Snapshot of Telecom in India

(prepared in Feb ’04)

2

Reforms (liberalisation) started in telecom

Status in 1994 • 0.8% teledensity – far below world average of 10% and other

neighbouring countries.• Total phones: 8 mn with a waiting list of 2.5 mn.• Below 25% villages (1.7 lakhs) covered.National Telecom Policy 1994 announced.• Telecom a national priority for increased economic development.• Plan targets revised to have telephone on demand and all villages

covered.• All services available internationally to be available in India by 1996.• Value-added services opened in 1992 (cellular mobile, radio paging,

email, etc.)• Resource gap of Rs 23,000 cr to meet the revised targets

necessitated private sector participation.• Tendering process for selection of private players for Basic and

Cellular services.

3

1991-96 : Pre-privatisation scenario

0

2

4

6

8

10

12

14

16

1991 1992 1993 1994 1995 1996

Supply

Demand

Mill

ion

tel

eph

on

es

4

Introduction of Privatisation

• Licenses awarded (in 1995-97) after tendering and bidding process:

– 8 GSM licenses in 4 metros (no bidding – beauty parade).

– 34 GSM licenses in 18 state circles

– 6 Basic Service Licenses in 6 state circles

• Results not satisfactory due to:

– Actual revenue realisations far short of projections leading to

operators being unable to arrange finance for their projects and

complete rollouts.

• Government appreciates the concern of the operators and allows for

mid-course corrections.

5

NTP ’99 - new telecom policy

Focus on creating an environment which enables continued attraction of investment in the sector and allows creation of communication

infrastructure by leveraging on technological development.

Targets revised:

• Telephone on demand by 2002 – teledensity of 7% by 2005 and 15% by 2010.

• Encourage development of telecom in rural areas with suitable affordable tariff

structure – to raise rural teledensity from 0.4% to 4% by 2010.

• Internet access in all District Headquarters (DHQs) by 2000.

• High speed data and multi-media capability using technology including ISDN to

all towns with a population greater than 200,000 by 2002.

• Universal Service Obligation defined to provide voice and low speed data

services to all uncovered villages.

6

Role of private sector in the early years

17.44

20.51

23.57

30.19

35.35

37.2940.23

36.02

28.39

22.79

18.68

14.88

5.53.58

1.881.20.880.34

14.54

17.8

21.59

26.51

32.44

34.73

0

5

10

15

20

25

30

35

40

45

1997 1998 1999 2000 2001 Dec-01

Demand Total GSM Mobile Wireline

Mill

ion

tel

eph

on

es

7

2001: the turning point

• Policy announced for additional licenses in Basic and Mobile Services

(Jan 2001).

• Entry fee:

– Basic Services: US$ 0.2mn – US$ 25.5mn (+ Bank Guarantees = 4

times entry fee for rollout obligations)

– GSM Mobile Services (4th Operator bid): US$ 0.2mn – US$ 45mn

• License fee (revenue share) reduced from provisional 15% to 12%, 10%

& 8%.

• Limited Mobility allowed to Basic Services (CDMA spectrum allotted to

BSOs).

• Rollout Obligations to cover Urban / Semi-Urban / Rural areas in equal

proportion.

• New licenses awarded in Jul - Sep 2001 : Basic (25), GSM Mobile (17).

8

2001: Mobile revolution triggered

3.58

0.05

4.8

0.08

6.43

0.1

8.53

0.15

10.53

0.23

0

2

4

6

8

10

12

Mar'01

Sep'01

Mar'02

Sep'02

Dec'02

GSM Mobile WLL(M)

Mil

l io

ns

• CDMA WLL(M) launched in limited manner in few circles.

• Tariff for GSM cellular mobiles reduced.

• Existing Operators expand service coverage.

• 3rd & 4th GSM Operator networks rollout - further tariff reductions.

• Newly licensed BSOs roll out networks for WLL(M) on CDMA.

9

Tariff & Interconnection Regulations

• Movement towards cost-based tariffing.

• Tariffs closely regulated by TRAI between 1999-2002.

• Interconnection Usage Charges established on the principles of

“work done” – termination charges introduced.

• Calling Party Pays (CPP) for mobile tariffs – free incoming calls

ushered in.

• Access Deficit Charges (ADC) for cost-minus fixed line services.

• Forbearance allowed recently on all tariffs (except rural fixed line).

10

0

10

20

30

40

50

60

70

80

90

Pre 1999 1999-00 Oct-00 Jul-02 Mar-03 Current

NLD ILD

Long Distance Peak rate tariffs (Rs / min)

0

2

4

6

8

10

12

14

16

Pre 1999 1999-00 Oct-00 May-01 Jul-02 May-03

Fixed Line GSM Mobile

Local Call Tariffs (Rs / min)

Increased competition leads to tariff reduction and affordable services

11

Convergence of tariffs

0

0.5

1

1.5

2

2.5

3

Fixed 0.69 0.69 0.69 0.69 0.69 0.78

WLL(M) 1.25 1.37 1.37 0.71 0.71 0.67

GSM Mobile 2.42 2.06 1.89 1.7 1.63 1.12

Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Jun-03

Rs

/ m

in f

or

40

0 m

ins

of

use

/ m

on

th

12

2003: Mobile boom has begun

0

0.5

1

1.5

2

2.5

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

2002 2003

Net

Add

ition

s / m

onth

(m

n)

Total Additions

2002: 5.15 mn

2003: 17.49 mn

13

Growth drivers

• Declining entry costs and falling tariffs have lowered the bar in

terms of affordability coupled with branding and advertising.

• High percentage of population owning two-wheelers are

prospective mobile telephone users.

• Upper middle class that spends 6% of its income on telecom

services.

• India lags behind other Asian economies (approx. 10 years) -

therefore India is poised for growth.

14

2003 : CDMA gains acceptance

0

1

2

3

4

5

6

7

Dec-02 Mar-03 Jun-03 Sep-03 Dec-03

0

5

10

15

20

25

CDMA Mobile CDMA %

6 mn CDMA mobile phones22% of total mobile market share

Service coverage in over 1100 towns

Mill

i ons

% o

f mob

ile m

arke

t

15

Unified Licensing introduced

• Unified Access (Basic & Cellular) Service License (UASL) introduced (Nov

2003) as a first step towards Unified Licensing Regime.

• Technology neutral and allows provisioning any kind of service.

• 4th Cellular GSM license used as benchmark.

• BSOs offering WLL(M) allowed migration to UASL - additional entry fee

equivalent to 4th Cellular bid.

• Rollout obligations to cover 50% DHQs in 3 years.

• License fee reduced w.e.f 1.4.2004 by 2% across the board for all access

licensees.

• Rural telephony to be covered under Universal Service Obligation.

• Intra-circle Mergers & Acquisitions recommended by TRAI - competition not

to be compromised, SMP to be checked.

• Spectrum pricing and allocation guidelines to be reviewed, present

allocations to continue.

16

Future Investments

0

2

4

6

8

10

12

14

2003 2004 2005 Total

Wireline Mobile Backbone Total

US$ bn

* Market Analysts' Estimates

17

Revenue Projections

0

2

4

6

8

10

12

14

16

2004 2005 2006 2007

Fixed Mobile NLD ILD Data

US$ bn

* Market Analysts' Estimates

18

Projections : Fixed & Mobile *

0

10

20

30

40

50

60

70

80

90

2003 2004 2005 2006 2007

Fixed GSM CDMA

Millions

* Market Analysts' Estimates

19

Teledensity - Urban vs Rural

0

5

10

15

20

25

30

35

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Urban Rural Total

Tel

eden

sit y

(%

)