  Kerala their investments Note 1: DoT– Department of Telecommunications Sources: CC Analysis
    • As Nokia lost its stronghold of Indian mobile devices market, multipledomestic players emerged strongly offering more choice to the consumers End of Nokia’s Monopoly Nokia’s Share of Indian Mobile Indian & Chinese Brands Share of Indian Devices Market (2008 & 2012) Mobile Devices Market (2008 & 2012) 82% 48%-51% 31% <3% 2008 2012 2008 2012 •  Nokia, which had a strong hold over Indian mobile devices market (with a share of over 80%) up until 2008, started losing its relevance in 2009 with the emergence of local Indian and Chinese brands •  Coinciding their foray with the launch of services by new carriers (with disruptive tariffs) in 2009 and leveraging their strong distribution networks, the Indian and Chinese device brands started offering devices with innovative and relevant features such as Multi-SIM at affordable prices •  This competition not only enabled more choice to the end consumers, but also elevated key players (such as Micromax, Karbonn, Spice, etc) to successfully establish nationwide brands and also enter global markets •  These companies have since successfully moved up the value chain offering smartphones ­  As per CC estimates, local brands share of incremental smartphones sales in India grew from sub 2% in Q1 ‘12 to over 24% in Q4 ‘12 Sources: CC Analysis, Industry Reports
    • The decrease in the mobile subscriber base since (mid-2012) is anindication of carriers’ preference of quality over quantity of subscribers Retention of Total Mobile Subscriber Base in India in 2012, by Month Quality Subs 938   934       925     919   918       911     908.4     906.6   904     904.2       Jan-­‐12   Feb-­‐12   Mar-­‐12   Apr-­‐12   May-­‐12   Jun-­‐12   Jul-­‐12   Aug-­‐12   Sep-­‐12   Oct-­‐12   •  The mobile subscriber base in India started decreasing in the second half of 2012, primarily driven by disabling of inactive/low quality subscribers by leading incumbent carriers in India •  This is an indication of Indian carriers’ reduced tolerance of ultra-low ARPU subscribers and shift in focus from customer acquisition to retention of high-quality subscribers •  By disabling inactive/low quality subscribers, carriers are also conserving precious network resources such as spectrum, core network capacity, numbering series, etc Sources: CC Analysis, TRAI
    • Mobile carriers in India have been successful in increasing the mobiletariffs without adversely affecting MoU volume or subscriber base Increase in Tariffs Average Per Second Voice Call Tariff •  Most of the leading incumbent carriers in of Leading Carriers (Q3 ‘11 – Q3 ‘12) India have increased voice tariffs ranging 23% to 35% between Q3 ‘11 and Q3 ‘12 1.23p1-1.35p1 •  This increase is the first reversal of trends in India, indicating the bottoming out of 1p1 mobile tariffs •  However, this hike in mobile tariffs has not adversely affected the subscriber usage (average Minutes of Use), thus enabling increased carrier revenue realization from the same set of customers •  This is an indication of Indian carriers’ Q3 2011 Q3 2012 willingness to reverse popular trends such as price sensitivity in order to increase revenues Sources: CC Analysis Note 1: 1p – 1 Paise = USD 0.018
    • Vodafone’s initiative to increase the off-deck VAS revenue share to 70% (fromthe existing 30%) in favor of content developers is considered a positive move VAS Rev-Share Dynamics Change India Telecom VAS Value Chain and Revenue Share by Player 10% - 15% 5% - 10% 70% - 75%1 Rev Share Traditional VAS Product / 
 Carriers Content Content Application 
 Carrier Billing Developers Aggregators Developer D2C 60% - 65%1 Technology Platform Enablers 10% Vodafone’s Rev Share (2012) 70% 30% •  Traditionally, Indian carriers retain a disproportionate share of VAS revenues, leading to severe discontent among other players in the value chain•  Carriers justify the retention of large VAS revenue shares as they provide billing and access to consumers, and also invest in VAS marketing and promotions•  However, Vodafone has recently started offering more favorable rev-share deals (70% of revenue as opposed to 30%-35%) to those Direct-to-Consumer (D2C) mobile apps/services companies that will not rely on Vodafone for promotion and customer acquisition•  These larger off-deck revenue shares will drive more revenue and innovation for app developers/content providers Note 1: Carriers charge high % of revenue for hosting and promoting the VAS services and marginally lower for providing only billing integration for Direct-to-Consumer (off-deck) players Sources: CC Research
    • The increasing competition in smart devices’ chipsets space is expected tofurther drive the availability of wider range of devices to the end consumer Competition in Chipset Type Chipsets Space Key Players Insights and Analysis (GPU/RF Modem) •  India is one of the few markets for EDGE-based smartphones •  Mediatek Single-Core (2G) •  As per our estimates, EDGE-based smartphones formed about 12% to •  Spreadtrum 15% of total smartphones sold in Q4, 2012 •  Qualcomm had released MSM 7225A & MSM 7225AA (dual-SIM) •  Mediatek single core chipsets in 2011 primarily for emerging markets Single-Core (3G) •  Qualcomm •  Intel •  Mediatek’s MT6573 & MT6575 also power a number of entry-level smartphones in India currently •  We expect EDGE-based smartphones to continue to sell in India until Q3, 2013 Dual-Core (2G) •  Mediatek •  However, the single-core chipsets are expected to be phased out and replaced by dual-core chipsets, primarily led by Mediatek’s solutions •  Mediatek •  A number of 3G smartphones based on dual-core chipsets from •  Qualcomm multiple vendors are currently available in India Dual-Core (3G) •  Renesas •  This is also a prime focus area for all the chipset vendors •  Marvel •  Intel has recently announced the “Lexington” (an entry-level dual- •  Intel core 3G) platform primarily for emerging markets •  High-end devices based on Mediatek’s MT6589 & Qualcomm’s MSM •  Mediatek 8225Q are expected to be launched in India in Q2, 2013 Quad-Core (3G) •  Qualcomm •  Broadcom •  Broadcom is also expected to enter the Indian smart devices market with a quad-core solution in 2013 •  As the LTE ecosystem starts to take off in India, we expect players such Altair, Renesas, etc to enter the Indian market providing solutions for a wide range of devices Sources: CC Analysis, Industry Interviews
    • The recent 1800 MHz 2G auctions successfully revealed the judiciousstrategies employed by various mobile carriers Judicious Bidding Key Takeaways from the 1800 MHz Spectrum Auction in India (Nov 2012) for 2G Spectrum •  Govt. auctioned only half of the spectrum acquired from licence cancellations Auction of Partial Spectrum •  The govt. could potentially use the un-auctioned 1800 MHz specrum to force the leading incumbents to re-farm their 900 MHz spectrum •  Although as a technology CDMA is optimized for data services and better voice No Participants for quality, in India, the viability of CDMA business is poor because of lower than CDMA Spectrum average revenues and low-end subscriber base •  Contrary to popular opinion, RIL refrained from participating in auctions Non-Participation of Reliance Infotel •  It is better for them to acquire an existing player than roll out voice networks ground up, in a highly competitive market •  Highly lucrative circles such as Delhi, Mumbai and Karnataka (which are also Leading Data Traffic leading data traffic generators) did not attract any bids as it is difficult for newCircles Find No Bidders players to disrupt the existing incumbents’ business •  The only circles to have witnessed competitive bidding were U.P. (East) & Bihar Demand for Voice Markets •  Although 1800 MHz spectrum is ideally suited for dense, urban areas, carriers are expected to roll out voice services in semi-urban & rural areas •  Both Videocon & Telenor’s India arm (who had their pan-India licenses canceled Strategic Bidding by earlier in 2012) have acquired spectrum in six circles each New Entrants •  Videocon intends to launch 4G services (in 1800 MHz band) in its six circles, positioning itself as a potential acquisition candidate in future Sources: CC Analysis
    • Contents Highlights of the First Growth Phase of Indian Mobile Industry India’s Second Mobile Revolution Early Indicators Expected Developments/Trends Potential Triggers Convergence Catalyst Credentials
    • While the building blocks for the next growth phase have started emerging since 2010, we believe all the enablers to be in place by 2015 Early Indicators Expected Developments •  Decrease in mobile subscribers •  Increase in mobile tariffs •  New services to be offered to wider customer •  Vodafone increasing the revenue segments share for app/content developers •  Revenues and stickiness of non-voice VAS services•  Strategic & judicious bidding of •  Increasing competition in the to increase 3G & BWA spectrum by carriers smartphones chipsets space •  Over-The-Top (OTT) players to enter the mobile•  Reliance’s re-entry into telecom •  Judicious bidding for 2G spectrum value chain (launching mobile-data driven services) 2010 2011 2012 2013 2014 2015 •  Collaboration among carriers •  Demand driven data consumption and VAS (co-opetition) adoption to increase •  End of Nokia’s stronghold on the •  Increase in apps adoption and consumption Indian mobile devices market •  Optimum use of big data analytics (CEM (increased competition) implementation) by carriers •  Adoption of Wi-Fi for data offloading by carriers Key Triggers That Could •  Auction of 700MHz spectrum (currently slated for 2014) Expedite the Next Growth •  Tariff wars for mobile data services Sources: CC Analysis
    • Going forward, Indian mobile carriers will need to expand focus to includeenterprises and government sectors offering multiple mobile broadband services Newer Services & Customer Segments (Illustrative and Non-Exhaustive) Customer Segment Service Offering Customer Service Centers (CSCs) Government Geo-Spatial Video Surveillance Services (B2G) State Wide Area Network (SWAN) M-Education M-HealthPotential Mobile Enterprise Services Broadband (B2B) TelematicsServices in India Automatic Meter Reading Fixed (Home) Broadband Broadband on the Move – Data Cards Consumer Services Mobile Internet (B2C) Video Based Services Location Based Services Mobile Gaming Sources: CC Research
    • The non-voice services revenues, share and stickiness need to increase Increase in Non- Voice RevenuesShare of VAS of the Total Mobile Service Revenues Monthly Churn of Select VAS Services (and in Emerging Markets (by Country, 2011) Overall Average) of a Leading Indian Carrier 100%28% 28% 23% 20% 18% 18% 50% 10% 60% 8% 40% 20% 0%China Mexico Russia Thailand Brazil South India Indonesia Missed Call Astrology Alerts CRBT Africa Alerts (IVR-Based) Average churn for all VAS services•  Currently, the non-voice VAS services in India is among the lowest of all the emerging markets coupled with significant subscriber churn (of as high as 60%, for some services)•  This poor performance of mobile VAS in India is primarily due to: −  Lack of stickiness of a number of VAS services −  Pricing models (most VAS services are at a monthly subscription rate of USD 0.55 to USD 0.80, which is 27% to 40% of prepaid ARPU) −  Inefficient marketing and poor retention strategies by industry players•  Going forward, carriers and other ecosystem players need to focus on offering relevant and valuable services to targeted consumers, leading to increase in VAS revenues (both in terms of share of total mobile revenues and ARPU) and decrease in VAS churn Sources: CC Research, Industry Inputs
    • Mobile apps consumption in India is still in its infancy and needs to mature to drive the next phase of growth Increase in Apps Smartphone Installed Base Vs User App Engagement by Country Consumption User Engagement (App Downloads per Smartphone) 25.0 Maturity 20.0 US Sweden UK Germany Netherlands 15.0 Australia 10.0 Russia France China Spain Italy 5.0 Poland Brazil India Bubble size = addressable market 0.0 Opportunity (mobile subscribers per country) 0% 10% 20% 30% 40% 50% Smartphone Penetration Per Capita (%)•  Mobile apps consumption by retail consumers has begun in India, led by Android based devices and Google Play store ­  However, currently over 50% of users who download mobile apps in India are either dormant or new acquisitions•  The mobile apps consumption needs to grow and the ecosystem needs to mature to enable the next phase of industry growth Sources: Developer Economics 2012 – Vision Mobile Report, InMobi, CC Analysis
    • The growth of smart devices adoption in India is expected to drive the mobile data consumption in future Demand Side Growth Yearly Smartphones Sales in India Forecasts for Tablets Sales in India by Year (Million, 2009-2014E)1 (Thousands, 2011 – 2014)2 ‘000 6,000   5,537   4,000   72.0 2,375   2,256   2,000   44.0 1,507   924   777   19.0 378   458   9.4 214   312   5.6 0  2.3 9.4 2011   2012E   2013E   2014E  2009 2010 2011 2012E 2013E 2014E Bullish Base Case Bearish •  Smartphones and tablets have already breached the USD 100 & USD 140 price points respectively in India •  As per our research and analysis, the average smartphone-based 3G data usage (per subscriber per month) has increased by 33% between Q2, 2011 and Q4, 2012 (in metros). Also, currently the average 3G data consumption on tablets is 40% higher than in smartphones •  The increasing adoption of smart devices in the upcoming years is expected to drive the mobile data consumption Sources: CC Research, Analysis & Estimates Note 1: Forecasts as of July 2012; 2: Forecasts as of Nov 2011
    • As consumers discover the capabilities of smart devices enabled by relevant apps, their usage is expected to increase Demand Driven Data Consumption KeyServices Music Video Gaming Books LBS Email Social Networking Yellow Browse IM - Chat Listen Manage View Direct Reading Pages Directions Use Cases There is an app for everything Play Stay in Touch Rip Buy Broadcast Guide Create Gamble Navigate MapsCurrentDeliveryPlatform Sources: CC Analysis
    • Going forward, media & internet based Over-The-Top (OTT) service providersare expected to play a key role in the growth of the Indian mobile industry OTT Players to Play Potential Emergence of Media & Internet Companies as OTT Players in India a Key Role (Illustrative and Non-Exhaustive) Potential Product/Service Role in Value Chain/ Revenue Model Comments Player Offering(s) Business Model •  Free Wi-Fi/ Mobile Internet •  Facebook has recently started for consumers, testing a new service that increased •  Ad monetization •  Data MVNO allows local businesses to engagement for provide free Wi-Fi in small exchange for check-ins businesses •  Free Wi-Fi/ •  Google partnered with Boingo Mobile Internet Wireless to provide free Wi-Fi for consumers, •  Ad monetization •  Data MVNO across 4000 hotspots in US increased use of •  Google also offers free Wi-Fi Google products in 150 locations in Brazil •  There exists an opportunity for media companies to •  Ad monetization •  Multimedia on partner with carriers and •  Subscription •  Data MVNO the move offer end-to-end muti- •  Transaction screen multimedia services to end consumers •  We believe that consumers and enterprises are interested in services, not networks, and in the next phase OTT players offering end-to-end products & services are expected to play a key role in the growth of the mobile industry in India Sources: CC Analysis
    • Going forward, Indian carriers are expected to adopt intelligent solutions such asCEM1 to maximize the value of their networks with customized & targeted offerings CEM Implementation CEM Functional Architecture and Key Insights Provided for Carriers by Carriers High value Competitive Device Customer Roamer Revenue Customer Benchmarking Configuration Care Insight Insight Insight Insight for Campaigns Automation CEM Engine Business Process Orchestration Analytics Engine Reporting Action Engine Engine Virtual Common Repository Data collection & Service delivery information aggregation •  Going forward, we expect Indian carriers to use big data analytics/CEM to generate insights (and use them for action-oriented business decisions) about customer experiences and preferences, based on existing data in their core & IT networks •  Currently, Nokia Siemens Networks and IBM are leading providers of CEM based solutions to wireless carriers in India •  Carriers such as Airtel & Idea are in the process of implementing CEM in India and are expected to leverage its offerings to provide custom, tailored plans in future Sources: CC Analysis; Industry Interviews Note 1: CEM – Customer Experience Management
    • Wi-Fi offloading of mobile broadband data is necessary in the Indian scenario and many carriers are considering the deployment Adoption of Wi-Fi Data Offloading Comparison of Indian and Global Metro for Mobile Broadband Coverage & Need for Data Offload •  Globally, multiple carriers are successfully Parameter Delhi Amsterdam using Wi-Fi networks for mobile data offload: −  France’s Free Mobile has implemented over 4 Population •  19 Million •  2.2 Million million Wi-Fi hotspots −  China Mobile has implemented 2.83 Mn Wi-Fi Population hotspots, and about 69% of its mobile data is •  12,000 per Km2 •  12,00 per Km2 carried through its Wi-Fi network Density −  Japan’s KDDI has over 100K Wi-Fi hotspots that 3G Spectrum •  2x10 MHz (minimum) carried about 32% of its smartphone data traffic •  2x5 MHz in 2.1 GHz Available in 2.1 GHz 4G Spectrum •  1x20 MHz in 2.4 •  NA • With limited spectrum available for mobile Available GHz broadband services, Indian carriers are alsoCoverage – No. •  500 considering Wi-Fi data offloadingof Towers (3G)Coverage – No. •  650 •  NA of Towers (4G) • WI-Fi offloading of mobile data offers multiple advantages such as: Bandwidth per •  7 kHz to 13 kHz •  100 kHz −  De-congestion of cellular spectrumMBB Customer1 −  Low Delivery Costs – Wi-Fi data delivery costs 10%-20% of 3G/LTE levels (on USD/GHz) −  Maturing seamless cellular & Wi-Fi networks integration It is imperative to offload mobile broadband traffic in India Sources: CC Analysis; Tefficient; Hetting Consulting; CC-Industry Interviews; Green Packet
    • Contents Highlights of the First Growth Phase of Indian Mobile Industry India’s Second Mobile Revolution Early Indicators Expected Developments/Trends Potential Triggers Convergence Catalyst Credentials
    • While the building blocks for the next growth phase have started emerging since 2010, we believe all the enablers to be in place by 2015 Early Indicators Expected Developments •  Decrease in mobile subscribers •  Increase in mobile tariffs •  New services to be offered to wider customer segments •  Vodafone increasing the revenue •  Revenues and stickiness of non-voice VAS services to share for app/content developers increase •  Strategic & judicious bidding of •  Increasing competition in the •  Over-The-Top (OTT) players to enter the mobile value 3G & BWA spectrum by carriers smartphones chipsets space chain (launching mobile-data driven services)•  Reliance’s re-entry into telecom •  Judicious bidding for 2G spectrum 2010 2011 2012 2013 2014 2015 •  Collaboration among carriers •  Demand driven data consumption and VAS (co-opetition) adoption to increase •  End of Nokia’s stronghold on the •  Increase in apps adoption and consumption Indian mobile devices market •  Optimum use of big data analytics (CEM (increased competition) implementation) by carriers •  Adoption of Wi-Fi for data offloading by carriers Key Triggers That Could •  Auction of 700MHz spectrum (currently slated for 2014) Expedite the Next Growth •  Tariff wars for mobile data services Sources: CC Analysis
    • 700 MHz band offers better benefits for LTE deployment as compared to 2.3 GHzband and its auction could potentially impact the current plans of key carriers 700 MHz Auction Comparison of Indian Key Technical and Operational Parameters for for LTE Services LTE Deployment in 700 MHz & 2.3 GHz Parameter LTE in 2.3 GHz Band LTE in 700 MHz Band •  Packs in more no. of bits per MHz as Spectral •  Poor spectral efficiency as compared compared to 2.3 GHz, hence better Efficiency to 700 MHz spectral efficiency Cell Radius & •  Radius: 2 – 5 Kms1 •  Radius: 12 – 15 Kms1 Cell Area •  Area: 50 – 60 Sq Kms1 •  Area: 220 – 250 Sq Kms1 •  No. of cell sites required for pan-city •  No. of cell sites required for pan-city coverage – 15 to 182 coverage – 42 Capex •  Capex requirement is 100% to 200% •  Capex requirement is 35% to 50% of that of higher as compared to 700 MHz 2.3 GHz •  Good indoor coverage due to better Indoor •  Indoor coverage is an issue due to propagation of frequencies in lower Coverage interference in the higher band spectrum bands•  Along with key technical and operational efficiencies, the 700 MHz spectrum for LTE also offers various strategic advantages such as potential for FD-LTE deployment and global economies of scale (both on network equipment and devices)•  It is expected that carriers (who could not garner pan-India spectrum during 3G & BWA auctions) such as Airtel, Vodafone, TTSL, Idea along with new players such as MTS will actively participate in the 700 MHz auction•  Currently, the government plans to auction 108 MHz of spectrum in the 700 MHz band (698 MHz to 806 MHz) in 2014. However, few players in the industry want the auction to be conducted sooner, which could potentially expedite the mobile broadband services growth in India Note 1: For BTS antenna height of 30 mts 2: Assumed city size – 900 Sq Kms. BTS antenna height of 30 mts. This number is for coverage only and not for subscriber capacity 39 Source: CC Analysis, “LTE Business Case”, Hetting Consulting – May, 2011
    • In a price sensitive market such as India, tariff based competition fordata services could trigger higher and faster uptake of services Tariff Wars in Mobile Data Services Growth of 3G Subscribers in India •  The number of 3G subscribers grew by almost Between Q2 & Q4 2012 (Mn) 100% in two quarters when carriers reduced 3G tariff by 70% in mid-2012 Mn 45 • This is similar to the rapid growth in mobile voice subscribers triggered/driven by reducing tariffs over the years 30 • India being a price-sensitive market, services adoption and subscriber growth is almost always directly related to tariff reductions 15 • With Reliance-Infotel expected to launch TD- LTE based mobile broadband services in Q2 2013 there is a chance of existing 3G & LTE carriers further decreasing tariffs (to compete 0 with RIL), which could potentially expedite the Q2 2012 Q4 2012 mobile broadband adoption Sources: CC Analysis, Company Reports, Industry Inputs
    • Contents Highlights of the First Growth Phase of Indian Mobile Industry India’s Second Mobile Revolution Convergence Catalyst Credentials
    • Convergence Catalyst brings vast telecom industry operations & consultingexperience to offer research and advisory services in the TMT domainTelecom Industry and Management Consulting Experience of Convergence Catalyst Core Team MembersDomain Experience Companies Worked For Key Functional Roles Held •  Head, Product Marketing - Motorola •  Head, Product Management – MTS Telecom Industry •  Senior Manager – Tata Teleservices •  Product Manager – Nokia •  Test Lead, RF – Qualcomm •  Network Planning & Optimization – ITI Management •  Senior Management Consultant – Consulting Analysys Mason Telecom Media Technology
    • Convergence Catalyst services include market analysis, product offerings consultancy, investment advisory and custom research Market Analysis Product Offerings Investment Advisory Custom Research ConsultingLeverage deep Leverage extensive Understanding of CC leverages its vastunderstanding of experience in end-to-end industry & key players contacts base in thetechnology, regulation, mobile devices dynamics and investors TMT domain to gatheroperations and development and launch mindset provides a key inputs on specificeconomics of TMT value with both enterprise and unique advantage to CC industry and/orchain to come up with retail customers to offer to offer both due company developments,reports and analyst operations consulting to diligence services and and offers customnotes on the latest various Indian and global investor pitch-book research reports, factindustry developments product companies development packs, etc based on in- depth analysis and valuable insights Focus Areas Focus Areas Focus Areas Focus Areas •  Market sizing •  Product portfolio & •  Business & Technology •  Market assessment•  Opportunity roadmap development due diligence •  Forecasting analysis assessment •  Technical marketing •  Information •  Key partner•  Key player strategies •  Business case development memorandum identification & RoI estimation development •  Competitive •  Pricing & positioning intelligence strategies •  Placement plan •  Marketing plan •  Competitive analysis
    • Vijay Ramanathan – Managing Partner Vijay Ramanathan brings over two decades of international industry experience with over 15 years in the telecom industry. His expertise lies in Product Management & Marketing - from Strategy to Positioning & Execution. He brings a keen insight on key Market Trends that can be converted into actionable plans. Armed with firsthand knowledge of the India Telecom market & the Indian consumer, he has a deep understanding of the hygiene & requirements needed to succeed in the market, having launched upwards of 50 handsets from the very low tier to the high tier segments. He witnessed & participated firsthand in the explosive hockeystick growth in the Indian Telecom market for the last 10 years and has developed a well rounded knowledge of the dynamics in the Operator, Handset, Infrastructure, Regulatory, Retail & Distribution areas in the India Telecom market - keeping a keen eye on advancements in the Wireless/Internet/Gadget/ VAS/general technology areas globally. Most recently, he headed Handset Marketing for MTS, a CDMA operator in India. Prior to that, he was Head, Product Marketing at Motorola Mobile Devices between 2003-08, responsible for all handset product launches & in reaching No.2 in India. He has also held Business & Product positions in Telecom Software, Cellular Infrastructure & Auto Navigation industries in USA and India.
    • Jayanth Kolla - Partner Jayanth brings over a Twelve years of experience in Technology, Product Marketing, Research and Strategy Consulting in the Telecom Networks, Mobile Devices and Mobile VAS domains. He has held various roles in Telecom Carriers, Handset Manufacturers and Management Consulting firms.   He was involved in the roll-out of India’s first rural wireless telephone network for a private carrier, implementing SHLR, testing of CDMA devices & FWTs, successful rollout of multiple GSM and CDMA handsets, developing multiple MVAS product offering & business growth plans and telecom research & advisory (comprising market entry, business growth strategy & investment advisory) for various players across the value chain.   His areas of expertise are Product Marketing, Market Research & Analysis, Tracking and Publishing on current Telecom Trends. Having worked for key players in the Telecom industry, Jayanth brings invaluable domain knowledge that spans across Business Strategy, Technology, Product and Operations. Worked with Companies: Tata Teleservices, Kyocera, Motorola, Nokia and Analysys Mason
    • Thank You Jayanth Kolla, jayanthk@convergencecatalyst.com www.convergencecatalyst.com Twitter: C_Catalyst