www imacs in Telecom September 2006 www imacs

www. imacs. in Telecom September 2006

www. imacs. in Contents • Market Overview • Government regulations & policy • Advantage India and business opportunities TELECOM

www. imacs. in Market Overview • Government regulations & policy • Advantage India and business opportunities TELECOM

www. imacs. in TELECOM Market Overview India’s telecom market has grown rapidly in the last few years… CAGR - 38 % • Revenues ~ USD 19. 5 bn (FY 2006) • CAGR (FY 2002 -06) - 21% • Have doubled in last 3 years • Subscribers ~ 160 million (Aug 2006) • CAGR (FY 2002 -06) - 38 % • Nearly quadrupled since FY 02 • 5 -6 million being added every month CAGR - 21% • Tele-Density - 14. 8 (Aug 2006) • Has doubled in 3 years • Target set for 2007 under NTP 1999 achieved during FY 2005 Source: www. voicendata. com, Telecom regulatory Authority of India (TRAI), Year indicates financial year ending March

www. imacs. in TELECOM Market Overview …and is poised to be the second largest network globally by 2008* India - Nov 2006 184 mn. subs Expected to overtake US by 2008 * Based on excerpts from Worldwide Wireless Data Trends 2006 - a mid year update. Datacomm research Source: International Telecommunications Union (ITU)

www. imacs. in TELECOM Market Overview Mobile telephony continues to be the key growth driver… • Progressive regulation • Migration to revenue sharing • Calling Party Pays (CPP) regime • Unified access licensing • Intra-circle merger guidelines • Intensifying competition • 3 to 6 players per circle • Presence of CDMA and GSM providers • Significant share of private sector • Growing affordability • ARPUs among lowest in the world • Lower cost of ownership due to Low cost / used • handsets Success of the pre-paid format Wireless emerging as the preferred mass market format service providers focus on Internet / broadband access to improve fixed line ARPU* * Average Revenue per user 2006 figures as of Nov 2006 Source: TRAI

www. imacs. in TELECOM Market Overview Growing network coverage is triggering further market expansion Segment Cellular reach (2003 -04) Locations Urban Rural ~ 1700 of 5200 towns Negligible Cellular reach (End 2006 - Est. ) Population Locations Population 200 million ~ 4900 towns out of nearly 5200 towns 300 million Negligible ~ 350, 000 out of 607, 000 villages 450 million Support from Universal Service Obligation Fund envisaged for shared network infrastructure creation in uncovered rural areas Source: Recommendations on Rural Telephony 2005 - TRAI

www. imacs. in TELECOM Market Overview Vibrant and competitive telecom market � Company Presence Subscribers Jul 06 (mn) Share (%) Fixed Mobile BSNL Government owned. Has ramped up GSM services. National presence (except Mumbai and Delhi) 37. 4 17. 7 74. 7% 19. 6% MTNL Government owned. Operates in Delhi and Mumbai. 3. 8 2. 0 7. 7% 2. 3% Bharti Integrated operator, with presence in all sectors. Largest mobile services provider. 1. 4 19. 6 2. 7% 21. 7% Reliance Integrated operator. Plans expansion of GSM network apart from being the largest private CDMA operators. 3. 0 17. 3 6. 0% 19. 2% Hutch Pure play GSM operator in 11 circles. 15. 4 17. 0% IDEA Pure play GSM operator in 6 circles 7. 4 8. 2% Tata Teleservices Integrated operator (along with VSNL) with presence in all segments. Provides CDMA services in 20 circles Aircel Operates in 2 circles. Announced Plans to expand GSM footprint in North and North east 2. 6 2. 9% Spice Pure play GSM player in 2 circles 1. 9 2. 1% 4. 0 4. 9 Others 0. 4 1. 4 Total 50 90 8. 0% 5. 4% Consolidation leading to emergence of integrated pan-national service providers Source: TRAI, IMa. CS research

www. imacs. in TELECOM Market Overview Several Indian firms gaining a foothold in the global market • Indian service providers acquiring scale in the International Long Distance market through acquisitions… • Acquisitions - FLAG by Reliance, Tyco and Teleglobe by Videsh Sanchar Nigam Limited • VSNL is now the world's fifth largest carrier of voice globally • Reliance’s FLAG network connects with 28 countries. FLAG’s FALCON cable system when completed would connect 12 countries with 25 international cable landing stations • Investments in Infrastructure and • Bharti-Singtel and VSNL investments in undersea cable • Emerging as Integrated telco, positioning themselves as full service providers • Tata teleservices-VSNL, Bharti, Reliance have end-to-end presence in ILD, NLD and Access; announced plans to get into ILD • Focus on corporate connectivity - IPLCs, Frame relay, VPNs • Strong thrust on internet and broadband - both corporate and retail segments BSNL has

www. imacs. in TELECOM Government regulations and policy • Market Overview • Government regulations & policy • Advantage India and business opportunities

www. imacs. in TELECOM Government Regulations and policy Reform thrust on independent regulation, competition and investment facilitation • • • Pre-reform Partial Deregulation Further Deregulation Take-off Pre-1994 -1999 - 2002 onwards MTNL - Mumbai and Delhi; DTS elsewhere No mobile service NLD - Do. T per/ BSNL ILD - VSNL • 4 private fixed service providers with less than 1% market share • 2 GSM mobile players in each circle • 13 players start mobile service • National Telecom Policy (NTP) 1994 • TRAI constituted 1997 National Telecom Policy, 1994 • Licenses converted to revenue sharing • Private sector share less than 5% in revenue terms • • • Competition in NLD and ILD • • Licenses on Revenue share 4 mobile operators / circle NTP 1999 BSNL formed 2001 Internet Telephony 2002 FDI - 49 % New Telecom Policy, 1999 • • • Calling Party Pays • Intra-circle merger guidelines • Unified Licensing • • CDMA launch 3 -6 operators in each circle Broadband policy 2004 FDI - 74% 2005 Unified Licensing Regime

www. imacs. in TELECOM Government Regulations and policy Independent regulation has been a critical factor in growth 2006 Number portability Convergence TRAI’s recommendations 2005 Unified Licensing Quality of Service regulation Rural Telephony 2004 Intra-circle merger guidelines Internet / broadband penetration 2003 Calling Party Pays Regime Unified Access Licensing Reference Interconnect Order 2002 • ILD opened to competition • • Internet Telephony allowed. Reduction in License fees Mature regulatory regime and an enabling policy framework already in place

www. imacs. in TELECOM Government Regulations and policy Important policy initiatives • • Broadband policy unveiled in 2004 - Targets 20 million broadband subscribers by 2010 Focus on making India a regional Telecom manufacturing hub FDI limit increased from 49% to 74% 100% FDI permitted under automatic route in the manufacturing sector Deregulation virtually complete and Unified Licensing regime Interconnection Usage Charge framework in place Exemption from customs duty for import of Mobile Switching Centres Comprehensive Spectrum policy and 3 G policy on the anvil Creating a favourable investment climate to support growth

www. imacs. in TELECOM Advantage India and business opportunities • Market Overview • Government regulations & policy • Advantage India and business opportunities

www. imacs. in TELECOM Advantage India and business opportunities Recent developments are indicative of the paradigm shift in wireless growth • Of the 160 million subscribers, more than 90 million subscribers added in the last two years • More than 5 million subscribers added every month since Dec. 2005, translating into the highest growth rate in the world • On a comparison of growth since introduction of mobile telephony, India surpasses China at the same stage of market evolution In the 11 th year India - 76 mn. China - 24 mn. Source: TRAI

www. imacs. in TELECOM Advantage India and business opportunities Mobile Value Added Services (VAS) set to register explosive growth* • Data and VAS contributed to 7% of revenue in 2004 • Messaging and music (ringtones, downloads etc) to be key contributors • VAS revenues expected to grow given • Demand - Young population (60% < 30 years) and an affinity to music and movies • Supply - aggressive pricing, vibrant ecosystem of content providers / broadcasters, declining GPRS/mp 3 handset prices • Indian Idol - a reality show on Sony Television got 55 million SMS messages in 5 months • Radio Mirchi - a popular FM radio channel receives ~ 40000 -45000 SMS messages every day • R-World - the mobile portal of Reliance Communications had 5. 3 million visitors out of its 18 million subscribers in 2005 VAS expected to contribute 20% of revenue by 2008 and 30% by 2010 * Excerpts from Mobile Data in India. Lehmann brothers report. Oct 2005. IMa. CS research

www. imacs. in TELECOM Advantage India and business opportunities Broadband Internet connectivity on the verge of a take-off • Internet / Broadband market (FY 2006) • 6. 94 mn. Internet customers • • 6 -fold growth • (25% growth Yo. Y) 1. 35 mn. broadband customers (6 -fold growth Yo. Y) Incumbents (BSNL / MTNL) dominate - 66% share 7 -fold growth in broadband connections during FY 2006 • Broadband Policy 2004 • Recognises the importance of • Growing PC sales, Internet adoption in small towns and offerings including triple play and • internet penetration Envisages 40 million internet connections by 2010 Visualises creation of infrastructure through various access technologies video-on-demand / IPTV expected to be major growth drivers Source: TRAI

www. imacs. in TELECOM Advantage India and business opportunities Growth-driving sustainable factors in the telecom sector • Favorable Macro-Economic fundamentals and Demographics • Strong Economic Growth and rising incomes • By 2020, working age population to rise to 65% • Low tele-density relative to Asian peers • India not just a cost-sensitive mass market • 300 million plus middle class population • Value added service revenue expected to grow at 80% CAGR over next 5 years. • IDC estimates phones with color screens/ cameras to account for 30%of handset sales in • Progressive policy and regulation • Independent regulation • Consistent policy framework • Favourable Investment Climate • Rising Affordability • Declining ARPUs • Lowering cost of handsets • Growing popularity of pre-paid format 2005 and 62%by 2008 “People think about the Indian market as a lower tier. About 30%of the U. S. market is high end and maybe it's only 5%in India. But India has 1. 1 billion people” Ron Garriques. Executive vice president, Motorola's personal communications sector in On the Razor's Edge: Cell Phones Morph into Hip Consumer Electronics Devices Knowledge@Wharton

www. imacs. in TELECOM Advantage India and business opportunities India poised to be a USD 40 bn - 45 bn telecom market by FY 2010… Telecom sector targets announced by Government of India • • • 250 million subscribers by 2007 500 million subscribers by 2010 20 million broadband subscribers by 2010 Mobile access to all villages with population more than 5, 000 by 2006 Mobile access to all villages with population of more than 1, 000 by 2007 Translating into an investment requirement of USD 25 bn to USD 30 bn…

www. imacs. in TELECOM Advantage India and business opportunities A compelling destination for Telecom service providers and equipment majors • • Largest pure-play GSM service provider in India Has over 15 million subscribers • • Has a 10% stake in Bharti telecom, an integrated service provider Represents the largest foreign investment in the telecom services sector in India • Promotes and supports a range of telecommunications products and services in India in association with licensed operators. • Has invested in Bharti Airtel and also Network i 2 i is a 50: 50 Joint Venture between Bharti and Sing. Tel, connecting Chennai to Singapore • Nortel offers a suite of products and solutions across two broad categories Carrier Networks (incorporating Wireless Networks, Wireline Networks and Optical Networks) and Enterprise Networks. • In India since 1991. Has an R&D centre in Bangalore

www. imacs. in TELECOM Advantage India and business opportunities Key Indian Companies • BSNL - Incumbent service provider and World's 7 th largest Telecommunications Company providing comprehensive range of telecom services in India • Services include Wireline, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service, MPLS-VPN, VSAT, Vo. IP services, IN Services etc. • • MTNL - State owned operator covering the cities of Mumbai an Delhi • • Bharti Airtel - Integrated operator with presence in all segments • • Reliance Communications - Largest player in India in the CDMA segment • • Tata Teleservices - Integrated operator (with VSNL) with presence in all segments Provides both fixed and mobile services Leads the mobile segment in the country Plans a GSM network Provides CDMA services in 20 circles

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