Project Report

Managerial Economics

Project Telecom

MajYashVardhanNaudiyal (Roll No - 35)

Siddharth Prasad (Roll No - 29)
PrashanthShukla (Roll No - 21)
AbhishekRajan (Roll No - 03)
Prashant Jain (Roll No - 20)
AlokPratap Singh (Roll No - 05)
Table of Contents
Introduction ....................................................................................................................................... 3
AIM ........................................................................................................................................................ 4
Telecommunication in India ........................................................................................................ 5
Brief History of Telecommunication in India ................................................................... 5
Policy initiatives, Regulation and Licensing .......................................................................... 7
Policy Initiatives .......................................................................................................................... 7
Regulation and licensing .......................................................................................................... 8
The Indian Telecommunications Industry .......................................................................... 12
Key Players Analysis .................................................................................................................... 21
Reliance Communications .................................................................................................... 21
BhartiAirtel ................................................................................................................................. 27
Overview of CDMA Technology ............................................................................................... 33
Overview of GSM Technology .................................................................................................. 36
Q on Q Comparison of Numbers – Quarter Ended December 2009 .......................... 38
Service-wise Comparison of Primary Market Players .................................................... 39
Trend Method& Regression Analysis for mobile subscription growth ................... 40
Conclusion ....................................................................................................................................... 47
Addendum ....................................................................................................................................... 49
References: ...................................................................................................................................... 50
Introduction

The Indian telecommunications industry has come a long way from the days of being run by
the Department of Telecomas the sole National service provider, and when inter-state
calling was characterised by the entire family huddling around the ‘landline’, and when
international calls were almost exclusively only received but hardly ever made!

Telecom as a business has also dramatically evolved from merely a telephone and telegraph
service to what it is now. The industry has seen significant change implemented at the level
of governance, regulation and administration in sync with its continuous evolvement. The
highly evolved shape of telecommunication services in India today is not only on the account
of the rapid pace of technological development and adoption, but also on the constantly
growing consumer communication needs and the ability of the industry to provide a gamut
of services that address these needs by the means of wireline, radio waves or by the
Internet.

As this industry has matured, it has seen and enabled convergence in every sphere of
economic and commercial activity across the globe. In the light of the above, and in order to
capitaliseon the opportunities presented by this convergence, it is imperative for the
telecom companies to have a footprint in all the areas of the telecom business, including
those currently considered ancillary.

We have attempted to document the telecom industry’s rapid penetration, expansionand

future growththrough the lens of two of the leading players in India, Reliance
Communications and its leverage of the CDMA network, and BhartiAirtel and its success in
the GSM framework.

It has been our endeavour to offer, upon the analyses of the present scenario, indicators to
forecast the future of the telecommunications business with a specific focus on mobile
communication services through regression analyses using several macro-economic
aggregates and other growth parameters.
AIM

The aim of our study is to:-

Firstly, to Understand the telecom environment.

Secondly, to forecast the future mobile subscription growth

Lastly, to analyse the performances of BhartiAirtel and Reliance

Communications
Telecommunication in India

Brief History of Telecommunication in India

a) Growth of telegraph in Pre-Independent India (1851 to 1947):

The British Government in India first threw open telegraph facilities to the public
in 1854, after having created the Posts and Telegraphs Departments under the
supervision of itsfirst Superintendent of Electric Telegraphs (who later became its
first Director General) Dr. William O’Shaughnessy in 1851.

A landmark moment was the passing of the Indian Telegraph Act, 1885 – which
exists as one of the principle regulation for the industry even today!

1925 proved a significant point in the development of the telegraph as the

accounts of the Indian Posts and Telegraphs were reconstituted to examine the
true fiscal profile of the department.This was the first recorded attempt to find
out the extent to which the department was imposing a burden on the
taxpayers.

1933 also held similar significance as the year 1885 since that was when the
Indian Wireless Telegraphy Act was passed. This Act also remains a governing act
today.

b) Telecommunication Post-Independence (1950 to 1994):

Post independence, and the absorption of the telephone exchanges (196

exchanges with an installed capacity of 13362 lines) of the remaining princely
states in 1950, the period-defining development was in January 1985when two
separate Departments for the Posts and the Telecommunications were created.
The DoT reorganised the Telecommunication Circles, andsubsequently, Bombay
and Delhi Telephones were separated to create a new entity called Mahanagar
Telephone Nigam Limited (MTNL).
c) Ushering in the Revolution (1994 onward):

1994 shall remain one of the cornerstones of the telecommunication revolution

in India. It was the year that the National Telecom Policy 1994was introduced.
This was followed shortly after with the arrival of the Global System for Mobile
Communications or, as we know it, GSM. On July 31, 1995, thehistoric first cell
phone-call was made by the then Chief Minister of West Bengal via MobileNet, a
joint venture between Telstra (Australia) & B.K. Modigroup.

Recognising the impending impact of the telecommunication sector, the Telecom

Regulatory Authority of India – TRAI was formed in 1997, and swiftly followed by
the New Telecom Policy, in 1999. Bharat Sanchar Nigam Ltd (BSNL) was then
created in 2000. All efforts toward ensuring that regulation kept pace with the
industry developments and that the industry would grow in a healthy manner
with due government support.

The Broadband Policy in 2004, the impending implementation of the Mobile

Number Portability and the auction of the 3G spectrums in 2010 also offer
reference to the expanding needs of both the industry as well as the rapidly
growing customer base it serves.
Policy initiatives, Regulation and Licensing
Policy Initiatives

i) National Telecom Policy 1994

As of 1994, telephone density in India was 0.8 per hundred persons as against
the world average of 10 per hundred persons. This was significantly lower than
even China (1.7), Pakistan (2), and Malaysia (13). Seeing the need for focussed
governmental intervention, the National Telecom Policy was passed in 1994. The
objectives of the policy were, simply put, telecommunication for all at affordable
prices and world standard quality.

ii) Telecom Regulatory Authority of India - TRAI

TRAI was formed January 1997 to provide an effective regulatory framework and
adequate safeguards to ensure fair competition and protection of consumer
interests. It reigned in its first tariff order, and thus began reforms effective
1998.Among its key roles, the TRAI has adequate powers to issue directions to
service providers, has full adjudicatory powers to resolve disputes between
service provider and the arbitration function for resolution of disputes between
Government (in its role as licensor) and any licensee.

iii) New Telecom Policy 1999

With the potential Socio-economic impact of the sector becoming amply clear,
the government set about revising its policy of 1994, and came out with the New
Telecom Policy in 1999. The policy differed from its predecessor in that it held far
more aggressive targets, and also in 3 other key perspectives; The need for
private players to gain competitive footing in the space, that this industry would
spur the growth of other industries such as IT, media etc, and that the role of the
government in ensuring growth required its active participation in developing the
telecom industry.It retained the focus on the need for universal access but
simultaneously saw its role in enabling Indian Telecom Companies to become
truly global players. The then proposed telephone density target of 15 in 2010
has long since been surpassed with the dramatic penetration of mobile
telephony!
iv) Bharat Sanchar Nigam Limited - BSNL

On the 1st of October 2000, the Department created BSNL - a new entity to
operate services in different parts of the country as a public sector unit.

v) Broadband Policy 2004

Recognising the potential of ubiquitous Broadband service in the growth of the

GDP and enhancement in quality of life through societal applications including
education, medicine, e-governance, entertainment as well as employment
generation by way of high-speed access to information and web-based
communication, the Broadband Policy of 2004 was instituted.

Regulation and licensing

The telecom sector in India is highly regulated, and is governed by:

• The Indian Telegraph Act, 1885 ("Telegraph Act")

• Indian Wireless Telegraphy Act, 1933 ("Wireless Act")
• The licenses issued under these statues

The Department of Telecommunications ("DoT") and Telecom Regulatory Authority

of India ("TRAI") regulate the telecom sector in India.

Under Section 4 of the Telegraph Act, the DoT reserves the exclusive right to
establish and maintain telegraph systems in India. However the DoT may, by license,
grant any other person the right to establish, operate and maintain a telegraph
system.

The definition of "telegraph" under the Telegraph Act is very wide, and could include
any apparatus that will be used for a telecommunication purpose. Under the
Telegraph Act, the term "telegraph" has been defined to mean any appliance,
instrument, material or apparatus used or capable of use for transmission or
reception of signs, signals, writing, images and sounds or intelligence of any nature
by wire, visual or other electro-magnetic emissions, radio waves or hertzian waves,
galvanic, electric or magnetic means.
i) Licenses issued under the Telegraph Act

As disused above, the DoT has been granted the power under section 4 of the
Telegraph Act to issue licenses for providing telecommunication services in
India. We have discussed below certain licenses issued by the DoT under the
Telegraph Act.

ii) Unified Access Services ("UAS") License

The UAS license is an all-inclusive license under which a service provider can
provide access services for carriage, transmission and delivery of voice and non-
voice messages over the network. Under this license, the licensee can provide
the following services to its customers:

• Internet services
• Broad band
• Fixed line service
• Mobile communication services
• Voice mail
• Audiotex services
• Video conferencing
• Videotex
• E-Mail
• Closed User group services
• Wi-Fi
• IPTV

A UAS licensee can provide both wireless and wired services to its customers.
The UAS licensees are permitted to access the end customers directly. The UAS
license is issued for each circle in India (such as Mumbai, Chennai) and for
providing services in different circles separate licenses are to be obtained.
iii) Internet Service Provider ("ISP") License

An ISP license is a limited license permitting the licensee to provide Internet

access/content services including Internet telephony services and IPTV services.
The ISP's providing IPTV services must have a minimum net worthof 100 Crores.
Note that ISPs are not permitted to provide IPVPN services. ISP's are only
allowed to provide last mile connectivity to the end-user.

iv) National Long Distance ("NLD") License

The NLD licenses are issued to facilitate carriage of switched bearer

telecommunication service over a long distance i.e. to carry inter-circle traffic.
The licensee is required to have paid up equity capital as well as a net worth of
Rs. 2.5 Crores. Unlike the ISP and UAS licensees, the NLD licensee is not
permitted to provide last mile connectivity to end customer. The NLD licensee
will have to approach an ISP licensee or UAS licensee for the last mile
connectivity. However, an NLD licensee can approach the customers for
providing leased circuit i.e. either Internet Protocol Virtual Private Network
("IPVPN") services or International Private Leased Circuit ("IPLC") services.

v) International Long Distance ("ILD") License

The ILD service is a network carriage service providing international connectivity

to the network operated by foreign carriers. ILD licensees act as a point of
interconnection between the NLD service providers and international
carriers.Unlike the ISP and the UAS licensee, the ILD licensee is not permitted to
provide last mile connectivity to end customer. The ILD licensee will have to
approach an ISP licensee or UAS licensee for the last mile connectivity. However,
an ILD licensee can approach the customers for providing leased circuit i.e.
either IPVPN services or IPLC services.

vi) FDI regulation and security matters

Telecom sector is considered a sensitive sector, and consequently, foreign direct

investment ("FDI") in telecom sector is highly regulated. All the telecom licenses
issued in India requires the licensee to be an Indian company constituted under
the Companies Act, 1956 ("Companies Act"). Press Note No. 3 (2007) Series
issued by the Department of Industrial Policy and Promotion governs FDI in the
telecom sector. In the telecom sector, FDI up to 49% is permitted under the
automatic route and up to 74% is permitted subject to the approval of the
Foreign Investment Promotion Board ("FIPB").

Further, certain security conditions are also imposed on telecom companies

such as:

• The chief officer in charge of technical network operations and the

chief security officer must be a resident Indian citizens;
• The majority directors on the board of the company must be Indian
residents;
• The officers/officials of the companies dealing with the lawful
interception of messages must be resident Indian citizens;
• The foreign residents occupying the posts of chairman, managing
director, CEO or CFO must be security vetted by the Ministry of Home
Affairs
The Indian Telecommunications Industry
India has one of the largest and most quickly expanding customer bases in the global
telecommunications industry, with a current 621.28 million telephone subscribers
and over 600 million wireless services users. Growing at nearly 10% per quarter,
India offers market players tremendous growth potential.

i) Constituentsof Indian Telecommunications Industry

The Indian telecommunications industry now includes a spread of services such

as Wire line telephony, Internet services, Telemedia and DTH services and, of
course, mobile services. We shall now examine each of them briefly.

Wireless + Wire line Subscriber base – Rural and Urban

Subscriber Base (in millions) Tele-density (per 100
persons)
Rural Urban Total Rural Urban Total
QE December 08 103.83 280.96 384.79 12.72 82.15 34.98
QE March 09 122.21 307.51 429.72 14.93 89.44 39
QE June 09 136.27 328.55 464.82 16.61 95.05 42.2
QE September 09 151.8 357.22 509.02 18.46 102.79 46.2
QE December 09 174.53 387.63 562.16 21.16 110.96 51.1

a) Wire Line Telephony

Known more commonly as the landline, wire line telephony has, for many
decades, existed as the primary telephonic system in India. The rapid expansion
of mobiles services over the last decade has replaced the landline as the
backbone of telephonic communications in India and the rest of the
world.World over, customers are embracing mobile technology in a big way.
They seem to indicate a preference for wireless services compared to wire-line
services – as evident from the fact that average wireless telephony subscribers
grew at a CAGR of 21.5% from 2004 to 2009, while the wire-line subscriber base
growth rate is negligible during the same period.

Fixed line penetration in India stands very low at 37.06 lines per hundred
inhabitants, while the rest of the world average stood at 49 for the year 2010.
60
50
40
Developed
30
20 Developing
10 World
0
1997 1999 2001 2003 2005 2007 2009 2011

Until recently, only the Government-owned

Government owned BSNL and MTNL were allowed to
offer landline phone services,
services, with MTNL operating in Delhi and Mumbai and
BSNL servicing all other areas of the country. While this market has been
recently opened out to private operators such as Airtel, Reliance and Tata, the
sheer impact of the growth in mobile services has hugely
hugely limited the space for
the landline business. The increased competition in what appears to be a
shrinking market has forced landline service providers to become more efficient,
improve their quality of service, and much faster service turn-around.
turn around.

80
60
40
20
0

Subscribers in
Millions (Nov 08)
Market Share
(Nov08) (%)
 Herfindhal Indexes Based on Subscribers

% Market (Market
Subscribers Share Share)2
Market Players
BSNL 29.7 78.3 6137.7
MTNL 3.54 9.3 87.2
Bharti 2.59 6.8 46.7
Rcom 1.06 2.8 7.8
Tata Telesrvices 0.86 2.3 5.1
HFCL Infocom 0.16 0.4 0.2
Total 37.91 100.0 6284.7 HHI

Wire Line Subscriber Base (in millions)

Service QE QE March QE June 09 QE QE
Provider December 09 September December
08 09 09
BSNL 29.5 29.34 28.79 28.45 28.1
MTNL 3.53 3.57 3.55 3.51 3.49
Bharti 2.61 2.73 2.83 2.93 2.99
Reliance 1.07 1.11 1.13 1.15 1.16
Tata 0.87 0.92 0.95 1 1.1
HFCL 0.16 0.16 0.16 0.17 0.17
Others 0.16 0.13 0.11 0.1 0.05
Total 37.9 37.96 37.52 37.31 37.06

b) Internet Services

Internet access, historically, has been through the system of ‘dial-up’ wherein
the landline connection was leveraged to deliver connectivity at speeds up to 56
KBPS. Broadband, a new and rather generic term for an Internet access method
that is faster than the dial-up speedrefers to the broader “bandwidth” of data
that you can download in a given amount of time with a faster Internet
connection.

India had, as on Sep 08, 57 million active Internet users. Active Internet users
are those who have used the Internet at least once in the last one month – this
is an internationally accepted benchmark for enumerating Internet users. Urban
users continue to dominate Internet use contributing to 42 million of the 45
million odd users.

Active & claimed internet users- India

In Sep 2008, the number of active Internet users in urban India was 42 million
showing a year on year growth of a little more than 30 per cent. The number of
“claimed” Internet users in September 2008 was 57 million compared with 46
million in September 2007, recording nearly 24 per cent growth. Claimed users
are those who have used the Internet sometime but not in the last one month.
The time series data since 2001 captures this definite slow down in the growth
rate of Internet users in India.

If we look at the Internet bandwidth usage by medium we find that usage is

predominantly through the DSL/ADSL. Approx. 85% of the Internet usage is
routed through ADSL. This is in sync with the international trends.
 Technology wise break up (Global) and Indian

Technology wise Global B/B

Subuscriber Breakup ADSL
0.08 0.02
0.24
24.39 5.42 Cable
DSL
Cable Modem 1.94
162.6 Ethernet
Fiber + LAN Lan
78.59 Others
Fibre
Source: TRAI

1. WiMAX

After four years of operation, more than 500 deployments across 148 countries
and WiMAX could gather only 6.5mn subscribers globally. Despite this, in India
the demand for WiMAX spectrum is equally fierce as was in the case of 3G
spectrum. At the end of day
day 12, pan India WiMAX spectrum auction amount
reached Rs106bn, 6x the base price of Rs17.5bn. At the current prices, the
government is likely to mobilise Rs320bn from this auction.

Despite years of operations, the broadband penetration in the country is still

languishing at 8.75mn subscribers as of end-Mar
end 2010 (Exhibit-8).
8). The number
of subscribers accessing data on mobile is much higher at 150mn subscribers.
The higher cost of laying fixed line network coupled with absence of unbundling
of local loop has
as resulted in lower competition in thebroadband spacefrom
private players, thereby restricting the growth of broadband.

16
14
12
6.6 7.2 7.8
10 5.5 6.2
8 Broadband
6 Internet
4 7.3 7.3 7.4 7.4 7.4
2
0
Dec`08 Mar` 09 June` 09 Sep`09 Dec` 09
 Therefore, it is evident that the broadband penetration in the country would
take off only on the wireless platform. The 802.16d (fixed WiMAX) is a proven
technology with more than 500 deployments globally. The cost of deployment is
also much lower than the fixed line penetration. Hence, it will help operators to
provide broadband services at much lower prices.

The problem with WIMAX is that the services it promises to offer are already
being provided on other platforms such as DSL, local cable and CDMA data
cards, which restricts the revenue earning potential from this spectrum on an
immediate basis.

In India, the PC penetration is highly skewed towards metro and urban areas
whereas in semi-urban and rural areas it is very minimal. The fixed line
penetration is also very high in metro areas compared with semi urban and
ruralareas. In our view, this does not augur well for growth of WiMAX services in
thecountry. In areas where WiMAX can work effectively (semi urban and rural)
people do not have access device (PCs). On the other hand, in metro areas such
asMumbai and Delhi, an operator needs to deploy more no. of cell sites to
providecoverage than that required in rural areas. It is believed that in dense
urban areas,the no. of cell sites required to provide coverage are equal or higher
than thatrequired to provide GSM services. This will increase the cost of
operations significantly, thereby negatively impacting the financials of the
companies.

2. Telemedia and DTH Services

The development of technologies that allow service providers or operators to

directly cater to the entertainment needs of consumers (eliminating any go-
between systems) has enabled the advancement of DTH technology [Direct to
Home], which has rapidly supplanted the Cable TV network across the country.
This technology allows operators to directly beam television programming to
consumer homes. Consumers interact with the providers directly and, owing to
the degree of technological interplay, have a great deal of customisability
incorporated into the services they are delivered. The leading player in this field
currently is Dish TV, followed by TATA Sky and then by Reliance Big TV and
Airtel. The Telemedia and DTH system detailed here is a far more rudimentary
description of what the system is likely to be able to deliver in the near future.
Its capacities will spread far beyond just interactive television programming, and
extend
tend to a suite of services that are all enabled upon the backbone of Internet
connectivity and thereby bring in highly advanced consumer solutions such as
education, banking and other commerce within its framework.

It is forecasted that the Telemedia and DTH sector revenues will grow
exponentially on the back of three key levers: solid subscriber growth, led by
robust growth in the number of cable & satellite (C&S) households; the growing
share of DTH pay-TV
TV platforms in C&S households; and rising average revenue
per user (ARPU). This strong revenue growth is also likely to result in solid
margin expansion as operating efficiencies kick in with scale.

The potential for growth is enormous given that India has among the largest
larg
pay-TV markets in the world (68million
(6 C&S households) but only 3.8% DTH
penetration, which is among the lowest. It is forecasted that the number of DTH
householdswill overtake the number of analogue cable households in FY 2015.
Based
ed on industry forecasts, DTH households’ share of total
total C&S households is
expected to reach 39.8% versus 36.2% for analogue cable in FY 2015.
20

Subuscriber Base DTH (In Mn)

0.6
0.6 0.8
Dish Tv
4.5
Tata Sky
Big TV
2.8
Bharti
Sun TV

On the back of rising demand for DTH services, it is believed that rising
disposable incomes, increased spending on non-food
non food items & leisure,
particularly media, a lack
lack of entertainment options outside of the home, and
better offerings & service will be the key demand drivers for DTH.
 The increase in supply of DTH services is driving new competition in the DTH
segment. This is expected to be in the form of well-capitalised, large
telecommunication companies and is expended to lend excitement, vitality,
promotional budgets and enhanced visibility to the DTH market.

3. Mobile Services

Telecommunication activities saw rapid growth in India beginning at the dawn of

the 21st century, primarily in the form of the accelerated base expansion in
mobile services adoption. Since then, great efforts have been made by both the
government and industry to further develop the sector, seen in that the industry
has grown at a staggering pace from just 5 million subscribers in 2001.

As the fastest growing telecommunications industry in the world, it is projected

that India will have 1.16 billion mobile subscribers by 2013, and will exceed the
total subscriber count in China then. The industry is expected to reach a size of
Rs 344,921 crore (US$ 73.47 billion) by 2012 at a growth rate of over 26 per
cent, and generate employment opportunities for about 10 million people
during the same period.

A current look at the mobile services market in India and its leading players –

Wireless Subscriber base (in millions)

Service QE QE QE June QE QE QE
Provider December March 09 September December March
08 09 09 09 10
Bharti 85.65 93.92 102.37 110.51 118.86 127.65
Reliance 61.34 72.67 79.62 86.12 93.8 102.42
Vodafone 60.93 68.77 76.45 82.85 91.4 100.86
BSNL 46.23 52.15 54.37 58.76 62.86 69.44
Tata 31.76 35.12 37.12 46.8 57.33 65.94
Idea 38.01 43.02 47.1 51.45 57.61 63.82
Aircel 16.08 18.48 21.8 25.73 31.02 39.11
MTNL 4.19 4.48 4.6 4.68 4.88 6.1
Others 2.71 3.15 3.87 4.83 7.33 10
Total 346.9 391.76 427.3 471.73 525.09 585.34

Mobile services across the world are principally delivered through 2

technological frameworks, namely CDMA and GSM. With the primary focus of
our study being the growth of the mobile services market through the lens of
Reliance Communications and BhartiAirtel, it is integral that we examine the
nature of the framework chosen by each so as to better understand the impact
of both systems as well as organisations in the development of Indian
telecommunication services.

For several years now, the world's two main methods, CDMA and GSM, have
divided the wireless telecommunications universe into opposing camps. The
battle, as it stands today, is muddled. While GSM is the preferred system in
several parts of the world such as Europe and Asia, CDMA is the dominant
standard in other regions such as North America and parts of Asia.

The ultimate outcome of this battle for dominance between these two
competing cellular data transmission technologies is yet to be decided. GSM still
holds the upper hand however.
Key Players Analysis
We have attempted to showcase 2 of the largest service providers in India, Reliance
Communications and BhartiAirtel, and the market building and consolidation
strategies as deployed in the recent past by each, and reflect the relative successes
met by them. They have been chosen given their marketing leading positions in the
CDMA and GSM services respectively so as to showcase the performances of market
leaders in both these spaces.

Reliance Communications
“Make a phone call cheaper than a postcard and you will usher in a revolutionary
transformation in the lives of millions of Indians” – DhirubhaiAmbani. This is the very
1st mention in the ‘Milestones’ section on the Reliance Communications website
(1999).

In keeping with this vision, Reliance Communications was truly instrumental in

achieving critical mass for and market acceptance of the mobile services industry as
a whole through highly innovative pricing and base access creation. The epochal
Reliance IndiaMobile service commenced in May 2003 with 1 million customers for
its introductory ‘DhirubhaiAmbani Pioneer Offer’. This, quite plausibly, is one of the
most significant turning points of the market’s massive mobilisation. Shortly after,
Reliance took the telecommunications market by storm.

Reliance Communications operates pan-India across the full spectrum of wireless,

wireline, and long distance, voice, data, video and Internet communication services.
They also have an extensive international presence through the provision of long
distance voice, data and Internet services and submarine cable network
infrastructure globally.

The Indian telecom sector is growing on strong momentum. Reliance

Communications continues to expand its share of this rapidly expanding market
through the deployment of low cost value propositions to consumers.
The Reliance Communications business is categorised as under:

a) Wireless Business Unit

Following the recent rollout of GSM services, Reliance is now the only playerin
the country offering both GSM and CDMA (dual technology) services on a
nationwide basis.

They started the quarter with the launch of their GSM services in 14 circles that
is in addition to the 8 circles where they have already had 10 million GSM
subscribers. Their GSM launch has been very well received by the consumers so
much so that they are probably the only operator to have acquired 5 million
subscribers within the first month of GSM launch and that too in the most
fiercely competitive, multi-operator environment anywhere in the world.

They are amongst the top two providers of wireless communication services in
the country, with a wireless subscriber base of over 102.4 million as of March 31,
2010 representing a market share of 17.7%. They are also the second largest
seller of mobile handsets/devices in the country, and the largest service provider
engaged in this activity.

b) Globalcom

They offer comprehensive national and international long distance voice, video
and data network services on an integrated and highly scalable platform. Their
business segments comprise Data, Voice, WiMAX and NLD. They have wholesale,
enterprise and retail product offerings in each business segment.

Their international Data business is underpinned by their ownership of the

largest private submarine cable system in the world, directly connecting 40
countries from the East coast of the United States, to Europe, the Middle East,
India, South and East Asia, through to Japan.

In Voice, they offer ILD carriage and termination to other carriers as well as, on
an inter segment basis, to other business units of Reliance Communications as
part of the wholesale product offering. They entered the long distance market in
India in mid-2003 and are one of the largest carriers of international voice
minutes with a market share of 30% for ILD wholesale inbound traffic.
 In NLD, they offer NLD carriage and termination to other carriers as well as, on
an inter segment basis, to other business units of Reliance Communications.
They also offer bandwidth and infrastructure services to other operators. Their
expansive network makes them the most preferred private NLD carriage
provider. Their NLD network span is almost twice of next largest private NLD
service provider.

Their WiMAX business segment is currently focused on acquiring licenses in

several emerging markets.

c) Enterprise

They offer the most comprehensive portfolio of enterprise voice, data, video,
Internet and IT infrastructure services. They offer unique, value- added products
and services to large, medium and small enterprises for their communications,
networking, and IT infrastructure needs across the country.They have
established an enterprise customer base that includes over 850 of the Top 1,000
Indian enterprises and MNCs, and expanding their subscriber base rapidly in the
SME segment.

d) Infratel

The demand for the telecom infrastructure has been driven by the robust growth
of the mobile industry in 2G. The need for telecom infrastructure has also
spurred the growth that is taking place in the rural and semi urban markets.
Given the expected technology rollouts this year, 3G and WiMAX, demand on the
current level is estimated to more than double in the next couple of years for
passive infrastructure and also for other telecom infrastructure range of services.
Reliance Infratel is well poised to capture this opportunity.

e) Home

Thewholly- owned subsidiary Reliance Big TV Limited was launched nationwide

on 19th of August 2008 to deliver services in the Direct To Home (DTH) format to
consumers in India.

Reliance Big TV uses state-of-the-art MPEG 4 technology to deliver over 200

broadcast channels and over 30 exclusive movie channels to its subscribers.
 Reliance Big TV is available at more than 100,000 outlets across 6,500 towns in
the country. The retail and distribution reach, as well as other elements of
infrastructure already establishedhave been leveraged to expand the DTH
presence.

Reliance Big TV currently has 2.4 million subscribers, about 12% of the DTH
market in India within a short span of launch. This is the fastest ramp up ever
achieved by any DTH operator in the world.

An analysis of the success of Reliance’s CDMA services identifies the following

contributory factors:

f) Marketing and pricing

Reliance has historically redefined the price paradigm of mobile services and
consistently enabled its base level expansion. Though mobile services and
handset prices had gradually reduced from an introductory near 15 to 20 rupees
a minute and a handset price of 2000 to 50000 rupees, it was not until the
reliance era that the ‘aamadmi’ genuinely considered the service affordable. In a
move that more than rattled not only competition (and perhaps even the mobile
manufacturers), Reliance offered the market access to a handset worth between
6000 – 10000 rupees in a remarkably innovative structure of a minimum billing
three-year lock in agreement. It was also the first time that a service provider
offered an end-to-end solution by not only delivering network services but also
handsets. In entering into exclusive agreements with some handset
manufacturers, Reliance was able to create capacity and leverage scale in a
manner that had not been envisioned before.

Reliance also brought in the concept of unlimited and free incoming calls, which
other operators were forced into in order to remain in the running. In offering
significantly lower rates of usage and low monthly billing, Reliance was able to
create a market rather than compete for a piece of the existing space.

In a third wave of innovation, just as the mobile market began stabilizing,

Reliance led the thought for the industry through the introduction of the ‘pre-
paid’ service. The pre-paid service offered subscribers the ability to acquire a
phone free through buying into the 1-year lock-in worth service. Through an
 initial payment of 3500 rupees, the customer would receive recharge vouchers
worth Rs. 3240 that was valid for the year.

At the time, with over 6 million post-paid users, the move was seen as an
attempt to recover monies the business had lost due to a high bad debt ratio in
its inaugural scheme. Reports at the time suggested that Reliance struggled with
over 15% of non-payment of dues (as against an industry average of 3.5%), and
again, the competition argued that the move would drastically affect the user
revenue generation capability of the industry at large. Today, almost 95% of the
mobile user market is the pre-paid segment although it does face continuously
reducing average revenues per user.

g) Strategy focus

A brief overview of the Reliance Communications approach reveals the following

as indicators of their principal strategy – which is to address the mass mobility
market through GSM with special focus on rural distribution.

In offering both GSM and CDMAon a pan-India basis, Reliance Communications is

one of the only operators able to service both segments visible in its success in
becoming the world’s youngest and fastest to a 100 million users mark.Its move
toward the GSM market is reflected in increased investments in the space, and
has moved to a 38 million-user base in quick time. In its GSM and CDMA
offerings, its positioning straddles all price points and sections of the market.

h) Marketing promotions and schemes

A high degree of visibility has been attained through increased advertisement

spending and through the celebrity endorsement of HrithikRoshan (currently one
of India’s most banked upon and recognisable movie stars) who was signed up as
the brand ambassador in June 2009.

Reliance Mobile has been rated as "India's Most Trusted Service Brand" amongst
all service brand categories in the most reputed pan-India consumer survey
conducted by "The Economic Times".
i) Distribution and Market Penetration

The Reliance Communications distribution and reach system uses a chain of

exclusive retail showrooms in city and town malls and high streets, as well as a
distributor and retailer network that spans the nation.

j) The way forward

India has one of the largest and most quickly expanding customer bases in the
global telecom industry - a current over 600 million wireless services users, and
growing at nearly 10% per quarter. Reliance Communications today services over
100 million users, or 1/6th of the India market.

Yet, Reliance Communications is still some distance from its dream. Although
their principal current strategy is to address the mass mobility market through
GSM with special focus on rural distribution, they are quite far behind market
leaders Bharti and Vodafone.

While in offering both GSM and CDMA on a pan-India basis, Reliance

Communications is one of the only operators able to service both segments, the
CDMA market does seem to pale in comparison with the GSM space – a segment
they are still to seize control of.

In an aggressive move to combat Vodafone and Docomo, and to bring itself into
contention in the GSM market, Reliance Communications has introduced 3 GSM
pricing schemes aimed at multiple target audiences ranging from students to
audiences in semi-urban and rural areas. The 1 paise per second billing, 50 paise
per minute billing and 1 rupee per three minutes have all been launched with the
intent to capture market share as well as increase first-time takers and optimise
yield in its GSM delivery capacity.

In an attempt to consolidate its position as the market leader in the lower

growth and lower yield CDMA market, Reliance Communications has introduced
‘the Simply Unlimited CDMA Offer’ aimed at delivering unlimited talk time for a
fixed monthly charge.

In these moves, Reliance hopes to gather enough momentum to herald it into its
next set of visionary gambles.
BhartiAirtel
For a company that began operations only 15 years ago, Bharti’s growth has been
amazing. In the dynamic Indian telecom industry that is growing at nearly 10% per
quarter, Bharti currently holds an impressive 23% market share. In being India’s first
private operator to have secured a pan-India operating license, Bharti has continued
to lead the telecom revolution in the country for the last decade of its growth.

Bharti’s successes over the last decade can, in a large part, be attributed to its
dominance in the mobile, predominantly GSM, services segment. Well-defined
advertising and branding initiatives, successful distribution networks, focussed
pricing formulas, circle-specific focus, and increase in VAS suite have come together
to enable Bharti’s market leader position.

As one of India’s largest organisations, Bharti’s financial and operational

performance indicates an enviable position of strength in not just the telecom sector
but industry itself.

The BhartiAirtel business is categorised as under:

a) GSM and ancillary services

While its domestic mobile subscriber base growth over Dec 08 has been 38%, the
market growth average has been 51.4%. Established rivals such as Reliance and
Vodafone grew at over 50%, and Tata telecom at a staggering 80%! Bharti has
seen a market share drop of nearly 1% in from QE Sept 09 itself. Though its
revenue contribution today comes substantially from the mobile (GSM) services
space, its profitability distribution sees an increased contribution from other
verticals.

The deployment of their 2-pronged approach in growing this arm of the business
is crucial to its base expansion – increased focus on the rural space and focus on
global emerging markets.

Their growth in the rural subscriber database is higher than any other service
provider for the last year, and reflects an increase in market share in this
segment. Yet, with a national penetration rate near about 50%, there is still an
enormous potential for base expansion through a wider and deeper penetration
plan – something that a highly populated competition market is also eyeing.
 The impending network rollout of the 3g spectrum will significantly boost its
positioning in the market. Bharti currently has the largest volume of data services
users, and importantly, a high proportion of its subscriber base, and this
increased capacity may prove highly useful in creating newer and more
profitable services for data customers, aside from of course being able to
significantly increase capacities to adequately service an expanding subscriber
base.

Increased customer service through sensitization and training interventions,

integrated back-end customer service operations and employee retention
through capability development and leadership enhancement are all part of
Bharti’s plan for the coming year.

b) Telemedia services and Internet services

As the largest private operator in the ISP and wireline services space with nearly
1.25 million subscribers, and a market where Internet services penetration is
only .7% of the population, the market is ready to be captured. Critically, Bharti
has positioned its delivery in the DSL segment – the most preferred segment. But
with Reliance being close behind, and a long way to go to catch BSNL’s 8.5
million, Bharti has its work cut out.

With a focus on expanding what is already the largest broadband and IPTV
database in India, Bharti’s plan includes a clear focus on multi-product sales to
existing customers and increasing broadband@home penetration. They also
intend to develop data products and services that will make them a one-stop-
shop for SMBs.

c) Enterprise Solutions and Passive Infrastructure Services

As one of the market leaders in this segment as well, Bharti’s current services
include end-to-end telecommunications portfolio for corporate requirements.

This vertical also addresses the highly lucrative wholesale data and voice services
for carriers.

In the creation of Indus Towers, Bharti has established the largest independent
tower company in the world. This along with BhartiInfratel (a wholly owned
 subsidiary focussed on vendor services of network capacity sharing), and an
extensive national cable (terrestrial optic fibre) network and a submarine
international network (through a 100% ownership of an i2i cable system and
landing station), Bharti is well placed to benefit from the expanding global
telecommunication service provider base, especially since few of them come
with such integrated capabilities as such integration comes at a cost few of them
can afford to invest in the ownership of.

As one of India’s largest organisations, Bharti’s enviable position of strength in

the telecom sector has been a benchmark for subsequent market entrants. In the
dynamic Indian telecom industry, with a current 600+ million wireless services
users and growing at nearly 10% per quarter, Bharti currently holds an
impressive 22% market share.

Bharti’s successes over the last decade can, in a large part, be attributed to its
dominance in the mobile, predominantly GSM, services segment. Well-defined
advertising and branding initiatives, successful distribution networks, focussed
pricing formulas, circle-specific focus, and increase in VAS suite have come
together to enable Bharti’s market leader position.

An analysis of the success of Bharti’s GSM services identifies the following

contributory factors:

d) Multi-service offering – Pre-paid and Post-paid GSM services

Airtel, being one of the earliest entrants to the market, started off with a
standard service model in the form of a post-paid billing service. However, Airtel
was able to immediately compete with Reliance’s innovation in delivering to the
market a pre-paid service delivery. This service flexibility was crucial to market
acceptance and exponential increase in the demand for mobile services. This
variant billing formula has since proven to be the overwhelming majority of
mobile service customers’ choice, with over 95% of the customer base belonging
to this segment.
e) Pricing of services

The second, and equally important, factor in the expansion of market demand
for Airtel services has been the continuously competitive pricing that has been
offered by Airtel. With its pricing structured to suit all price points in the market,
and with base pricing kept so low that there are almost no barriers to entry,
Airtel has ensured itself access to the entire market right from the ‘bottom of the
pyramid’ market base. This has led to a significant expansion in the demand for
Airtel services across segments.

f) Network coverage

In being India’s first private operator to have secured a pan-India operating

license, Bharti has continued to lead the telecom revolution in the country with
coverage in all of the 23 licensed telecom circles.

A significant advantage for Bharti here has been its investment in the
infrastructure end of the business. It has established Indus Towers, the largest
independent tower company in the world. This along with BhartiInfratel (a
wholly owned subsidiary focussed on vendor services of network capacity
sharing), and an extensive national cable (terrestrial optic fibre) network and a
submarine international network (through a 100% ownership of an i2i cable
system and landing station), ensures that Bharti is not restricted in capacity
maximisation and build-up.

g) Marketing Promotions and schemes

Besides keeping pace with the market in deploying a variety of pricing schemes
that continually dilute cost barriers of entry for customers, Airtel has also
implemented a broad-based celebrity endorsement plan. In its use of celebrity
brand ambassadors such as (not in chronological order and some of the following
names no longer continue to serve as brand ambassadors):

Sporting icon of national fame – SachinTendulkar

Leading Bollywood actors of national fame - Shah Rukh Khan, KareenaKapoor

and Saif Ali Khan

Leading actors of regional fame – Madhavan (Tamil Nadu), Ramcharan (Andhra)

 Airtel reflects a unique plan – that of leveraging regional-, demographical- and
segment-specific endorsements.

h) Distribution and market penetration

With a well-established network of exclusive showrooms and a network of

retailers across all towns and cities, Airtel has ensured immediate access to the
market at large.

Recognising that reach into semi-urban and rural India is the key to sustained
demand for its products and services, Airtel has deployed innovative methods in
maximising a penetrative distribution network through the alliance in 2008 with
the IFFCO Sanchar. It is a doubly effective strategy owing to the fact that the
rural Indian market is almost entirely connected with agriculture and agricultural
products. Therefore, rural market interaction with such bodies as the Indian
Farmers Fertilizer Cooperative Limited will be constant and on a pan-India basis.

The success of its distribution is seen in Bharti’s wide-margined leadership in the

rural market. Their growth in the rural subscriber database is higher than any
other service provider for the last year, and reflects an increase in market share
in this segment. With over 43 million subscribers already, an important cog to
Airtel’s strategy is base expansion through a wider and deeper penetration plan
in these markets.

i) International operations

Bharti has displayed a keen focus on global emerging markets through 2

significant acquisitions over the past 6 months: Warid Telecom International
Limited (WTIL), Bangladesh, for 300 Million $, and Zain Africa B V for total
enterprise value of 10.7 billion $ - giving the company an additional 42 million
subscribers in 15 countries across Africa. These, in conjunction with its existing
operations in Sri Lanka, reflect the company’s intent on acquiring a global
footprint as rapidly as possible.

Inorganic growth such as the Zain deal not only immediately adds a substantial
value to the organisation but more crucially, also offers the organisation scope to
develop and service demand in newer locations and markets.
j) Quality of service (QoS)

While most of the above micro-variable factors have determined a highly

positive market demand for BhartiAirtel services, one crucial area that can
potentially impede growth is that of post-sale servicing. Bharti has consistently
scored poorly on almost all the TRAI-determined parameters of service - Network
availability, reduced call drop rates, connection establishment and maintenance,
metering and billing accuracy, customer service, responsiveness and resolution.

In an effort to check what can prove disastrous in a ‘number portability’ scenario,

Increased customer service through sensitization and training interventions,
integrated back-end customer service operations and employee retention
through capability development and leadership enhancement are all part of
Bharti’s plan for the coming year.

Snapshot of Financial Performance in 2009-10 (in 000,000s)

Year End 10 Year end 09 Growth
Income 418290 373520 10.7%
Expenditure 314570 270520
Net Profit 91630 78580 14.3%
Reserves 348360 257430 26%

Snapshot of Operational Performance until 31/12/2009 (in 000,000s)

BhartiAirtel Indian Telecom Market
Subscribers 121 562
GSM 118.8 421
Rural penetration 43 174
ISP services 1.25 15.2
Data subscribers 67 149
Overview of CDMA Technology
Understanding the success of Reliance Communications begins at the heart of the
CDMA services system.

History of CDMA technology

CDMA – Code Division Multiple Access – technology is a recently patented

technology that only became commercially available in the mid-1990s. CDMA is
actually a military technology first used during World War II by English allies to foil
German attempts at jamming transmissions. The U.S. military, in the mid-80s,
declassified, what has now become CDMA technology, a technique based on spread-
spectrum technology.

Once the information became public, Qualcomm – the chip vendor to the business,
claimed patents on the technology and became the first to commercialize it, while
the features of this technology were further enhanced by Ericsson. Qualcomm and
other telecommunications companies were attracted to the technology because it
enabled many simultaneous conversations, rather than the limited stop-and-go
transmissions of analogue and the previous digital options.

CDMA was launched commercially in Hong Kong in 1995. Its technology is currently
used by major cellular carriers in the United States, and is the backbone of Sprint's
Personal Communications System (PCS). Along with Sprint, major users of CDMA
technology are Verizon and GTE.

How does it work?

CDMA multiplexes different signals or enables numerous signals to be transmitted

and received through a single transmission channel. As a first step, it divides a
geographic region into sections called cells. The purpose of this division is to make
the most use out of a limited number of transmission frequencies. Each connection,
or conversation, requires its own dedicated frequency, and the total number of
available frequencies is about 1,000. To support more than 1,000 simultaneous
conversations, cellular systems allocate a set number of frequencies for each cell.
Two cells can use the same frequency for different conversations so long as the cells
are not adjacent to each other. Unlike competing systems, such as GSM, that use
TDMA, CDMA does not assign a specific frequency to each user. Instead, every
channel uses the full available spectrum. Individual conversations are encoded with
a pseudo-random digital sequence.

Benefits of CDMA technology

CDMA technology offers a wide range of benefits for its users. It offers the benefits
of an increased voice capacity, higher data throughput, increased battery life, and
synchronization. CDMA uses a spread-spectrum technology and a special coding
scheme that provides mobile phones a cutting edge in signal transmission and
reception. Users of CDMA mobile phones have the capacity of making calls in areas
that do not have digital cellular service because it has an analogue capability – a
significant feature for rural users. Phone calls made from mobile phones that have
CDMA are more secure than analogue conversations that can be easily picked up by
a simple radio receiver.

From the service provider’s perspective, simultaneous conversations can be carried,

and therefore increased efficiency in operations by virtue of the fact that the carrier
can serve more subscribers within the same architecture. Low power requirements
and little cell-to-cell coordination needed by operators further the value that the
CDMA technology brings. CDMA is considered to consistently provide better capacity
for voice and data communication than other commercial mobile technologies do,
allowing more subscribers to connect at any given time, and is the common platform
on which 3G technologies are built.

Limitations of CDMA technology

Due to its proprietary nature, all of CDMA's flaws are not yet known. CDMA is
relatively new, and the network is not as mature as GSM. CDMA cannot offer
international roaming, something that goes greatly in favour of GSM.

A study of Bharti’s performance similarly necessitates gaining a primary

understanding of the space it operates in – GSM services.
Overview of GSM Technology
History of GSM technology

GSM, or Global System for Mobile Communications, (originally from Groupe Spécial
Mobile) is the most popular standard for mobile telephony systems in the world. In
1982, the European Conference of Postal and Telecommunications Administrations
(CEPT) created the Groupe Spécial Mobile (GSM) to develop a standard for a mobile
telephone system that could be used across Europe.

How does it work?

GSM is a cellular network, which means that mobile phones connect to it by

searching for cells in the immediate vicinity. There are five different cell sizes in a
GSM network—macro, micro, pico, femto and umbrella cells. A cellular network is a
radio network made up of a number of cells, each served by at least one fixed-
location transceiver known as a cell site or base station. When joined together these
cells provide radio coverage over a wide geographic area. This enables a large
number of portable transceivers (mobile phones, pagers, etc) to communicate with
each other and with fixed transceivers and telephones anywhere in the network, via
base stations, even if some of the transceivers are moving through more than one
cell during transmission.

GSM differs from its predecessor technologies in that both signalling and speech
channels are digital, and thus GSM is considered a second-generation (2G) mobile
phone system. This also facilitates the widespread implementation of data
communication applications into the system.

Benefits of GSM technology

GSM Cellular technology offers a number of advantages over alternative solutions.

For instance, it is already used worldwide with over XXX million subscribers as
against XXX million CDMA users. GSM is mature, having started in the mid-80s. This
maturity means a more stable network with robust features. GSM's maturity means
engineers cut their teeth on the technology, creating an unconscious preference.
CDMA is still building that experience base.
Significantly, the availability of Subscriber Identity Modules, which are smart cards
that provide secure data encryption give GSM m-commerce advantages.

Additionally, GSM technology allows for greater access. GSM subscribers are not
restricted geographically owing to the system limitation of CDMA networks.
 Q on Q Comparison of Numbers – Quarter Ended December 2009

Comparison of Top Players in Wireless Market

BhartiAi
All India Reliance Vodafone BSNL TATA
rtel

Total Telephone Subscriber Base 562.15 121.85 94.96 91.4 90.96 66.94

Total Wireless Subscriber Base 525 118.86 93.79 91.4 62.87 57.33

Rural Wireless Subscriber Base 174.53 43 19.19 30.39 32.33 10.78

GSM Penetration Base(in Millions) 421 118.86 38.2 91.4 57.23 18.69

CDMA Penetration Base(in

104 0 55.59 0 5.64 38.64
Millions)

Data Service Subscribers(in

149 67 0.9 27.75 35.08 1.23
Millions)

Gross Revenue INR-Quarter-2-2009 87750 31630 53800 60593 19500

Gross Revenue INR-Quarter-3-2009 85800 32170 55220 59945 19588

Change % -2.23% 1.72% 2.62% -1.07% -0.06%

GSM-MOU 411
GSM-ARPU 144
CDMA-MOU 318
CDMA-ARPU 82
 Service-wise Comparison of Primary Market Players

Reliance
Market Servicing Comparison BhartiAirtel Vodafone
Comm
Pan-India Presence Yes Yes Yes
GSM Services Yes Yes Yes
CDMA Services No Yes No
Fixedline Services Yes Yes No
Internet and Telemedia Services Yes Yes No
Enterprise Solutions Yes Yes Yes
Passive Infrastructure Ownership Yes Yes No
Passive Infrastructure Services Yes Yes No
Growth in Rural and Semi-urban Circles High Low High
National distribution network Penetration High High High
International Penetration Africa and Nil Global
Bangladesh Subsidiary
Trend Method& Regression Analysis for mobile subscription growth

Demand Determinants: Mobile subscriber growth- India

D MSG= f( Px, Py, Pz, A,B,E,T,U) where

Px = Call charges,

Py = Price of Substitute,

Pz = Price of Complement,

A = Advertisement/Promotion,

B= Budget,

E = Expectancy,

T = Taste / Preference of user,

U = others

D MSG = a + bx1 + cx2

Px : Price Assumed to be constant ,

Py : No Substitute

Pz :Assumed Constant

A : No Impact ( Assumed Constant)

B :Per capita GDP

E = Population

T = No Impact (Assumed Constant)

U = No Impact (Assumed Constant)

D MSG = a + bx1 + cX2 + dx3

Regression Equation

D MSG = Y= -2655.07 + 2.48X1 + 0.14X2

X1
Population

X2
Per capita GDP

 POPULATION BASE GROWTH - INDIA TREND FORECAST

Forecasting with Trend Population Base Growth Rate

Data Forecast Forecast for selected t Regression Statistics

Period t Zt t Z-hat t Z-hat r 2 0.9998
2000 1 1015.92 6 1096.09 25 1399.2 MSE 0.196237
2001 2 1032.47 7 1112.04 11 1175.85
2002 3 1048.64 8 1128 5 1080.14 Slope 15.953
2003 4 1064.4 9 1143.95 Intercept 1000.371
2004 5 1079.72 10 1159.9
11 1175.85
12 1191.81
13 1207.76
14 1223.71
15 1239.67
16 1255.62
17 1271.57

1160
Data
1140
Forecast
1120

1100
Zt

1080

1060

1040

1020

1000
0 2 4 6 8 10
t
PER CAPITA GDP ($) BASE GROWTH INDIA TREND
FORECAST
Forecasting with Trend Per Capita GDP Base Growth Rate

Data Forecast Forecast for selected t Regression Statistics

Period t Zt t Z-hat t Z-hat r 2 0.9834
2000 1 452.99 12 1111.34 25 1948.02 MSE 855.0288
2001 2 463.25 13 1175.7 11 1046.98
2002 3 484.36 14 1240.06 5 660.812 Slope 64.36045
2003 4 565.42 15 1304.42 Intercept 339.01
2004 5 644.48 16 1368.78
2005 6 736.11 17 1433.14
2006 7 816.6 18 1497.5
2007 8 870.18 19 1561.86
2008 9 935.13 20 1626.22
2009 10 978.25 21 1690.58
2010 11 1030.13 22 1754.94
23 1819.3

1400
Data
1200
Forecast

1000

800
Zt

600

400

200

0
0 2 4 6 8 10 12 14 16
t
Trend Method of Forcasting Comparison

Year Subscriber Population Per Capita GDP ($)

Actual Forecast Actual Forecast Actual Forecast
SUB POP GDP
1999-2000 3 1,015.92 452.99
2000-2001 6 1,032.47 463.25
2001-2002 11 1,048.64 484.36
2002-2003 28 1,064.40 565.42
2003-2004 47 1,079.72 644.48
2004-2005 75.00 52.00 1,094.58 1,096.09 736.11 667.65
2005-2006 142.00 63.00 1,109.81 1,112.04 816.60 716.16
2006-2007 229.00 74.00 1,124.79 1,128.00 870.18 764.68
2007-2008 347.00 85.00 1,139.96 1,143.95 935.13 813.19
2008-2009 427.00 96.00 1,166.00 1,159.90 978.25 861.71
2009-2010 444.00 107.00 1,184.80 1,175.85 1,030.13 910.22
2010-2011 456.53 118.00 1,194.83 1,191.81 1,111.34 958.74
2011-2012 506.80 129.00 1,211.56 1,207.76 1,175.70 1,007.25
2012-2013 559.11 140.00 1,228.53 1,223.71 1,250.58 1,055.77
2013-2014 611.19 151.00 1,245.72 1,239.67 1,319.76 1,104.28
2014-2015 662.54 162.00 1,263.08 1,255.62 1,380.68 1,152.80
2015-2016 713.93 173.00 1,280.48 1,271.57 1,441.13 1,201.31
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.95
R Square 0.90
Adjusted R Square 0.87
Standard Error 61.74
Observations 11.00

ANOVA
Significanc
df SS MS F
eF
Regression 2.00 269490.33 134745.16 35.35 0.00
Residual 8.00 30492.58 3811.57
Total 10.00 299982.91

Coefficien Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -2655.07 1967.45 -1.35 0.21 -7192.01 1881.88 -7192.01 1881.88
population 2.48 2.15 1.15 0.28 -2.48 7.43 -2.48 7.43
Per Capita GDP in $ 0.14 0.54 0.25 0.81 -1.12 1.39 -1.12 1.39

RESIDUAL OUTPUT PROBABILITY OUTPUT

Predicted
Standard subsciber(Y)
Observation subsciber Residuals Percentile
Residuals base(mn)
(Y)
1 -76.92 79.92 1.45 4.55 3.00
2 -34.53 40.53 0.73 13.64 6.00
3 8.41 2.59 0.05 22.73 11.00
4 58.56 -30.56 -0.55 31.82 28.00
5 107.37 -60.37 -1.09 40.91 47.00
6 156.75 -81.75 -1.48 50.00 75.00
7 205.52 -63.52 -1.15 59.09 142.00
8 249.96 -20.96 -0.38 68.18 229.00
9 296.47 50.53 0.92 77.27 347.00
10 366.87 60.13 1.09 86.36 427.00
11 420.54 23.46 0.42 95.45 444.00

Equation Of Regression : Y=-2655.07 + 2.48X1 + 0.14X2

ACTUAL FORECAST
Year POP GDP SUB
2000 1015.92 452.99 3.00 -76.92
2001 1032.47 463.25 6.00 -34.53
2002 1048.64 484.36 11.00 8.41
2003 1064.40 565.42 28.00 58.56
2004 1079.72 644.48 47.00 107.37
2005 1094.58 736.11 75.00 156.75
2006 1109.81 816.60 142.00 205.52
2007 1124.79 870.18 229.00 249.96
2008 1139.96 935.13 347.00 296.47
2009 1166.00 978.25 427.00 366.87
2010 1184.80 1030.13 444.00 420.54
2011 1194.83 1111.34 456.53
2012 1211.56 1175.70 506.80
2013 1228.53 1250.58 559.11
2014 1245.72 1319.76 611.19
2015 1263.08 1380.68 662.54
2016 1280.48 1441.13 713.93
Conclusion
The telecommunications industry is proving a bagful of opportunities for Indian
telecommunication companies. The sector holds immense importance for all
stakeholders, be they the industry players, the Indian Government or the Indian
consumer. All the components of the study, right from the role of governance and
growth of the sector to the performances of Bharti and Reliance and the basket of
services as offered by them are all enmeshed in an inextricable fashion, as we have
attempted to show.

We have seen in the study that the future of telecom is in the convergence and
bundling up of service offerings. Technological advancements in telecommunications
are forcing a trend towards unification of networks & services setting up the stage
for the emergence of Next Generation Networks (NGN) or convergence Technology.
Convergence promises to provide number of significant benefits and opportunities
both for the service providers and the end-users by providing new innovative
services and applications through a common platform.

Over the past few years, consumers have tended to move towards those industry
players offering multiple services under one umbrella. Hence it is imperative that the
industry players have a dominant footprint across the sector so as to be best
positioned to leverage the opportunities presented by convergence and the Next
generation networks

The Indian mobile market is highly vibrant, with continuous activity in terms of
subscriber base expansion and incessant service offerings additions. It is among the
fastest growing in the world, with sizeable opportunities in the relatively untapped
rural and semi-urban markets as well as in the expected value generation through
the convergence platforms.

Yet, the Indian telecommuications market does require significant negotiation on the
part of the service provider to achieve sustained success. High potential of lack of
differentiation in product and creating a distinguishable brand, constantly reducing
rates and consequently average user revenues, increasing capital costs, increase in
market players both local and national, and regulatory pressure on rate reduction all
contribute toward making it a complex mix of great potential and high risk.
Addendum
Expected decisive contributory factor to the growth of the Indian
Telecommunications Industry - 3G licensing

The Indian Government recently conducted the auction of licences for 3rd
generation bandwidth spectrum. The frontline contenders for these licences were
BhartiAirtel, Vodafone, Reliance and TATA. The bidding was carried on through a
secured website and lasted for 34 days.

The Indian government had originally expected to raise around Rs. 35,000 Cr from
this auction. Instead, owing to the massive disparity between the demand and
perceived demand, it realised windfall revenues of Rs. 67,710 Cr. This money will go
a long way in bridging the GDP deficit from the existing 5.5% to 4.9%.

Owing to the steep costs of the spectrum, no single telecom services provider was
able to secure the spectrum of all 22 circles in India. The total bid price for all 2
circles had touched Rs. 16,750 Cr. Government owned providers, MTNL and BSNL,
are the only providers who have been granted a pan India license. However, they will
be required to pay the same amount of licence fee that has been levied on private
players.

BhartiAirtel, Vodafone and RCom ended up securing rights to 13 circles each for a
staggering total cost of Rs. 32,497.5 Cr.

The government also auctioned off licences for Broaband Wireless Access [BWA] to
11 players after the 3G spectrum auction. BWA spectrum enables high-speed
Internet access as well as Internet telephony and TV services. It can also be used for
voice and high-speed data services. The bidding for BWA lasted 16 days and earned
Rs. 38,300 Cr in revenues.

As with 3G, MTNL and BSNL have been given licences for BWA, but will be required
to pay the same fees as paid by private players.

This takes the total revenue generated by the government to over Rs. 105,000 Cr.
References:

1. From Reliance Communications website

2. From Case on Reliance Communications as available in Prof. Atmanand’s
book on Managerial Economics
3. Reuters archives
4. BhartiAirtel website and investor presentation
5. As per the TRAI report ‘The Indian Telecom Services Performance Indicators’
released on April 6th 2010.
6. Reliance Communications investor presentation available on their website
7. Vodafone Global strategy available on their website
8. Trilegal (One of India’s leading corporate law firms)
9. ICT Statistics, International Telecommunications Union- Cellular subscriber’s
base (2009)
10. http://blogs.watoday.com.au/executive-
style/managementline/2010/02/24/deathofthefi.html
11. Internet And Mobile Association of India- A white paper on Indian bandwidth
industry.
12. IMRB International
13. World broadband Statistics
14. www.iec.org/newsletter/dec07_2/analyst_corner.pdf
15. Ambit India- Demystifying WIMAX
16. NRS 2006
17. The Hindu business Line- The DTH revolution
18. Macquarie Research Equities- India DTH Sector
19. Times of India – Website
20. Hindustan Times - Website