india - a potential 3g market a feasibility study
DESCRIPTION
India - A Potential 3G Market A Feasibility Study. Arnab Sinha Sudipta Ray. Indian Institute of Technology, Kharagpur. 3G SERVICES & INDIAN MARKET. Market Trends. Service Promotion. Cost Structure. Existing Market Competition. Technology Requirements. Evaluation of Policies. - PowerPoint PPT PresentationTRANSCRIPT
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India - A Potential 3G Market
A Feasibility Study
Arnab SinhaSudipta Ray
Indian Institute of Technology, Kharagpur
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ServicePromotion
3G SERVICES & INDIAN MARKET
Market Trends
Existing MarketCompetition
Business BaseEvaluation of Policies
CostStructure
Technology Requirements
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ServicePromotion
3G SERVICES & INDIAN MARKET
Market Trends
Existing MarketCompetition
Business BaseEvaluation of Policies
CostStructure
Technology Requirements
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PROJECTED SUBSCRIBER POPULATION
0
40
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160
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240
280
320
360
400
440
su
bscri
ber
po
pu
lati
on
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mil
lio
ns
subscriber population (millions) Poly. (subscriber population (millions))
394350 350394
469
0
50
100
150
200
250
300
350
400
450
500
AR
PU(R
s/m
onth
)
Expected Usage in 2007:111 million
(from CAGR of 94%)
Market Trends
Cheaper Infrastructure
Cost
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ServicePromotion
3G SERVICES & INDIAN MARKET
Market Trends
Existing MarketCompetition
Business BaseEvaluation of Policies
CostStructure
Technology Requirements
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Existing Market Competition
Stake in Existing Market :Technology relied upon :
Total Investment :
Analyzing the predicted Market Revenue Trends, expected Break Even Period for Vodafone
BHARTI (10%)GSM (Larger service
range in India)1.5 billion USD
Our Target Break Even before
February 2008
Vodafone Break Even
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ServicePromotion
3G SERVICES & INDIAN MARKET
Market Trends
Existing MarketCompetition
Business BaseEvaluationof Policies
CostStructure
Technology Requirements
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Business Base
Current Position of Reliance in market- 20.3 % of the subscriber population- Largest CDMA provider in India
- 54% of the population is below the age of 241
- Estimated youth’s annual spending US$10.5 billion1
Population Count in 2006(millions)
10%
20%
11%
10%16%
13%
9%
4%7%
0-4
5to14
15-19
20-24
25-34
35-44
45-54
55-59
60&above
Collaboration with Reliance!
Targeting the Youth Section!Launching the service on Valentine’s Day!
Customer Base
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ServicePromotion
3G SERVICES & INDIAN MARKET
Market Trends
Existing MarketCompetition
Business BaseEvaluationof Policies
CostStructure
Technology Requirements
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• Increased talk time• Superior Power Control • Lowest radiation level• Hi-Speed Internet Access
– India has less than 0.4% penetration CDMA1x handsets (140 kbps)
• Most successful 3G Tech– CDMA2000 controls 85% of the World’s 3G market – Adds 15 million new users per quarter Worldwide
• Better Voice & Consistent Quality• Advanced platform supporting innovative
applications• GSM 3G evolution relies on CDMA
Technology Requirements
Hence CDMA – choice for the 3rd generation!
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ServicePromotion
3G SERVICES & INDIAN MARKET
Market Trends
Existing MarketCompetition
Business BaseEvaluation of Policies
CostStructure
Technology Requirements
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Cost Structure
Total RelianceRevenue =
Normal Revenue + 3G RevenueYoung Reliance
CustomersReliance SubscriberAccessing Internet
Estd. Avg Packet Consumption
per month (APC)Charge (C)Packet wiseBilling
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Cost Structure
50p for each 128
Bytes packet
Billing Structure
Following Japan’s estimate5
APC=8192(1MB)
Reliance Customer Base 20.3% of
38.5 Mn6= 7.82 Mn
Target 54%1 Young Customer= 4.22 million
Total RelianceRevenue =
Normal Revenue + 3G Revenue
Young Reliance CustomersReliance Subscriber
Accessing InternetEstd. Avg Packet Consumption
per month (APC)Charge (C)Packet wisebilling
07 07
06 06
( ) ( ). 0.36 ( ).Dec Dec
Feb Feb
ARPU t pop t dt C APC pop t dt
Target Break even December 2007
COMPUTATION STEPS
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Estimated Breakup of Expenses
Estimated cost for infrastructure, planning services, site civil works (based on other countries’ statistics)14
106.4 billion INR Licensing fees, sales and marketing cost
(26%15 of the acquired revenue) 7.49 billion INR
Total Expense (Approx) 115 billion INR
Feb, 2006 Dec, 2007
Estd. Revenue Earned143 billion
Large Profit Margin
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ServicePromotion
3G SERVICES & INDIAN MARKET
Market Trends
Existing MarketCompetition
Business BaseEvaluation of Policies
CostStructure
Technology Requirements
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Service Promotion
Attractive RateUtilities as per demand Handset Cost
Communication
Entertainment
Information Services
Agro-business
Optional CommercialServices
Communication
Entertainment
Information Services
Agro-business
Optional CommercialServices
Average HandsetPrice
19, 448 INR
Average HandsetPrice
19, 448 INR
ARPU 1475 INR only
ARPU 1475 INR only
Advertisement
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ServicePromotion
3G SERVICES & INDIAN MARKET
Market Trends
Existing MarketCompetition
Business BaseEvaluation of Policies
CostStructure
Technology Requirements
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Largest CDMA Provider
Defeat VodafoneLucrative Offers
after Dec’07
Appeasementof
Government
Adaptive to Market Forces
Evaluation of Policies
Reliance
Target Break Even – Dec’07
Survival of Competition
Early Start
BeneficialUtilities
Wider Estd.Profit margin
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Thank You!
ServicePromotion
Market Trends
Existing Market
Competition
Business Base
Evaluation of Policies
CostStructure
Technology Requirements
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References
1. Statistical Outline of India 2002-032. http://www.indiadaily.com/editorial/5826.asp,Dec 7, 2005 Media Release3. http://www.stylusinc.com/internet_potential_india.htm4. http://www.hardwaresecrets.com/article/1515. http://ojr.org/japan/wireless/1084495929.php6. http://www.indiadaily.com/editorial/5826.asp,Dec 7, 2005 Media Release7. http://shopping.yahoo.com.au/8. http://www.umtsworld.com/umts/faq.htm#f39. http://blogs.zdnet.com/ITFacts/?p=906510. http://www.w2forum.com/item/us_wireless_market_reach_neartotal _saturation_200911. http://www.mouthshut.com/review/GSM_Mobile_Technology_Vs_ CDMA_Mobile_Technology-34613-1.html13. http://www.businessworldindia.com/sep2004/news08.asp14. http://www.umtsworld.com/umts/faq.htm#f3615. www.auspi.org/presentation/AUSPI-press-conference.ppt
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Backup Slides
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World-Market Share
Samsung11%
Motorola15%
SonyEricsson
5%
NOKIA34%
others27%
siemens8%
₤178-570
$990 ₤190-279
₤215-420
The Average International Market Price of 3G mobile Handsets =
World market sharei x Avg. handset cost x conversion factori
= 19,448 INR
Source: Gartner, 2003
Back
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Computation Steps under Packet-Wise Billing Current Internet User Count=38.5million2
Reliance Subscriber Count=20.3%of 38.5=7.82million Targeted Youth Population=54%of 7.82=4.22million Customer Base for Reliance=11.65million(data
provided) Ratio for Target Customer for 3G= 4.22/11.65 = 0.36
Considering this ratio remaining constant, Revenue earned within the breakeven period limits::
Revenue earned by telephony Revenue earned by internet usage
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Computation Steps cont..• Revenue earned by telephony:
∫ ARPU(t)xsub.population(t) = Area under the Revenue
Curve
= 1485.76 billion INR
• Revenue earned by internet usage:=Charge per packet ( C ) x Avg.Packetconsumption (APC) x Ratio of Target Customers x ∫Sub.population(t)= 0.5x8192x0.36x{Area under the Subscriber Poplulation Curve}
=5558.501 billion INR
• Total Revenue =7044.26billionINR
Plot Depicting [ARPU(t) x population(t)]
22572.2620574.68
38951.5
75572
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
110000
120000
130000
140000
150000
reve
nu
e co
llect
ed in
mill
ion
s
Plot Depicting
Subcriber Popluation(t)
57.2952.22
111.29
215.92
0
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su
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Computation Steps cont.
• Total Revenue = 7044.26 billion
• Total Reliance Revenue = 20.3% of 7044.26 = 1429.99 billion
If acquired a 10% stake,• Returns to the company = 10%
of 1429.99 • ≈ 143 billion >> 115 billion
(investment cost)
07 07
06 06
( ) ( ). 0.36 ( ).Dec Dec
Feb Feb
ARPU t pop t dt C APC pop t dt
Back
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Vodafone’s Returns: Computation steps for the Breakeven
833.5
1617.24
483.04
440.3481.9
0
200
400
600
800
1000
1200
1400
1600
1800
Voda
fone
's re
turn
s (m
illio
ns IN
R)
Vodafone's returns 481.85717 440.29815 483.04636 833.5621 1617.2408
12/1/04 3/1/05 6/1/05 6/1/06 6/1/07
• Based on the PlotReturns(t) = Area Under the Plot= 10667.93 +89.71 t2 +833.56 t
(billions)
• Returns till Breakeven period = 1.5 billion USD= 63000 million INR*
• Solving for t:t =19.95 months ≈ 20 months By February 2008.*Exchange rate =Rs 42/- Back
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Aiming the technologyAiming the technology Source: CDG, AUSPI, TelecomWatch,COAI, TRAI
Wireless Technology trends
39
64
71
79
84
5
14
25
34
44
2001
2002
2003
2004
2005
No. of networks.
CDMA
GSM
Tariff fall and teledensity increase
43.5
21.5
1
0.5 12.8
4.66.5
012345
2001 2002 2003 2004 2005
Tarif
f(Rs/m
in)
0
2
4
6
8
Teled
ensit
y(%)
Tariff(Rs/min) Teledensity(percentage)
Wireless growth after introduction of CDMA4:Subscriber growth in GSM: CAGR of 74%*
Subscriber growth in CDMA: CAGR of 205%*
Increase in Teledensity: 6%*
Decrease in tariff: 75%*
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Indian MarketIndian Market FeasibilityFeasibility
Indian Market Feasibility
239 236
287
93
33 32
12
8
0
5
10
15
20
25
30
35
Australia Singapore China India
AR
PU
(U
S$)
0
50
100
150
200
250
300
350
Min
ute
s o
f U
sag
e (m
in/m
on
th)
MOU per month ARPU($)
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TARGETED CUSTOMER : THE YOUTH?TARGETED CUSTOMER : THE YOUTH?Population Count in 2006(millions)
10%
20%
11%
10%16%
13%
9%
4%7%
0-4
5to14
15-19
20-24
25-34
35-44
45-54
55-59
60&above• 54% of the population is below the age of 24• Estimated youth’s annual spending US$10.5bn with growth
rate of 12%1
• 55% of young India opts for career in web related activities3
• Demand for internet access (38.5 Mn currently) may shoot up to 100 Mn in 2 years.
Trends in population
190.8
120.8122.4105108.5 117.490.2
156.6170.6
0
50
100
150
200
250
2001 2005 2010
Popu
latio
n(m
illion
s)
15to19 20-24 25-34