Assignment 1

A report on

Advent of 3G and its implications for Indian telecommunication industry

Submitted to

In partial fulfillment of the requirements of the course

Written Analysis and Communication-II

On

January 16, 2010

By

1

Abstract

For long, 3G has been touted as the “next big thing” for the Indian telecom industry.

From videos to games, from trading to movies, 3G was supposed to be the panacea

for all. The arrival of 3G in India was signalled via an announcement about the

spectrum allocation bidding process in August 2008. However, 17 months and many

revised notifications later, India is yet to have a competitive bidding process for the

spectrum allocation. Meanwhile, state owned telecom companies MTNL and BSNL

were allocated spectrum and rolled out their 3G services last year. But the

subscriber base for these services has been disappointing to say the least. But

considering these are state-owned companies, it’s important to analyse the decision-

making factors for the telecom companies to bid for the spectrum and the effects of

3G on the Indian telecom sector in general.

Total word count: 141

2

Table of Contents

Telecommunication in India...............................................................................................................4

Before the introduction of mobile phones................................................................4

History of mobile phone service in India..................................................................4

History of mobile phone technology.................................................................................................5

Features of 3G.........................................................................................................6

Risks involved with 3G.............................................................................................6

Government policies on 3G...............................................................................................................7

Participation of foreign players.................................................................................7

Issues with auction of the spectrum.........................................................................8

Tax Riddle................................................................................................................8

Launching of 3G in India....................................................................................................................8

Other investments needed for 3G............................................................................9

Effect of 3G on Indian Telecom Industry [35]................................................................................10

Prices.....................................................................................................................10

National Carriers....................................................................................................10

Services provided..................................................................................................10

Types of Incremental customers............................................................................11

Handset prices.......................................................................................................11

Key facts from earlier 3G implementations across the globe.................................11

Future of Indian 3G mobile phones industry.................................................................................12

Break even Analysis of the 3G industry in India...........................................................................13

Conclusion.........................................................................................................................................13

References........................................................................................................................................14

References........................................................................................................................................14

Exhibit 1.............................................................................................................................................17

Exhibit 2.............................................................................................................................................18

Exhibit 3.............................................................................................................................................20

3

Advent of 3G and its implications for Indian telecommunication industry

Telecommunication in India

Before the introduction of mobile phones

Telephone made a modest entry in India in 1882 with the establishment of telephone

exchanges in Calcutta, Bombay and Madras in 1882 [1]. Subsequent growth in the

Indian telecom sector was relatively slow. Till early 1990s, people had to wait for

about 10 years to get a new telephone connection. The number of telephone

connections registered a compounded annual growth rate of just over 1% per year

and number of telephone connections rose from 82,000 in 1947 [2] to 8 million in

1994 [3].

In order to improve the state of telecom sector in the country, the Government of

India announced a new telecom policy in 1994, through which private investment in

public sector company Videsh Sanchar Nigam Limited (VSNL) was permitted. Most

significant feature of the policy was the decision to launch mobile phone service in

the country [3].

History of mobile phone service in India

Mobile phone service was introduced in India in 1995. During the initial years, prices

of mobile handsets, tariffs and activation charges were very high and therefore

beyond the reach of common people. In 1995, a mobile handset cost about Rs.

40,000 and tariff was as high as Rs. 17 per minute [4]. As a result, the growth of

mobile phones in India was sluggish and the number of mobile phone subscribers

were about 1.6 million in 1999 [5].

Since 1997, the government took a number of decisive steps to increase the

popularity of mobile phones in the country. Firstly, government reduced its

involvement in deciding the tariffs after the formation of Telecom Regulatory

Authority of India in 1997 [6]. It also slashed the taxes on mobile phone handsets

4

and services. By 2002, Government reduced its stake in VSNL to 26%. These

developments resulted in significant reduction in mobile phone tariffs and made

mobile phone affordable to the middle class people [6]. Today Indian mobile phone

industry has 543 million subscribers [7], and it is the third largest mobile phone

industry in the world [8]. India is expected to have more than one billions mobile

phone subscribers by 2015 [9]. Today Bharti Airtel, Reliance, Tata, Vodafone and

Idea, along with BSNL and MTNL are the major players in Indian mobile phone

industry. Bharti Airtel is the largest mobile telecom company in India and in 2009,

attempted largest M&A deal of MTN [10].

History of mobile phone technology

Attempts to invent a mobile phone had been made since late 1940s at AT&T Bell

Labs [11]. Motorola developed the first workable model of mobile phone in 1973 [12].

However the first commercial model of the mobile phone could be launched only in

1979 in Japan. Scandinavian countries like Denmark, Finland, Norway and Sweden

followed suit and launched commercial mobile phones in 1981 [13].

The history of mobile phone technology can be summarized in the following table.

Table 1: Historical development of mobile phone technology

Technology Technical details Features Years

1G Uses analog signals for

transmission of data.

Only audio signals could

be transmitted

1980s

2G Uses digital signals to

encrypt the data. Allowed

speeds up to 14.4 Kb per

second.

Limited text signals

could be sent in the form

of SMS in addition to

audio signals. Better

security of data.

1990s [14]

2.5G Allows speeds up to 56 Kb

per second

In addition to all features

of 2G, allows limited

internet connectivity in

the form of GPRS

2000s

3G Allows speeds up to 2 Mb Described below Early 2000s

5

per second [15]

Features of 3G

Due to the potential of data transmission at very high speeds, 3G technology is

capable of bringing internet connectivity on mobile phones. Following are the most

important features that 3G technology can offer [16]

i. Enhanced multimedia in terms of audio and video signals: Potential

applications are video conferencing, mobile TV and related applications

such as video on demand.

ii. Integration of internet and mobile phones and ability of internet surfing,

sending e-mails and e-commerce on mobile phone.

iii. Mobile phone can be used to make financial transactions and money

transfer.

Risks involved with 3G

In spite of these attractive features, 3G technology also has serious concerns.

Currently, there is no mechanism to monitor 3G calls on real time as data transfers

and voice calls are encoded in 3G and cannot be decoded. As a result, 3G

technology has the following risks associated with it.

a) Misuse by terrorists

Terrorists can use 3G technology for better coordination and sending

audiovisual signals in real time in order to carry out terrorist and subversive

activities [17].

b) Misuse by money launderers

Since mobile phone can be used for making real time financial transactions,

money launders and drug peddlers can deposit money in overseas bank

accounts before being detected by enforcement agencies.

c) Misuse by sex offenders and paedophiles

Since 3G technology offers real time transmission of pictures and videos, the

technology can be used by sex offenders and paedophiles for their

unscrupulous activities. This can not only reactivate the previous offenders

but also attract new offenders as detection is more difficult.

d) Compromise of data security

6

3G network, being essentially an IP network, it is vulnerable to all the security

issues associated with traditional internet network, such as hacking, viruses,

Trojans, spam and data interception. Due to difficulty in decoding the data on

3G, these concerns assume more serious dimensions on 3G.

Government and law enforcement agencies will have to come up with effective

measures to tackle the risks associated with 3G. Security of 3G networks can be

enhanced by using protocols that limit the number of users to a single cell site.

Government policies on 3G

3G technology works on transmitting radio waves in digital format. The bandwidth of

the spectrum needed for 2G is up to 200 KHz while the requirement for 3G is of the

order of MHz [18]. In India, the radio frequencies are confined between 9 KHz and

3000 GHz and are allocated for different services like fixed communication, mobile

communication, broadcasting, radio navigation, and satellite communication [19].

Most of the radio spectrum is controlled by the defence establishments for their

wireless transmission. Presently, 25 MHz spectrum in 900 MHz band and 75 MHz in

the 1800 MHz band are allotted to GSM services. However, large part of this band is

still not available for commercial applications as it is yet to be vacated by the defence

establishment. Similarly two 20 MHz spectra in the 800 Mz band are allotted to

CDMA service providers [19]. According to guidelines issued on August 1, 2008,

Government has allocated 2X5 MHz blocks in 2.1 GHz band for 3G. This gave a

natural advantage to BSNL and MTNL over other players as the spectrum was

allotted to them without having to participate in auction. The allocation of spectrum to

private players will be done on the basis of competitive bidding [20]. Though BSNL

and MTNL did not have to participate in auction, they will have to pay the same

bidding amount as the private telecom companies in the auction [21].

Participation of foreign players

On October 25, 2009, Government of India issued a notification stating that foreign

firms would be allowed to bid for spectrum for 3G [22]. According to the notification,

foreign entities can operate telecom services in India only through an Indian

subsidiary with not more than 74 per cent foreign share holding, subject to the

7

approval of the Foreign Investment Promotion Board (FIPB) [23]. Along with that, the

government also stated a roll-out obligation - in the metros, the licensee to whom the

spectrum is allocated shall be required to provide service in at least 90 per cent of

the area, within five years [24]

Issues with auction of the spectrum

On August 7, 2008, government preferentially allotted the spectrum blocks to BSNL

and MTNL. The spectrum block is of 2X5 MHz in 2.1 GHz, and in the bandwidth of

2.5 GHz at 2645.0 MHz. [25]. The bidding for the remaining blocks in the spectrum

allotted to 3G was to be started in 2008. However the bidding for the spectrum

auction had to be delayed because of a number of reasons including delay in

vacating of the radio spectrum by defence establishment [26], differences on number

of private players allowed to participate in the auction [27], number of slots in the

spectrum [28], and bureaucratic hassles such as failure to fix auction date and

modalities [29]. Contentious issue of reserve price was sorted out between Finance

and Telecom ministries and the reserve price of 3G auction was fixed on Rs. 4040

crores in June 2009 [30]. However pending the resolution of other issues, concern

has been raised about 3G not being effectively launched in India in the year 2010

[31].

Tax Riddle

There is no specific provision in Indian tax laws governing the deductibility of the

payments made for acquiring spectrum. There have been several debates going on

whether payment for spectrum is in the nature of capital expenditure or revenue

expenditure. Also, there is no clarity on issues like whether it would be available for

depreciation if considered as a capital expenditure or whether deduction would be

allowed if it were to be considered revenue expenditure [32].

Launching of 3G in India

3G was formally launched in India in December 2008 by Prime Minister Dr.

Manmohan Singh [33]. MTNL launched its 3G services, Jadoo, in Delhi and

Mumbai, while BSNL launched its 3G service in 11 cities across India. Along with

voice calling and local/std sms, it also features services like video calls for both local

and STD services. Further, it is also exploring services such as mobile broadband,

8

mobile television and other mobile commerce services. BSNL has made initial

investments to the tune of Rs.2700 crores and is targeting 20 million broadband

customers by the end of 2010 [34].

MTNL BSNL0

2

4

6

8

10

12

No. of cities3G subscribers*

Figure 2: Current status of 3G in India

(Data taken from reference 34) *subscribers in thousands

Other investments needed for 3G

Establishing 3G network and infrastructure would have to be taken up on a high

priority basis by the successful bidders. This would lead to a greater dependence on

debt and loans and mount pressure on the companies in the short term. Another

important aspect is availability of 3G enabled mobile handsets at affordable rates.

One of the main reasons for the rapid spread of mobile usage across the country

was easy availability of cheap handsets, but most of them are not 3G compliant.

Currently the telecom companies are in the middle of a severe price war in the

telephony sector, resulting in prices as low as 1paise/second. If such a price war

erupts in the 3G sector too, then it would bleed the telecom companies even further.

Also, initially in order to acquire customers, telecom companies would have to go in

for aggressive marketing, then increasing advertising and marketing expenditure.

Effect of 3G on Indian Telecom Industry [35]

Though India is the third largest mobile network globally, there is not much presence

of internet or broadband among Indian customer base. 3G will have plenty of market

9

as the expected subscriber base is expected to reach 746 million customers by

2013. Broadband requires extensive capital investment for establishment of lines,

licenses and regulations, it is expected that the internet connectivity in the rural India

will be primarily driven by wireless broadband services. Other technologies for

broadband are available for free in the Indian market.

Prices

The telecommunications industry in the present market is driven by cost efficiencies

and lowering prices. Hence the 3G service providers would come under immense

price pressures. It is expected that the cost of a mobile with its first year of services

would only cost USD25-30. 3G providers would not only have competition amongst

them but would also have to face the tough competition from 2G and especially 2.5

G service providers.

National Carriers

Since the terms of the 3G bandwidth auction are such that there are equal costs for

both regional and national players, there are presently no rules on roaming.

Providers can choose to charge their customers for roaming services in other cities,

or might not want to charge them. So now the national carriers will have more appeal

because it provides a seamless all-India service.

Services provided

The cost for such carriers is presently going to be driven by the voice services. Since

the demand for data based applications like video conferencing are driven by the

data packets transferred, there are not many takers for them so far. Hence telecom

companies that are providing 3G services will have to have higher operational

efficiencies than the providers of other services so that they can cover the higher

fixed cost. Also the customer surveys and predictions show that the usage pattern in

a developing country like ours is different from that of developed country (Exhibit 1).

Right now the focus of 3G provider would be to enhance the experience of existing

consumers rather than bring a drastic change in application patterns like usage of

video conferencing. They would concentrate on providing better browsing,

downloading, surfing and buffering experiences.

10

Types of Incremental customers

Both public sector and private players are present in this market. The private players

are targeting the urban consumers with high ARPU and will be present in about 100

Tier I cities. While in case of public sector enterprises, the target is to expand the

geographical reach and to cover as many cities as possible.

It is estimated that the top 9% of mobile subscribers contribute to approximately 29%

of circle revenues and more importantly 45% of margins, and therefore this customer

segment will be the prime focus for carriers for migration to 3 i. The main target

segments by 3G are the corporate and the youth in the short term, mid market

segment in the medium term and rural and incremental subscribers in the long term.

Handset prices

Right now, the biggest deterrent for 3G market is the high prices of the handsets

supporting 3G services. The prices of 2 G handsets are comparatively lower. 3G can

be made competitive by bundling wherein we bundle either talk-time/services/content

etc with the handset.

Key facts from earlier 3G implementations across the globe

Europe went ahead with spectrum auctions in the year 200-2001. The auction

process turned out to be a fiasco, with a huge disparity in the prices per capita in

different companies. Initially, there was a huge hype surrounding 3G, with all telecom

companies wanting to get into the rat race. Another reason for this was hat public

started investing in shares of companies which they knew were bidding for 3G and

hence backing out at the last moment would have resulted in the stocks of such

companies plummeting. In the UK bidding, the spectrum was auctioned for 650

Euros per capita. Germany too managed to auction the spectrum for around 615

Euros per capita. However, the hype failed in many countries and the end result was

that a country like Switzerland, which is both rich and centrally located, managed to

auction its spectrum for only around 20 Euros per capita [36]. Exhibit 2 discusses

strengths of some leading players in 3G implementation globally.

11

Austria

German

yIta

ly

Netherl

ands

Switz

erlan

d UK

Belgium

Denmark

Greece

0

100

200

300

400

500

600

700

Series1

Figure 3: Auction prices of 3G spectrum in different countries in Europe (Data taken

from reference 36)

Future of Indian 3G mobile phones industry

The reason that 3G has created a buzz among the youth of the country is due to the

wide segment of features that it proposes to provide. Along with voice and data

transmission, video conferencing, stock quotes, traffic information, trading, ticketing,

etc can easily be accessed. Entertainment has a huge revenue generating potential

in our country, hence movies and songs download, cricket broadcasts, gaming,

ringtones, chat rooms can be a source of attraction to the youth. Also, corporate

customers can be targeted because of fulfilment of business needs like video

conferencing, mailing facility, etc. However, adoption of 3G technology will not lead

to immediate increase in subscriber base of the telecom companies. The gestation

period will be high and cash registers wont be set ringing immediately. There are

many key infrastructure issues that need to be addressed and reach has to be

increased. Also, tie-ups with good content providers who can provide superior mobile

content and data features are essential. The cost of 3G enabled mobile phones has

not come down and this might act as a deterrent for price-sensitive consumers in the

Indian market. 

12

Break even Analysis of the 3G industry in India

With this background, we proceed to perform break-even point analysis for the

Indian 3G mobile phones industry. The assumptions for the calculations are as

follows

Though the government has specified reserve price for 3G auction at Rs. 4040

crores, the actual value of auction is likely to be higher. Therefore the value of

auction is taken to be Rs. 8000 crores. The investment required for the mandatory

universal access service licence (UASL) is Rs 1651 crores. Number of circles in

India is 3 and there is one subscriber per circle. Therefore, only one license is

required per circle. An investment of Rs 7500 is required for infrastructure for every

subscriber added (The cost for adding base for 1 crore subscribers is Rs 7500

crores. It contains Rs 3,500 crore going towards equipment costs and the balance

towards transmission & infrastructure cost). The number of subscribers added per

year are calculated from the FICCI report and the investment required for providing

mobile services as well as modem services is assumed to be same [35,36].

Using the above figures, the estimated time for break even of 3G industry has been

calculated as about 3.7 years (Exhibit 3).

ConclusionWith the auction most likely to happen in March 2010, Indian telecom subscribers

can only hope that they are not left far behind the rest of the world in enjoying the

benefits of the much hyped 3G network provided by the private players.

(Total word count: 2989)

13

References

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3. An Overview. Indian Telecom. [Online] Timir Mozumder, 29 December 2009. [Cited: 16 1 2010.] http://www.knowindia.net/telecom.html

4. Indian Telecom History. Telecom India Daily. [Online] [Cited: 15 January 2010.] http://www.telecomindiadaily.in/uploded_files/1090744258indiantelecomhistory.pdf.

5. Telecom Regulatory Authority of India. [Online] [Cited: 15 January 2010.] http://www.trai.gov.in/trai/upload/Reports/1/report31jan06.pdf.

6. Indian Development Regulatory Authority. [Online] [Cited: 15 January 2010.] http://www.idra.it/garnetpapers/C06Sumanjeet_Singh.pdf.

7. Economic Times. Indiatimes. [Online] [Cited: 15 January 2010.] 7. http://economictimes.indiatimes.com/News/News-By-Industry/Telecom/Tele-base-soars-to-543m-as-mobile-cos-add-record-1765m-in-Nov/articleshow/5370510.cms.

8. India Budget. [Online] [Cited: 15 January 2010.] http://indiabudget.nic.in/es2008-09/chapt2009/chap911.pdf.

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10. Sources reveal why Bharti MTNL deal failed. [Online] [Cited: 15 JAnuary 2010.] 1. http://wirelessfederation.com/news/18466-sources-reveal-why-the-bharti-mtn-deal-failed/.

11. Ring Cell report. Private Line. [Online] [Cited: 15 January 2010.] http://www.privateline.com/archive/Ringcellreport1947.pdf.

12. History of Cell Phones. [Online] [Cited: 15 January 2010.] http://www.thehistoryof.net/history-of-cell-phones.html.

13. Anita Kempe. Telemuseum. 1980-90. [Online] [Cited: 15 January 2010.] http://www.tekniskamuseet.se/mobilen/engelska/1980_90.shtml.

14

14. Elisa. Radiolinja. [Online] Elisa Oyj, 2006. [Cited: 15 January 2010.] http://www.elisa.com/english/index.cfm?t=6&o=6532.50.

15. 3G History and Future Milestones. UMT. [Online] umtsworld.com, 2005. [Cited: 15 January 2010.] http://www.umtsworld.com/umts/history.htm .

16. 3G Newsroom. 3G Applications. [Online] 3gnewsroom.com, 2007. [Cited: 15 January 2010.] http://www.3gnewsroom.com/html/about_3g/3g_applications.shtml.

17. The Hindu - Business Line. Security concerns over BSNL’s 3G network. [Online] [Cited: 15 January 2010.] http://www.blonnet.com/2009/02/27/stories/2009022750880400.htm.

18. What is 3G spectrum? How does it help you? Rediffnews. [Online] rediff.com, 2010. [Cited: 15 January 2010.] http://www.rediff.com/money/2006/sep/29bspec.htm.

19. ISSUES IN SPECTRUM ALLOCATION AND PRICING IN INDIA. C C Maharashtra. [Online] [Cited: 15 January 2010.] http://www.ccamaharashtra.gov.in/HTMLDOCS/licensing/SPECTRUM.pdf.

20. Department of Telecom. [Online] [Cited: 15 January 2010.] http://www.dot.gov.in/as/Auction%20of%20Spectrum%20for3G%20&%20BWA/sprectrum_2.pdf.

21. http://www.indiantelevision.com/headlines/y2k9/july/july181.php

22. http://www.brandfaqs.in/2009/10/foreign-firms-allowed-to-bid-for-india.html

23. http://www.livemint.com/2009/10/25161251/3G-spectrum-auction-from-14-

Ja.html?d=1

24. http://ibnlive.in.com/news/govt-approves-release-of-3g-spectrum-for-bsnl-

mtnl/70642-7.html

25. http://www.itexaminer.com/finance-ministry-puts-dot-on-the-spot-over-3g-

auction.aspx

26. http://www.globaltelecomsbusiness.com/Article/2324039/Sectors/25199/

Military-delays-India-3G-auction.html

27. http://www.business-standard.com/india/news/govt-may-again-delay-3g-

auction/82910/on

28. http://economictimes.indiatimes.com/news/news-by-industry/telecom/EGoM-

split-over-auction-of-number-of-3G-slots/articleshow/5450439.cms

29. http://www.dnaindia.com/money/report_3g-delayed-as-egom-fails-to-fix-

auction-date-and-modalities_1334115

15

30. http://newshopper.sulekha.com/3g-auction-base-price-proposed-at-rs-4-040-

crore_news_1081243.htm

31. http://timesofindia.indiatimes.com/biz/india-business/3G-may-be-non-starter-

in-2010/articleshow/5450433.cms

32. http://beta.thehindu.com/business/Economy/article52813.ece

33. http://www.medianama.com/2008/12/223-mtnl-3g-services-demoed-

commercial-launch-by-mid-feb/

34. http://www.blonnet.com/2009/02/23/stories/2009022351380100.htm

35. http://www.ficci.com/telecome/telecom.htm

36. http://www.expressindia.com/latest-news/Foreign-investors-face-hard-math-

on-3G-entry/353042/

16

Exhibit 1 Top 5 website categories (% of mobile internet users)

US Email (65%)Weather (41%) Search (29%)

News/Politics (36%)

City Guides/Maps (24%)

Europe Email (46%)

Search (25%)

News/Politics (26%) Weather(24%) Sports (22%)

China

Entertainment (55%)

Games (36%) Music (31%)

News/Politics(26%)

Business/finance (18%)

India Games(38%)Email (33%)

Entertainment (55%) Music(18%) Sports(15%)

Brazil Email (57%)

Music (27%)

Entertainment (55%) Games(18%) Movies(12%)

Russia

Entertainment (55%)

Search (29%) Email(24%) Music(24%) Games(24%)

Source : Neilson, Mobile Media Marketplace report-BRIC,US, Europe,QI 2008

17

Exhibit 2

Strengths of some global players in mobile phone technology

Characteristics AT & T KDDI Maxis Verizon Wireless

Country of Operation

US Japan Malaysia US

Customers 71.4 million 1.3 million

Services Video/Audio download, streaming TV channels, voice messaging, video share

video, ringtone, full length music downloads, radio, TV channels, location detector and directions, hourly news and weather updates

video on demand, full track music downloads, video telephony

real-time mobile navigation and mobile TV, multimedia messaging, multiplayer and 3D gaming

Data Speed 14.4 Mbps 3.1 Mbps 2 Mbps

Other key features

largest mobile operator in the U.S.

brings the focus on handsets bypassing PCs

41.5% share of the mobile market, covers over 92% of the country

first multimedia wireless service

launched the first commercial large-scale HSDPA (High-Speed Downlink Packet Access) deployment in the world

pioneer in employing a 3G feature called BCMCS (broadcast multicast service)

exploring mobile TV options

highest data-to-total-ARPU ratio among all major operators in the U.S.

low cost of data delivery

cost-effective content broadcast service

worked with its vendors to keep the modem cost low.

tailored product and service offerings

focused primarily on major metropolitan areas

employed a tiered flat-rate pricing strategy

18

support spectrum bands 1900 & 850 MHzData Revenue $11.4 billion (2007)

Data Revenue $11.06 billion (2007)

19

Exhibit 33G Subscriber projections (mn)

EV-DO (A) WCDMA (B) Total (A+B) Increase in number of subscribers [(A+B)t -(A+B)t-1] =

D2009 (E)

0.4 4.8 5.2 5.2

2010 (E)

1.3 13.7 15 9.8

2011 (E)

3.2 27.6 30.8 15.8

2012 (E)

5.4 43.9 49.3 18.5

2013 (E)

7.4 60.1 67.5 18.2

3G modem users (mn)

2G modems3G modems (

C )Inc in number of subscribers [(C)t -(C)t-

1] = E2008 1.5 0

2009 (E) 1 2 22010 (E) 0.3 4.9 2.92011 (E) 8.4 3.52012 (E) 13.1 4.72013 (E) 22.4 9.3

YearInc in no of subscribers

(D+E)2009 (E) 7.22010 (E) 12.72011 (E) 19.32012 (E) 23.22013 (E) 27.5

20

3G revenue projections (USD billion)Handset subscribers (USD billion)

Modem Subscribers (USD billion)

Total (USD billion)

Total (INR, 1USD = Rs. 45)

2009 (E) 0.6 0.2 0.8

36000000000.00

2010 (E) 2.5 0.6 3.1

139500000000.00

2011 (E) 5.5 1.2 6.7

301500000000.00

2012 (E) 9.1 2 11.1

499500000000.00

2013 (E) 12.8 3 15.8

711000000000.00

Cash flows (All values are in Rs. Crores)2008 2009 2010 2011 2012 2013

Revenue from

subscribers (G) 3600 13950 30150 49950 71100

Auction (H) -8000UASL

License (assuming

one provider per circle) (I) -4953

Subscribers added(Mn)

(J) 7.2 12.7 19.3 23.2 27.5investment for adding

subscribers (Rs.) (K)

-10800 -19050 -28950 -34800 -41250

C0 C1 C2 C3 C4 C5

Net cash position (L)

-23753 -39203 -54203 -58853 -50153 20947

Note: The above calculations are as follows:

K = Investment at beginning of year = H+I+J*1000000*2*7500

It is assumed that for investment done for two subscribers, one subscriber is added. And an expenditure of Rs 7500 is incurred for every subscriber added.

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Ct = Ct-1 + Gt

2008 2009 2010 2011 2012 2013

-70000

-60000

-50000

-40000

-30000

-20000

-10000

0

10000

20000

30000

Break Even Point of 3G Industry

Net cash position

Year

INR

cror

es

http://www.expressindia.com/latest-news/Foreign-investors-face-hard-math-on-3G-entry/353042/

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23

i