India's Second Mobile Revolution Brewing With Data Services

India’s Second Mobile Revolution… It’s Brewing!

Presented at CES, Las Vegas

January, 2013

Jayanth Kolla

Executive Summary

•  In the first phase, Indian mobile industry has grown rapidly, focusing primarily on voice based
services. The supply-side players have designed and successfully implemented unique business
and operational models while growing rapidly, at low cost and yet profitably

•  The internet penetration in India has only recently touched double digits and the current scenario
is similar to country’s teledensity in 2003. Similar to penetration of phone connections primarily
driven by wireless in the last ten years, internet penetration in India is also expected to be driven
by mobile and this is expected to drive the next growth phase in Indian mobile industry

•  Although, we expect mobile data driven growth phase to begin in 2014-15, the early indicators
of industry readiness and key players’ alignment for this growth have already begun taking
shape as early as 2010

•  We expect a few more requisite developments/enablers to be in place between 2013-15

•  Industry dynamics and trends across the value chain (chipsets & components, network
equipment, carriers, devices, apps/VAS) are changing and in some or other way aligning to
enable the mobile data services driven growth of Indian telecom

•  This presentation covers the breadth of supply side activity, identifies key trends, analyses their
potential contribution for growth and comments upon requisite strategy modification for key
players in the value chain

Contents

Highlights of the First Growth Phase of Indian Mobile Industry

India’s Second Mobile Revolution

Convergence Catalyst Credentials

Adoption of mobile services in India grew at unprecedented rate, aided
by govt. regulations and competition
Growth of Indian Mobile Subscribers and Key Milestones (2000-2012)
80%
•  Supreme Court
cancels licenses 76%
919
•  3G services issued in 2008
900
launched
68%
812

60%

•  3G & BWA
auctions
Total Wireless Subs (Mn)

•  MNP launched
50%
584

Wireless Teledensity1 (%)
600

•  122 new 2G •  Per 40%
licenses
second
•  Dual technology billing
392
34%
licenses awarded
•  UASL introduced
•  Calling Party
Pays introduced
300
261
•  FDI limit 23%
increased from 20%
•  CDMA allowed to 49% to 74%
be a mobile tech
165
15%
•  Licenses fees were
reduced
99
9%
52
34
5%
2
4
7
13
3%
0%
1%
1%
0
0%
0%
Mar '00
Mar '01
Mar '02
Mar '03
Mar '04
Mar '05
Mar '06
Mar '07
Mar '08
Mar '09
Mar '10
Mar '11
Mar '12
Wireless Subs (M)
Teledensity (%)

•  Mobile subscribers in India grew at a CAGR of close to 67% between 2000 and 2012, primarily driven by
favorable policies and competition in the industry
•  Carriers in India primarily focused on acquiring subscribers in the prepaid model (offering voice services)
during this phase, which allowed them to acquire subscribers faster and realize revenues upfront
–  Currently prepaid subscribers form about 96% of total mobile subscribers in India

Sources: CC
Research, TRAI
4
Note 1: In this case ‘Teledensity’ is deﬁned as the total wireless subscribers as a % of population

This rapid growth was also a function of unique business and
operational models adopted by Indian carriers

Wireless Subscriber Growth in India
(2003-2012)

1
Manufacturing low-cost minutes

919
2
Pushing high levels of network utilization

392

165
13

Mar ‘03
Mar ‘06
Mar ‘09
Mar ‘12
Building low cost acquisition and
3
distribution models

Sources: CC Analysis

Indian carriers leveraged scale to successfully design and implement
the ‘Minute Factory Model’, to drive profitability
Alignment of Carrier Organization to Offer Optimized Products & Services Driven by ‘Minute Factory’
1
Measures

Sales
Consumer Brand/
Customer Enterprise Multi-Tech MVNO
Voice Products –
Facing/ Marketing
Services
Offerings
Offerings
Services
Maximum
Interface
RPM1
After Sales
Service

Technology
Cost of Min-
Enablers
Factory Generating Minutes
Lowest Cost
IT
producer of
Network
IT/Billing
minutes

Customer
Support & HR
Regulatory
Finance
SCM
Service Delivered as
Common Backend
Shared per agreed
Services
Services
Internal Revenue SLA2
Retail
Devices
Legal
Audit
Assurance

•  Indian mobile carriers have continuously worked towards optimization of work force across platforms and businesses to
ultimately achieve efficient delivery of products and services
•  Indian carriers pioneered and mastered the “Minute Factory” to cater to large volumes of subscribers and minutes of use,
profitably
–  Profitability was achieved primarily by building large, integrated networks and sharing of passive infrastructure with other carriers and outsourcing
network and IT implementation and operations to the network vendors on a revenue-share basis

Sources: CC Research & Analysis Note 1: Revenue Per Minute; 2: Service Level Agreement

The low cost operations model was also coupled with high levels of
network utilization by Indian carriers
2G Capacity Utilization Position of Leading Indian Carriers (by Circles)
2
23
23
23
100%

80%

60%

40%

20%

0%
Airtel
Vodafone
Idea
Well Above Capacity
Above Capacity
At Capacity
Near Capacity
Excess Capacity

•  Indian carriers typically operate their networks at full capacities, which is an uncommon practice by
global standards
•  Primarily, this is to cater higher number of subscribers on limited spectrum allocated and also to reduce
costs
–  The goal is to treat most expenses as variable costs and track them against a minute of use
–  Indian carriers use a methodology known as “Half Rate Coding” to achieve 100%+ utilization of (theoretical) capacity

Sources: CC Research, TRAI, Bain & Co, Credit Suisse

Not only did Indian carriers focus on building large retail distribution
networks, they’ve aligned it with their network expansion
Rural Distribution Structure of a Leading Indian Carrier
3
Urban / Semi-

Carrier
urban Area

• 10 – 15 Sub-Distributors per Super Stockist
Super Stockist
• 150 – 200 Retailers per Sub-Distributor

(Weekly servicing of Sub-
Distributors by Super Stockist)
Retailers in BTS Towns
BTS Town •  Prepaid sales BTS Town • 15 – 20 Retailers per
•  Recharge sales 10,000 population
Rural Area

…………………..
Sub-Distributor Daily Servicing of Retailers  
BTS / Tower by Sub-Distributor
• 1 Sub-Distributor
per BTS Town
Retailers in Villages
• 1 – 2 Retailers  
•  Prepaid sales
per Village
•  Recharge sales

•  Adopting the “Matchbox Distribution Model”, Indian carriers have set up a distribution network of close to
two million retail outlets, primarily focusing on acquiring prepaid customers (faster and upfront revenues)
–  Carriers partnered with distributors of other verticals such as FMCG1, F&B2, etc for faster and cost-efficient rollout
•  Indian carriers also focused on mapping their retail outlets expansion with their network expansion, thus
ensuring faster and higher network capacity utilization
Sources: CC Research & Analysis, Industry Inputs Note !: Fast Moving Consumer Goods; 2: Food & Beverages

Despite rapid growth of the industry and evolution of unique business
models, there exist some challenges for various players in the industry

•  Retrospective tax imposition on Vodafone’s acquisition of Hutch is deterring
many foreign investors
•  Government’s objection to let carriers form Inter-Circle Roaming partnerships
Regulatory Issues
to offer 3G services, again in retrospect can be viewed as interference in
business operations
•  Govt’s suggestion/mandate of 900 MHz spectrum refarming could force
increased Capex spends by the carriers

•  Indian carriers offer services on severe spectrum crunch
  While the global average of 2G spectrum per carrier is in the range of 22 MHz to 24
Lack of Adequate
MHz, Indian carriers have an average of 6 MHz to 8 MHz per circle
Spectrum
  Indian carriers have 5 MHz of 3G spectrum, much below the global average of 15 MHz
per carrier

•  Indian carriers have leveraged themselves extensively in order to procure 3G
Decreased Capex
spectrum and retain/procure 2G spectrum, which has decreased/delayed their
Spending by Carriers
Capex spends especially in 2011 and 2012

•  With limited 3G spectrum, congested voice networks (and 3G spectrum being
Slower Than Expected used for voice) and decreased Capex spending for network implementation/
3G Uptake
expansion, the 3G rollout in India is ad hoc at best and it reﬂects in the slow 3G
subscriber additions and services uptake


The internet penetration scenario currently in India is similar to teledensity
in 2003, and is expected to be driven by mobile in future
Share of Connected Vs Unconnected Share of Internet Vs Non-Internet Users
Population in India (as of Mar ‘03)
as a % Population in India (as of Mar ’13E)

89.5%
94.9%
100%
100%

40%
40%
5.1%
10.5%
Unconnected Non-Internet Share of
Total Population
Teledensity1
Total Population
Population
Share of Pop
Internet Users

•  In early 2003, the teledensity was only about 5% (with wireless penetration being 1%), with close to 95% of
population having no access to a phone connection. In the last ten years, mobile industry grew rapidly to
increase the teledensity to about 75%
•  Currently, the situation of internet adoption is similar to teledensity in 2003, with close to 90% of the
population yet to be connected to internet. We expect mobile to play a key role in increased adoption and
usage of internet in coming years
  While ~10% of Indian population are active internet users (as of Dec ‘12_, the % of broadband connections is only ~1.25%
  Of the total ~120 Mn active internet users in India (as of Dec ‘12), mobile internet users are 87.1 Mn. This is about 118%%
increase since Dec 2011

Sources: CC Analysis, TRAI, IAMAI; Note 1: Teledensity in Mar ‘03 includes penetration of both wireline & wireless subscribers as a % of pop

Mobile Internet is expected to drive the next phase of growth in the
Indian mobile industry

The next phase of Mobile Industry Growth in India will be driven by
Increased Adoption of Data Services, Emerging Technologies, Evolving
Business Models and Wider Customer Segments


While the building blocks for the next growth phase have started
emerging since 2010, we believe all the enablers to be in place by 2015

Early Indicators
Expected Developments

•  Decrease in mobile subscribers
•  Increase in mobile tariffs
•  New services to be offered to wider customer
•  Vodafone increasing the revenue segments
share for app/content developers
•  Revenues and stickiness of non-voice VAS services
•  Strategic & judicious bidding of •  Increasing competition in the to increase
3G & BWA spectrum by carriers
smart devices chipsets space
•  Over-The-Top (OTT) players to enter the mobile
•  Reliance’s re-entry into telecom
•  Judicious bidding for 2G spectrum
value chain (launching mobile-data driven services)

2010 2011 2012 2013 2014 2015

•  Collaboration among carriers •  Demand driven data consumption and VAS
(co-opetition)
adoption to increase
•  End of Nokia’s stronghold on the •  Increase in apps adoption and consumption
Indian mobile devices market •  Optimum use of big data analytics (CEM
(increasing competition)
implementation) by carriers
•  Adoption of Wi-Fi for data offloading by carriers

Key Triggers That Could •  Auction of 700MHz spectrum (currently slated for 2014)
Expedite the Next Growth
•  Tariff wars for mobile data services


And, we expect every player in the value chain to actively participate/drive the
next growth phase of the Indian Wireless Industry

India Wireless Industry Value Chain

Chipsets &
Network
VAS
Carriers
Device Players
Components
Infrastructure
Providers
Early Indicators

•  Increasing •  Judicious spectrum
competition in bidding
•  Increasing
the smart •  Reliance’s re-entry
competition (Nokia’s
devices chipsets •  Collaboration among decreased share)
space
carriers

•  Increased revenue share from Vodafone

•  New services &
Developments

•  Provide CEM / •  Support increase customer segments
Big Data apps & VAS •  Support OTT players
Expected

Analytics
adoption
•  Optimum use of big
•  Support mobile •  Support demand data analytics/CEM
data Wi-Fi driven VAS •  Adoption of Wi-Fi
offloading
adoption
data offloading
•  Increase revenues and stickiness of non-voice
VAS services


Contents

Highlights of the First Growth Phase of Indian Mobile Industry

India’s Second Mobile Revolution

Early Indicators

Expected Developments/Trends

Potential Triggers

Convergence Catalyst Credentials


Early Indicators

smartphones chipsets space

2010 2011 2012 2013 2014 2015

(co-opetition)
•  End of Nokia’s stronghold on •  Increase in apps adoption and consumption
the Indian mobile devices •  Optimum use of big data analytics (CEM
market (increased competition)



The key strategy adopted by most carriers bidding for 3G spectrum (in
2010) was to defend their market leadership position in various circles
Strategic Bidding
3G Spectrum Winners-2G Market Share Leaders Mapping (as of Jun ‘10)
for 3G Spectrum

Market Share by Revenue
Circle Other Winners
Highest Second Highest Third Highest
Delhi Airtel (37.6%) Vodafone (23.6%) RCOM (13.1%)
Mumbai Vodafone (35.9%) Airtel (20.6%) RCOM (18%)
Maharastra Idea (30.4%) Airtel (21.9%) Vodafone (20.7%) Tata
Gujarat Vodafone (39.9%) Airtel (20.9%) Idea (18%) Tata
A.P Airtel (39.6%) Idea (16.8%) Vodafone (12.6%) Aircel
Karnataka Airtel (54.4%) Vodafone (15.9%) RCOM (9.7%) Tata, Aircel
Tamil Nadu Airtel (32.9%) Aircel (20.4%) Vodafone (20.1%)
Kolkata Vodafone (31.4%) Airtel (30.1%) RCOM (18.1%) Aircel
Kerala Idea (28.4%) Vodafone (20.8%) Airtel (19.9%) Tata, Aircel
Punjab Airtel (38.4%) Vodafone (17.85) RCOM (6.5%) Tata, Idea, Aircel
Haryana Vodafone (19.4%) Idea (16%) Airtel (15.3%) Tata
U.P.(East) Vodafone (31.05) Airtel (28.7%) RCOM (12.1%) Idea, Aircel
U.P.(West) Idea (27.7%) Vodafone (23.7%) Airtel (18.2%) Tata
Rajasthan Airtel (44.8%) Vodafone (22.8%) RCOM (8.2%) Tata
M.P Airtel (30.3%) Idea (28.7%) RCOM (20.8%) Tata
West Bengal Vodafone (36.5%) Airtel (28.6%) RCOM (13.3%)
H.P Airtel (12.3%) RCOM (5.2%) Idea (1.8%) S Tel
Bihar Airtel (24.7%) RCOM (9.9%) Tata (3.7%) Aircel, S Tel
Orissa Airtel (17.6%) RCOM (7.5%) Tata (3.6%) Aircel, S Tel
Assam Airtel (34.3%) Aircel (25.2%) RCOM (19%)
North East Airtel (37.7%) Aircel (29.5%) RCOM (6.7%)
J&K Airtel (46.6%) Aircel (21.6%) RCOM (3.3%) Idea
Indicates 3G Spectrum Acquired

•  As the competition led to increase in spectrum price during bidding, owning pan-India spectrum became a costly proposition
•  Carriers then strategically bid for 3G spectrum in select circles where they had existing market leadership (defending their 2G
subscriber base) or the circles with business viability (high ARPUs)

Sources: Industry Reports, Companies Quarterly Results & Investor Presentations, CC Analysis

Reliance-Infotel (RIL) is the only player to procure a pan-India
spectrum footprint for launching mobile broadband services
Strategic Bidding
for BWA Spectrum

•  Reliance-Infotel is the only pan-India
BWA spectrum winner and is expected
to lead the BWA1 ecosystem in India
Delhi

•  Airtel focused on circles where it had
no 3G spectrum (for complimentary
mobile broadband technologies)

Kolkota
•  Aircel focused on circles with high
revenue contribution and its 3G
circles to ensure adequate spectrum
for mobile broadband services
Mumbai

•  Qualcomm’s intent in bidding for BWA
spectrum was to ensure the adoption
of LTE technology. It has later sold
part of its stake in BWA services
Aircel, Reliance Infotel and BSNL
company to Airtel
Bharti, Reliance Infotel and BSNL
Qualcomm , Reliance Infotel and MTNL
Tikona, Reliance Infotel and BSNL
Augere, Reliance Infotel and BSNL

Source: Secondary Research, CC Analysis Note 1: BWA – Broadband Wireless Access

Being the only player with a pan-India spectrum suitable for mobile broadband,
RIL is expected to lead the service offerings roadmap of the country
Reliance’s Telecom
Re-Entry

RIL’s Pan-India BWA Spectrum Allocation Map

•  In 2003, with offerings such as DAPO1 &
Monsoon Hungama, Reliance
commoditized mobile services & device
ownership, and made them affordable for
mass market consumers

•  RIL is expected to bring similar disruptive
offerings in the mobile broadband space
as well

•  RIL could potentially leverage its scale to
control input costs and keep its Capex
spending at optimum levels

•  RIL is also expected to deﬁne and dictate
the type of 4G services launched, their
quality and pricing levels are expected to
set precedents for other industry players

Note 1: DAPO – ‘Dhirubhai Ambani Pioneer Offer’ was the ﬁrst contract based device-service
bundle offer in the Indian mobile industry


Despite being competitors on most business aspects, Indian carriers are
willing to partner with each other on key aspects (such as spectrum sharing)
Collaboration
Among Carriers
Airtel’s 3G Services Inter-Circle Roaming (ICR)
Circles-Partners Mapping

ICR Circles
ICR Partners
•  With pan-India 3G spectrum price
becoming unaffordable during auction,
carriers strategically bid for select circles
•  Madhya Pradesh
•  Idea

•  However, post the auction, carriers formed
•  Kolkata
•  Vodafone
ICR partnerships with each other to launch
3G services in non-3G spectrum circles
•  Punjab
•  Vodafone
•  This is a win-win situation as carriers
sharing their 3G spectrum could optimize
•  Haryana
•  Idea & Vodafone
their network resources and potentially
recuperate their spectrum investments
•  Gujarat
•  Idea
faster

•  Uttar Pradesh (East)
•  Vodafone
•  Although DoT1 has asked the carriers to
discontinue their ICR based 3G services,
this collaboration among competing
•  Maharashtra
•  Idea & Vodafone
carriers can be viewed as a positive step in
terms of their willingness to offer seamless
experience to consumers, while optimizing
•  Kerala
•  Kerala
their investments

Note 1: DoT– Department of Telecommunications


As Nokia lost its stronghold of Indian mobile devices market, multiple
domestic players emerged strongly offering more choice to the consumers
End of Nokia’s
Monopoly

Nokia’s Share of Indian Mobile Indian & Chinese Brands Share of Indian
Devices Market (2008 & 2012)
Mobile Devices Market (2008 & 2012)

82%

48%-51%

31%

<3%

2008
2012
2008
2012

•  Nokia, which had a strong hold over Indian mobile devices market (with a share of over 80%) up until 2008, started losing
its relevance in 2009 with the emergence of local Indian and Chinese brands
•  Coinciding their foray with the launch of services by new carriers (with disruptive tariffs) in 2009 and leveraging their
strong distribution networks, the Indian and Chinese device brands started offering devices with innovative and relevant
features such as Multi-SIM at affordable prices
•  This competition not only enabled more choice to the end consumers, but also elevated key players (such as Micromax,
Karbonn, Spice, etc) to successfully establish nationwide brands and also enter global markets
•  These companies have since successfully moved up the value chain offering smartphones
  As per CC estimates, local brands share of incremental smartphones sales in India grew from sub 2% in Q1 ‘12 to over 24% in Q4 ‘12

Sources: CC Analysis, Industry Reports

The decrease in the mobile subscriber base since (mid-2012) is an
indication of carriers’ preference of quality over quantity of subscribers
Retention of
Total Mobile Subscriber Base in India in 2012, by Month
Quality Subs

938

934

925

919
918

911

908.4

906.6

904

904.2

Jan-‐12
Feb-‐12
Mar-‐12
Apr-‐12
May-‐12
Jun-‐12
Jul-‐12
Aug-‐12
Sep-‐12
Oct-‐12

•  The mobile subscriber base in India started decreasing in the second half of 2012, primarily driven by disabling of
inactive/low quality subscribers by leading incumbent carriers in India
•  This is an indication of Indian carriers’ reduced tolerance of ultra-low ARPU subscribers and shift in focus from
customer acquisition to retention of high-quality subscribers
•  By disabling inactive/low quality subscribers, carriers are also conserving precious network resources such as
spectrum, core network capacity, numbering series, etc

Sources: CC Analysis, TRAI

Mobile carriers in India have been successful in increasing the mobile
tariffs without adversely affecting MoU volume or subscriber base
Increase in Tariffs

Average Per Second Voice Call Tariff •  Most of the leading incumbent carriers in
of Leading Carriers (Q3 ‘11 – Q3 ‘12)
India have increased voice tariffs ranging
23% to 35% between Q3 ‘11 and Q3 ‘12

1.23p1-1.35p1
•  This increase is the ﬁrst reversal of trends
in India, indicating the bottoming out of
1p1
mobile tariffs

•  However, this hike in mobile tariffs has not
adversely affected the subscriber usage
(average Minutes of Use), thus enabling
increased carrier revenue realization from
the same set of customers

•  This is an indication of Indian carriers’
Q3 2011
Q3 2012
willingness to reverse popular trends such
as price sensitivity in order to increase
revenues

Sources: CC Analysis Note 1: 1p – 1 Paise = USD 0.018

Vodafone’s initiative to increase the off-deck VAS revenue share to 70% (from
the existing 30%) in favor of content developers is considered a positive move
VAS Rev-Share
Dynamics Change
India Telecom VAS Value Chain and Revenue Share by Player

10% - 15%
5% - 10%
70% - 75%1
Rev Share
Traditional

VAS Product /   Carriers
Content
Content
Application   Carrier Billing
Developers
Aggregators
Developer
D2C
60% - 65%1

Technology Platform Enablers
10%
Vodafone’s
Rev Share
(2012)

70%
30%

•  Traditionally, Indian carriers retain a disproportionate share of VAS revenues, leading to severe discontent among other players in
the value chain
•  Carriers justify the retention of large VAS revenue shares as they provide billing and access to consumers, and also invest in VAS
marketing and promotions
•  However, Vodafone has recently started offering more favorable rev-share deals (70% of revenue as opposed to 30%-35%) to
those Direct-to-Consumer (D2C) mobile apps/services companies that will not rely on Vodafone for promotion and customer
acquisition
•  These larger off-deck revenue shares will drive more revenue and innovation for app developers/content providers

Note 1: Carriers charge high % of revenue for hosting and promoting the VAS services and marginally lower for providing
only billing integration for Direct-to-Consumer (off-deck) players
Sources: CC Research

The increasing competition in smart devices’ chipsets space is expected to
further drive the availability of wider range of devices to the end consumer
Competition in
Chipset Type Chipsets Space
Key Players
Insights and Analysis
(GPU/RF Modem)

•  India is one of the few markets for EDGE-based smartphones
•  Mediatek
Single-Core (2G)
•  As per our estimates, EDGE-based smartphones formed about 12% to
•  Spreadtrum
15% of total smartphones sold in Q4, 2012

•  Qualcomm had released MSM 7225A & MSM 7225AA (dual-SIM)
•  Mediatek
single core chipsets in 2011 primarily for emerging markets
Single-Core (3G)
•  Qualcomm
•  Intel
•  Mediatek’s MT6573 & MT6575 also power a number of entry-level
smartphones in India currently

•  We expect EDGE-based smartphones to continue to sell in India until
Q3, 2013
Dual-Core (2G)
•  Mediatek
•  However, the single-core chipsets are expected to be phased out and
replaced by dual-core chipsets, primarily led by Mediatek’s solutions

•  Mediatek
•  A number of 3G smartphones based on dual-core chipsets from
•  Qualcomm
multiple vendors are currently available in India
Dual-Core (3G)
•  Renesas
•  This is also a prime focus area for all the chipset vendors
•  Marvel
•  Intel has recently announced the “Lexington” (an entry-level dual-
•  Intel
core 3G) platform primarily for emerging markets

•  High-end devices based on Mediatek’s MT6589 & Qualcomm’s MSM
•  Mediatek
8225Q are expected to be launched in India in Q2, 2013
Quad-Core (3G)
•  Qualcomm
•  Broadcom
•  Broadcom is also expected to enter the Indian smart devices market
with a quad-core solution in 2013

•  As the LTE ecosystem starts to take off in India, we expect players such Altair, Renesas, etc to enter the
Indian market providing solutions for a wide range of devices
Sources: CC Analysis, Industry Interviews

The recent 1800 MHz 2G auctions successfully revealed the judicious
strategies employed by various mobile carriers
Judicious Bidding
Key Takeaways from the 1800 MHz Spectrum Auction in India (Nov 2012)
for 2G Spectrum

•  Govt. auctioned only half of the spectrum acquired from licence cancellations
Auction of Partial
Spectrum
•  The govt. could potentially use the un-auctioned 1800 MHz specrum to force
the leading incumbents to re-farm their 900 MHz spectrum

•  Although as a technology CDMA is optimized for data services and better voice
No Participants for
quality, in India, the viability of CDMA business is poor because of lower than
CDMA Spectrum
average revenues and low-end subscriber base

•  Contrary to popular opinion, RIL refrained from participating in auctions
Non-Participation of
Reliance Infotel
•  It is better for them to acquire an existing player than roll out voice networks
ground up, in a highly competitive market

•  Highly lucrative circles such as Delhi, Mumbai and Karnataka (which are also
Leading Data Traffic
leading data traffic generators) did not attract any bids as it is difficult for new
Circles Find No Bidders
players to disrupt the existing incumbents’ business

•  The only circles to have witnessed competitive bidding were U.P. (East) & Bihar
Demand for Voice
Markets
•  Although 1800 MHz spectrum is ideally suited for dense, urban areas, carriers
are expected to roll out voice services in semi-urban & rural areas

•  Both Videocon & Telenor’s India arm (who had their pan-India licenses canceled
Strategic Bidding by earlier in 2012) have acquired spectrum in six circles each
New Entrants
•  Videocon intends to launch 4G services (in 1800 MHz band) in its six circles,
positioning itself as a potential acquisition candidate in future



Early Indicators


2010 2011 2012 2013 2014 2015

(co-opetition)
(increased competition)



Going forward, Indian mobile carriers will need to expand focus to include
enterprises and government sectors offering multiple mobile broadband services
Newer Services &
Customer Segments
(Illustrative and Non-Exhaustive)

Customer Segment
Service Offering

Customer Service Centers (CSCs)

Government Geo-Spatial Video Surveillance
Services (B2G)
State Wide Area Network (SWAN)

M-Education

M-Health
Potential Mobile
Enterprise Services
Broadband
(B2B) Telematics
Services in India
Automatic Meter Reading

Fixed (Home) Broadband
Broadband on the Move – Data Cards

Consumer Services Mobile Internet
(B2C) Video Based Services

Location Based Services

Mobile Gaming

Sources: CC Research

The non-voice services revenues, share and stickiness need to increase
Increase in Non-
Voice Revenues
Share of VAS of the Total Mobile Service Revenues Monthly Churn of Select VAS Services (and
in Emerging Markets (by Country, 2011)
Overall Average) of a Leading Indian Carrier
100%

28%
28%

23%

20%
18%
18%
50%

10%
60%
8%
40%

20%
0%
China
Mexico
Russia
Thailand
Brazil
South India
Indonesia
Missed Call Astrology Alerts
CRBT
Africa
Alerts
(IVR-Based)
Average churn for all VAS services

•  Currently, the non-voice VAS services in India is among the lowest of all the emerging markets coupled with signiﬁcant subscriber
churn (of as high as 60%, for some services)
•  This poor performance of mobile VAS in India is primarily due to:
−  Lack of stickiness of a number of VAS services
−  Pricing models (most VAS services are at a monthly subscription rate of USD 0.55 to USD 0.80, which is 27% to 40% of prepaid ARPU)
−  Inefficient marketing and poor retention strategies by industry players

•  Going forward, carriers and other ecosystem players need to focus on offering relevant and valuable services to targeted consumers,
leading to increase in VAS revenues (both in terms of share of total mobile revenues and ARPU) and decrease in VAS churn
Sources: CC Research, Industry Inputs

Mobile apps consumption in India is still in its infancy and needs to
mature to drive the next phase of growth
Increase in Apps
Smartphone Installed Base Vs User App Engagement by Country
Consumption

User Engagement (App Downloads per Smartphone)

25.0
Maturity

20.0

US
Sweden
UK
Germany
Netherlands
15.0
Australia

10.0

Russia
France

China
Spain
Italy

5.0

Poland
Brazil

India
Bubble size = addressable market
0.0
Opportunity
(mobile subscribers per country)

0%
10%
20%
30%
40%
50%

Smartphone Penetration Per Capita (%)

•  Mobile apps consumption by retail consumers has begun in India, led by Android based devices and Google Play store
  However, currently over 50% of users who download mobile apps in India are either dormant or new acquisitions

•  The mobile apps consumption needs to grow and the ecosystem needs to mature to enable the next phase of industry growth

Sources: Developer Economics 2012 – Vision Mobile Report, InMobi, CC Analysis

The growth of smart devices adoption in India is expected to drive the
mobile data consumption in future
Demand Side
Growth

Yearly Smartphones Sales in India
Forecasts for Tablets Sales in India by Year
(Million, 2009-2014E)1
(Thousands, 2011 – 2014)2
‘000
6,000

5,537

4,000

72.0

2,375
2,256

2,000

44.0
1,507

924

777

19.0
378
458

9.4
214
312

5.6
0

2.3
9.4
2011
2012E
2013E
2014E

2009
2010
2011
2012E
2013E
2014E
Bullish
Base Case
Bearish

•  Smartphones and tablets have already breached the USD 100 & USD 140 price points respectively in India
•  As per our research and analysis, the average smartphone-based 3G data usage (per subscriber per month) has increased by 33%
between Q2, 2011 and Q4, 2012 (in metros). Also, currently the average 3G data consumption on tablets is 40% higher than in
smartphones
•  The increasing adoption of smart devices in the upcoming years is expected to drive the mobile data consumption

Sources: CC Research, Analysis & Estimates Note 1: Forecasts as of July 2012; 2: Forecasts as of Nov 2011

As consumers discover the capabilities of smart devices enabled by
relevant apps, their usage is expected to increase
Demand Driven
Data Consumption

Key
Services
Music
Video
Gaming
Books
LBS
Email
Social Networking

Yellow
Browse
IM - Chat
Listen
Manage
View
Direct
Reading
Pages
Directions
Use
Cases
There is an app for everything
Play
Stay in Touch

Rip
Buy
Broadcast
Guide
Create
Gamble
Navigate
Maps

Current
Delivery
Platform


Going forward, media & internet based Over-The-Top (OTT) service providers
are expected to play a key role in the growth of the Indian mobile industry
OTT Players to Play
Potential Emergence of Media & Internet Companies as OTT Players in India a Key Role
(Illustrative and Non-Exhaustive)

Potential Product/Service Role in Value Chain/
Revenue Model
Comments
Player
Offering(s)
Business Model

•  Free Wi-Fi/
Mobile Internet •  Facebook has recently started
for consumers, testing a new service that
increased •  Ad monetization
•  Data MVNO
allows local businesses to
engagement for provide free Wi-Fi in
small exchange for check-ins
businesses

•  Free Wi-Fi/ •  Google partnered with Boingo
Mobile Internet Wireless to provide free Wi-Fi
for consumers, •  Ad monetization
•  Data MVNO
across 4000 hotspots in US
increased use of •  Google also offers free Wi-Fi
Google products
in 150 locations in Brazil

•  There exists an opportunity
for media companies to
•  Ad monetization
•  Multimedia on partner with carriers and
•  Subscription
•  Data MVNO
the move
offer end-to-end muti-
•  Transaction
screen multimedia services to
end consumers

•  We believe that consumers and enterprises are interested in services, not networks, and in the next phase OTT players
offering end-to-end products & services are expected to play a key role in the growth of the mobile industry in India


Going forward, Indian carriers are expected to adopt intelligent solutions such as
CEM1 to maximize the value of their networks with customized & targeted offerings
CEM Implementation
CEM Functional Architecture and Key Insights Provided for Carriers
by Carriers

High value Competitive Device Customer
Roamer Revenue
Customer Benchmarking Conﬁguration Care
Insight
Insight
Insight
Insight
for Campaigns
Automation

CEM Engine

Business Process Orchestration

Analytics
Engine

Reporting
Action Engine
Engine

Virtual Common Repository
Data collection &
Service delivery
information aggregation

•  Going forward, we expect Indian carriers to use big data analytics/CEM to generate insights (and use them for action-oriented
business decisions) about customer experiences and preferences, based on existing data in their core & IT networks
•  Currently, Nokia Siemens Networks and IBM are leading providers of CEM based solutions to wireless carriers in India
•  Carriers such as Airtel & Idea are in the process of implementing CEM in India and are expected to leverage its offerings to provide
custom, tailored plans in future

Sources: CC Analysis; Industry Interviews Note 1: CEM – Customer Experience Management

Wi-Fi offloading of mobile broadband data is necessary in the Indian
scenario and many carriers are considering the deployment
Adoption of Wi-Fi
Data Offloading

Comparison of Indian and Global Metro for Mobile
Broadband Coverage & Need for Data Offload
•  Globally, multiple carriers are successfully
Parameter
Delhi
Amsterdam
using Wi-Fi networks for mobile data offload:
−  France’s Free Mobile has implemented over 4
Population
•  19 Million
•  2.2 Million
million Wi-Fi hotspots
−  China Mobile has implemented 2.83 Mn Wi-Fi
Population hotspots, and about 69% of its mobile data is
•  12,000 per Km2
•  12,00 per Km2
carried through its Wi-Fi network
Density
−  Japan’s KDDI has over 100K Wi-Fi hotspots that
3G Spectrum •  2x10 MHz (minimum) carried about 32% of its smartphone data traffic
•  2x5 MHz in 2.1 GHz
Available
in 2.1 GHz

4G Spectrum •  1x20 MHz in 2.4
•  NA
• With limited spectrum available for mobile
Available
GHz
broadband services, Indian carriers are also
Coverage – No.
•  500

considering Wi-Fi data offloading
of Towers (3G)

Coverage – No.
•  650
•  NA
of Towers (4G)
• WI-Fi offloading of mobile data offers
multiple advantages such as:
Bandwidth per
•  7 kHz to 13 kHz
•  100 kHz
−  De-congestion of cellular spectrum
MBB Customer1
−  Low Delivery Costs – Wi-Fi data delivery costs
10%-20% of 3G/LTE levels (on USD/GHz)
−  Maturing seamless cellular & Wi-Fi networks
integration
It is imperative to offload mobile broadband traffic in India

Sources: CC Analysis; Tefficient; Hetting Consulting; CC-Industry Interviews; Green Packet

Early Indicators

•  New services to be offered to wider customer segments
•  Vodafone increasing the revenue •  Revenues and stickiness of non-voice VAS services to
increase
•  Strategic & judicious bidding of •  Increasing competition in the •  Over-The-Top (OTT) players to enter the mobile value
chain (launching mobile-data driven services)

2010 2011 2012 2013 2014 2015

(co-opetition)
(increased competition)



700 MHz band offers better beneﬁts for LTE deployment as compared to 2.3 GHz
band and its auction could potentially impact the current plans of key carriers
700 MHz Auction
Comparison of Indian Key Technical and Operational Parameters for for LTE Services
LTE Deployment in 700 MHz & 2.3 GHz

Parameter
LTE in 2.3 GHz Band
LTE in 700 MHz Band

•  Packs in more no. of bits per MHz as
Spectral •  Poor spectral efficiency as compared
compared to 2.3 GHz, hence better
Efficiency
to 700 MHz
spectral efficiency

Cell Radius & •  Radius: 2 – 5 Kms1
•  Radius: 12 – 15 Kms1
Cell Area
•  Area: 50 – 60 Sq Kms1
•  Area: 220 – 250 Sq Kms1

•  No. of cell sites required for pan-city •  No. of cell sites required for pan-city
coverage – 15 to 182
coverage – 42
Capex
•  Capex requirement is 100% to 200% •  Capex requirement is 35% to 50% of that of
higher as compared to 700 MHz
2.3 GHz

•  Good indoor coverage due to better
Indoor •  Indoor coverage is an issue due to
propagation of frequencies in lower
Coverage
interference in the higher band
spectrum bands

•  Along with key technical and operational efficiencies, the 700 MHz spectrum for LTE also offers various strategic advantages such
as potential for FD-LTE deployment and global economies of scale (both on network equipment and devices)
•  It is expected that carriers (who could not garner pan-India spectrum during 3G & BWA auctions) such as Airtel, Vodafone, TTSL,
Idea along with new players such as MTS will actively participate in the 700 MHz auction
•  Currently, the government plans to auction 108 MHz of spectrum in the 700 MHz band (698 MHz to 806 MHz) in 2014. However,
few players in the industry want the auction to be conducted sooner, which could potentially expedite the mobile broadband
services growth in India

Note 1: For BTS antenna height of 30 mts
2: Assumed city size – 900 Sq Kms. BTS antenna height of 30 mts. This number is for coverage only and not for subscriber capacity
39
Source: CC Analysis, “LTE Business Case”, Hetting Consulting – May, 2011

In a price sensitive market such as India, tariff based competition for
data services could trigger higher and faster uptake of services
Tariff Wars in Mobile
Data Services

Growth of 3G Subscribers in India •  The number of 3G subscribers grew by almost
Between Q2 & Q4 2012 (Mn)
100% in two quarters when carriers reduced
3G tariff by 70% in mid-2012
Mn
45
• This is similar to the rapid growth in mobile
voice subscribers triggered/driven by
reducing tariffs over the years

30
• India being a price-sensitive market, services
adoption and subscriber growth is almost
always directly related to tariff reductions

15
• With Reliance-Infotel expected to launch TD-
LTE based mobile broadband services in Q2
2013 there is a chance of existing 3G & LTE
carriers further decreasing tariffs (to compete
0
with RIL), which could potentially expedite the
Q2 2012
Q4 2012
mobile broadband adoption

Sources: CC Analysis, Company Reports, Industry Inputs

Convergence Catalyst brings vast telecom industry operations & consulting
experience to offer research and advisory services in the TMT domain
Telecom Industry and Management Consulting Experience of Convergence Catalyst Core Team Members

Domain Experience
Companies Worked For
Key Functional Roles Held

•  Head, Product Marketing - Motorola
•  Head, Product Management – MTS
Telecom
Industry
•  Senior Manager – Tata Teleservices
•  Product Manager – Nokia
•  Test Lead, RF – Qualcomm
•  Network Planning & Optimization – ITI

Management •  Senior Management Consultant –
Consulting
Analysys Mason

Telecom
Media

Technology

Convergence Catalyst services include market analysis, product offerings
consultancy, investment advisory and custom research

Market Analysis
Product Offerings Investment Advisory
Custom Research
Consulting

Leverage deep Leverage extensive Understanding of CC leverages its vast
understanding of experience in end-to-end industry & key players contacts base in the
technology, regulation, mobile devices dynamics and investors TMT domain to gather
operations and development and launch mindset provides a key inputs on speciﬁc
economics of TMT value with both enterprise and unique advantage to CC industry and/or
chain to come up with retail customers to offer to offer both due company developments,
reports and analyst operations consulting to diligence services and and offers custom
notes on the latest various Indian and global investor pitch-book research reports, fact
industry developments
product companies
development
packs, etc based on in-
depth analysis and
valuable insights

Focus Areas
Focus Areas
Focus Areas
Focus Areas

•  Market sizing
•  Product portfolio & •  Business & Technology •  Market assessment
•  Opportunity roadmap development
due diligence
•  Forecasting analysis
assessment
•  Technical marketing
•  Information •  Key partner
•  Key player strategies
•  Business case development memorandum identiﬁcation
& RoI estimation
development
•  Competitive
•  Pricing & positioning intelligence
strategies
•  Placement plan
•  Marketing plan
•  Competitive analysis

Vijay Ramanathan – Managing Partner

Vijay Ramanathan brings over two decades of international industry experience with over 15 years in the
telecom industry. His expertise lies in Product Management & Marketing - from Strategy to Positioning &
Execution. He brings a keen insight on key Market Trends that can be converted into actionable plans.

Armed with ﬁrsthand knowledge of the India Telecom market & the Indian consumer, he has a deep
understanding of the hygiene & requirements needed to succeed in the market, having launched upwards of
50 handsets from the very low tier to the high tier segments. He witnessed & participated ﬁrsthand in the
explosive hockeystick growth in the Indian Telecom market for the last 10 years and has developed a well
rounded knowledge of the dynamics in the Operator, Handset, Infrastructure, Regulatory, Retail & Distribution
areas in the India Telecom market - keeping a keen eye on advancements in the Wireless/Internet/Gadget/
VAS/general technology areas globally.

Most recently, he headed Handset Marketing for MTS, a CDMA operator in India. Prior to that, he was Head,
Product Marketing at Motorola Mobile Devices between 2003-08, responsible for all handset product
launches & in reaching No.2 in India. He has also held Business & Product positions in Telecom Software,
Cellular Infrastructure & Auto Navigation industries in USA and India.

Jayanth Kolla - Partner

Jayanth brings over a Twelve years of experience in Technology, Product Marketing, Research and Strategy
Consulting in the Telecom Networks, Mobile Devices and Mobile VAS domains. He has held various roles in
Telecom Carriers, Handset Manufacturers and Management Consulting ﬁrms.

He was involved in the roll-out of India’s ﬁrst rural wireless telephone network for a private carrier,
implementing SHLR, testing of CDMA devices & FWTs, successful rollout of multiple GSM and CDMA handsets,
developing multiple MVAS product offering & business growth plans and telecom research & advisory
(comprising market entry, business growth strategy & investment advisory) for various players across the
value chain.

His areas of expertise are Product Marketing, Market Research & Analysis, Tracking and Publishing on current
Telecom Trends.

Having worked for key players in the Telecom industry, Jayanth brings invaluable domain knowledge that
spans across Business Strategy, Technology, Product and Operations.

Worked with Companies: Tata Teleservices, Kyocera, Motorola, Nokia and Analysys Mason

Thank You

Jayanth Kolla, jayanthk@convergencecatalyst.com

www.convergencecatalyst.com

Twitter: C_Catalyst

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