Indian Telecom Market Overview

Zinnov Management Consulting

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Indian Telecom Market Overview – October 2012

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Agenda

2

Key Technology Trends and Partnerships

Government Regulations

2

3

Telecom Market Overview 1

Indian telecom industry is characterized by a large subscriber base, substantial tele-density but low revenues per user (ARPU1)

3

287

427 636

852 934 39

38

36

34

31

5.9 3.8 2.6 2.1 1.9

32.0 31.7 33.8

37.4 38.7

2008 2009 2010 2011 2012

Wireless Subscribers (Million) Wireline Subscribers (Million)

GSM ARPU (USD) Revenue (USD Billion)

Telecom Industry Landscape (July 2012)

28.3% 39.9% 56.6% 73.9% 79.6%

Tele-density

Large Subscriber Base

•More than 3-fold increase in subscribers since 2008

•High tele-density of 79.6% in 2012

Urban Dominance

•64.4% of the current subscribers are urban

46.5

32.0

8.3

1.9

US UK China India

Global Comparison of ARPUs (USD)

Indian telecom ARPUs are amongst the

lowest worldwide

Note: 1Average Revenue per User Source: TRAI

Focus on Mobile Value Added Services (MVAS) opportunities is necessitated by declining share of voice in telecom ARPUs

4

2.04 1.50 1.44 1.27

0.31

0.34 0.39 0.48

13.3% 18.6% 21.4%

27.3%

86.7% 81.4% 78.6%

72.7%

2009 2010 2011 2012

Spending on Voice Spending on MVAS MVAS as a %age of ARPU Voice as %age of ARPU

Average Per User Spending on MVAS (USD)

Declining voice revenue straining

ARPUs

However, per user spending on MVAS increasing both as a percentage of ARPU and as an absolute

In an effort to compliment the declining voice

revenues, carriers increasingly focusing

on adding value added services to their

portfolio

Growing smartphone adoption and

increasing mobile internet penetration,

further pushing proliferation of value

added services

Declining voice revenue straining

ARPUs

However, per user spending on MVAS

increasing

Carriers increasingly focusing on adding

value added services to their portfolio to

supplement revenues

Growing smartphone adoption & increasing

mobile internet penetration further

pushing MVAS

Note: Source: IAMAI

Indian MVAS market expected to move from the traditional SMS based services to internet based and app based services

5

1.9

3.1

4.3 5.1

60.4%

38.4%

19.9%

2009 2010 2011 2012

Indian MVAS Market Size (USD Bn)

Market Size (INR Bn) Y-o-Y Growth Rate

(E)

27%

14%

5% 17%

8%

7%

5% 7%

10%

Revenue Share MVAS categories

CRBT News Reverse CRBTSMS Based Games EducationGovernance Health Mobile App

Current MVAS (63%)

Emerging MVAS (37%)

Note: 1Caller Ring Back Tone Source: IAMAI

Growing at declining rate, Indian MVAS industry is

expected to value ~USD 6.6 billion in 2013

Emerging MVAS categories are dependent primarily on

• Telecom infrastructure

• Type of handset

1

Many Indian states have initiated m-governance practices primarily through SMS-based platform

Amidst visible traction for M-Governance in India, government pushed m-governance framework to aid adoption

6

M-Health M-Governance M-Education M-Infotainment M-commerce M-Agriculture

Bihar • Web based monitoring

system at general admin department using SMS updates sent by relevant officers

Kerala • M-governance used across

health, education, law, agriculture, finance functions

Goa • ‘e-SMS Goa’ initiative aimed at easing the process of

information delivery to citizens through the use of mobile

Andhra Pradesh • Municipal Corp using GPS

enabled phones to remotely monitor cleaning of garbage bins

Gujarat • Rajkot Municipal Corp

using SMS for sending property tax alerts, payment reminders, and vaccination alerts

Government pushing directives to aid governance across richer delivery platforms

M-Governance Framework for Public Services

One-Web approach to make websites mobile compliant

Deployment of mobile apps for public services across depts.

Uniform pre-designated codes for mobile-based

services

Adoption of open standards for

platform agnostic apps

Creation of MSDG1, a shared technical e-governance infrastructure for delivering

public services

Note: 1Mobile Services Delivery Gateway Source: Ministry of Communications & Information Technology, Department of Information Technology; Press articles, State government websites

Major telecom players are enabling mobile platform as a medium to impart education

7

• Educational firms partnering with telecom players to deliver education and expand their presence

• Telecom players partnering with NGO’s as a CSR initiative to deliver education

• Delivering basic level of education using mobile as a medium

• Using mobile platform to expand the reach of classroom education (e.g. in rural areas)

Educational firms collaborating with

telecos

Telecos taking CSR initiatives to impart

education

Expanding reach of education through

mobile network

Telecos delivering basic level education

• Edserv & Tata DoCoMo to offer IIT and AIEEE prep material through ‘Tutor on Mobile’ service

• Aircel and MTS partnering with NGOs, such as Concern India and Smile Foundation for underprivileged children educational initiatives

• Airtel imparts education through IVR which includes • Sparsh- Education to adults • English speaking course & Children

stories

• Reliance communication delivering interactive, real time courses of XLRI1 across 105 cities

Note: 1An Indian Business School Source: Company websites; Press Articles


Almost all leading telecom companies provide information and entertainment related services

8

Key Information Categories

Key Entertainment Categories

Music and Video • Radio services round the clock • Offers movies-on-demand service and Video-on-

demand portal

Ringtones • Huge library of songs is available • Templatize & personalize caller tune

Content offering • Indian mythological stories in different Indian

languages

Sports • Live coverage & scores, results, analysis and reviews

of sporting tournaments like CL T20, CB series etc.

M-Infotainment is the largest contributor to overall MVAS revenue

Travel • Information on flight, railways, taxis schedules and

fares

News and Finance • International , national and regional news • Stock updates, foreign exchange rates alerts services

Note: Source: Company websites; Press Articles


Telecom carriers increasingly taking interest in m-commerce services as the government aids through reforms

9

Government initiatives in M-commerce

• RBI increased mobile payment limit to INR 50,000 (~USD 1,000)

• RBI granting Semi-Closed Wallet1 licenses to telecos

• Creation of Interbank Mobile Payment Service (IMPS), by NPCI2 along with 6 Nationalized banks

• Enables microfinance activities through mobile phones

Use Case: • SBI with Ekoaspire & Oxigen

Sahyog, is providing banking & microfinance services in rural areas

M- Microfinance

• Pay for a wide range of services and goods

Use Case: • Allows users to load cash

on their mobile devices to pay utility bills etc.

Mobile wallet service

• Retail players developing mobile compliant websites & apps

• Focus on expanding reach Use Case:

• Flipkart and Naaptol provide android Apps

• SMS alerts for DoCoMo subscribers on wide range of product & services along with discount benefits on snapdeal

M- Retailing


Note: 1A mobile payment mechanism allowing users to load cash into their mobile phones; 2 National Payments Corporation of India Source: Company websites; Press Articles

M-agriculture services finding traction with Indian farmers

10

• IVR based service available in 16 regional languages

• Provides information related to weather, agriculture, mandi

rates, live stocks, health, rural finance, and education

• Key services includes commodity prices, local info, weather updates etc.

• Multiple language support

• Accessible via voice portals, SMS, USSD1 and Data

• Free SMS based platform offering real time price

information to Indian farmers about their crops

• Huge adoption with more than 20,000 farmers being added every week

Grameen VAS

Fasal Bahtar Zindagi

M- agriculture services bridge the information gap between the farmers and market conditions

M-agriculture

initiatives


Note: 1Unstructured Supplementary Service Data Source: Company websites; Press Articles

Telecom companies are also aggressively focusing on the fast growing data center market in India (1/2)

11

1.7 2.6

4.0

3.1

4.2

5.7

CY10 CY12 CY14

Data Center Market (USD bn)

Data Center Capacity (mn Sq. Ft.)

Data Center Market & Capacity in India

Distribution of Data Center Market in India by Ownership, CY11

Captive 78%

Third Party 22%

Key Verticals: • Manufacturing • IT-ITeS/ Telecom • Healthcare • Education

Key Verticals: • BFSI • Manufacturing • Government • Telecom

MNC with datacenter in

India 50%

My own datacenter

28%

Domestic company with datacenter in

India 8%

MNC with datacenter

outside India 7%

Can't Say 7%

CIO Preference for Data Center (Survey Responses)

• Based on the demand preferences, the 3rd party datacenter market is expected to grow rapidly as opposed to captive data centers

• Lack of in-house skills, high investments, and long gestation periods pose challenges for captive datacenters in India

Competitor DC Tier

Tata Communications II/III

Ctrls IV

NetMagic III+

Reliance IDC III+

Airtel III/III+

Wipro III

Sify III

Cost Components Cost Share

Power 38%

Maintenance 21%

Bandwidth 12%

Equipment 12%

Facility 10%

Manpower 7%

Note: Source: Gartner; IDC; Company websites; Cyber media; mit.gov.in; Zinnov CIO survey 2010; Zinnov Analysis

Key telecom players have also created an extensive portfolio for cloud based services

12

Airtel Reliance Comm. Tata Comm.

Applications (SaaS/ Hosted)

ERP

F&A

CRM

HRM

Web Collaboration

Email

IaaS/ Virtualized Infra.

PaaS

Data Center Services Co-location

Managed Hosting

Other Key Offerings

• Vertical Specific Soln. ofor Media & Entertainment • Online Desktop (VDI) • On demand security • Hosted Contact Center • Enterprise Mobility

•On demand security

• Vertical Specific Soln. ofor Media & Entertainment oCore Banking Soln. •On demand security • Enterprise Mobility •Hosted Contact Center • Productivity Suites • Enterprise Content Management

Cloud/ Hosting Portfolio of Key Telecom Companies

Source: Company websites, Primary interviews with key industry stakeholders; Zinnov Analysis

Accordingly, the telecom companies have also established key partnerships to build cloud expertise

13

Competitor Technology Partners (Software)

Airtel

Savvis Ramco VeriSign

Microsoft Tally VMware

Symantec Software developers for mobility apps

Reliance Comm. Ramco Microsoft BigRock

Tata Comm.

Zoho SugarCRM Cisco

SuccessFactors Microsoft Google

F-Secure

Besides software partnerships, all competitors have formed technology partnerships with most of the key hardware OEMs

like HP, IBM, Cisco, Juniper, etc.

All data center service providers have strategic alliances with key network carriers (like Airtel, Reliance, BSNL, etc.) to

provide connectivity options to their customers

Key Technology Partners of Key Telecom Companies

Hardware Partnerships Network Carrier Partnerships

Agenda

14



2

3


There is mature adoption of IT across the entire value chain of the telecom vertical

15

ICT Solutions Across Processes

Customer Portals/Customer Support (B2C/B2B)

Supply Chain Management

Enterprise Resource Planning

GTL - Infrastructure Indus Towers Tata Quippo

Content Portals

Telecom Value Chain

Telecom Infrastructure

Network Equipment

Network Operator

Subscription & Devices1 Resellers

Nokia-Siemens Huawei Ericsson Alcatel Lucent

Bharti Airtel Vodafone Reliance Comm. TTSL2 Sun Direct

Company Outlet Dealers Blackberry Huawei UTStarcom

Facebook Rediff App stores

Core IT Requirements

Network Management

Customer Management

Partner Management

Enterprise Management

•Fault Management •Config. Management •Account Management •Performance Management •Security

•Finance & Accounting •HR •Sales & Operation Planning •Facility Management •DBMS3

•Partner Network Management •Supply Chain Management •Revenue Fraud Management

•Service Activation •Revenue and Billing Management •Customer Analytics •Contacts Centers/Call Centers

Subscribers

OSS/BSS

VAS Management

Data Warehousing and Business Intelligence Network Solutions

Note: 1Devices include mobile handsets, modems, routers, set top boxes, etc.; 2Tata Teleservices Ltd.; 3Database Management System Source: Zinnov Analysis

However, Indian telecom firms face various challenges in the adoption of IT

16

Challenges in IT

Adoption

Falling ARPUs affecting profit margins

Predictability of future IT requirements is

difficult

Lack of clarity on consumer preferences

Uncertain government regulations

Management issues in PSUs

High operation costs in remote areas

Note: Source: Primary Interviews with the CIOs; Zinnov Analysis

IT spending of the Indian Telecom vertical has grown at a rate of 14.3 per cent in FY12

17

IT Spending in Telecom, USD billion

Hardware 39.5%

BPO 24.8%

Services 29.7% Software

6.0%

IT Spend Distribution

FY07 FY12

IT Budget as a Per cent of Revenues Percentage Outsourcing

3% to 4%

5% to 6%

FY07 FY12

67%

70%

2.1

2.4

FY11 FY12

Note: Source: Nielsen Domestic IT-BPO Study 2010; Primary Interviews with Stakeholders in the Indian IT ecosystem; Zinnov’s Survey of 100 Indian CIOs across Verticals (2010); Zinnov Analysis

Telecom companies are spending on upgrading their technologies and in better management of business processes

18

IT Adoption Trends in Telecom vertical

Implementing Security Solutions

Upgrading Legacy Infrastructure

Managing Partner Network

New Infrastructure for Datacenter/Network Expansion

Private Cloud Adoption

Platform Integration


Supply side companies are launching a host of initiatives to come up with better solutions for the telecom vertical

19

Key Initiatives Taken by the Supply Side

Strategic partnerships to develop customized solutions

Acquiring firms for capacity expansion

Encouraging innovation and training ecosystem

New business models

Establishing telecom specific research centers

Quality outsourcing work is done out of large city centers while voice-based call centers are operated out of tier II and tier III cities. E.g.. Aditya Birla Minacs

and Hinduja Global Solutions

Wipro and Nokia Siemens Networks have established dedicated centers and testing labs for 3G and other telecom

specific technologies

VerSe Innovation Pvt. Ltd. partnered with OnMobile

OnMobile Global Ltd. acquired Dilithium Networks Inc. to get access to Dilithium’s extensive patent portfolio and enrich its

offerings in 3G video mobile services

Tech Mahindra entered into an alliance with Microsoft to offer customizable BI solutions

to telecom service providers


OSS/BSS Partnerships have evolved in Indian Telecom Industry

20

OSS Solution Tata Bharti Vodafone Reliance Idea Comments

Prepaid Charging

• Market share of Ericsson increased with acquisition of Telcordia

CRM • CRM solutions also being

provided by Elitecore

Fraud Management

• Subex gained market share with new fraud management contracts

• Near universal uptake in both the segments

Revenue Assurance

NA NA

Mediation NA • Solutions from Amdocs and

CSG are also popular

Order Provisioning

• Solutions from Oracle and Elitecore also being used by other carriers

Business Intelligence

NA NA • Almost all carriers using

Cognos BI solution

Interconnect Billing

• Elitecore gained market share with new projects

Note: Source: Voice & Data

Telecom carriers in India have multiple partners who help them operate key aspects of their business

21

Telecom Equipment & Network Infrastructure

• Prominent infrastructure providers are currently active in 3G and 4G rollouts

• Inter carrier partnerships for passive tower sharing

IT and Software Requirements

• Partnerships with IT and software companies for technology infrastructure, and solutions, such as billing, business intelligence, cloud services, and others

Customer Support

• Partnerships with Business Process Outsourcing (BPO) companies to run their customer care operations

Value Added Services

• Partnerships with content generators, aggregators, and portals, for delivery of value added services

Note: Source: Company websites; Press Articles

Telecom Partnerships

in India

+ + + +

+

+ + +

+

Going forward IT demand in the telecom vertical will continue to grow at a CAGR of 14.2 per cent primarily due to the introduction of new services by telecom players

22

Sustainable Growth

The

Fu

ture

of

Ind

ian

Te

leco

m

Increased adoption of smart phones and new age devices

Rising subscriber base creating demand

Introduction of 4G in India

Data based services is increasing

National Telecom Policy

Expected IT Spending in

Telecom Vertical, USD billion 2.8

4.0

7.1

FY13E FY15E FY20E

Note: Source: PwC Mobile Broadband Outlook Report 2015; Zinnov Analysis

Agenda

23



2

3


Indian telecom industry is regulated by an independent body called Telecom Regulatory Authority of India (TRAI)

24

• Established in 1997 as an independent body for regulation of telecom services in India, TRAI separated the regulatory function from policy-making and operation, which continued to be under the purview of the DoT

Recommending introduction of new

service provider

Recommending license terms and

ensuring compliance

Ensuring technical compatibility and

effective inter-connection

Facilitating competition

and promoting efficiency Protecting interest

of telecom service consumers

Monitor the quality of service

Levying fees as may be

determined by regulations

Telecom Regulatory

Authority of India (TRAI)

Note: Source: TRAI

Evolution of Indian telecom regulatory framework

25

• 1984 – Private Sector allowed only in telecom equipment manufacturing

• 1985: Department of Telecommunication (DoT) established

Pre-Liberalization Scenario

• Private sector participation in provision of value added system(VAS) such as cellular and paging services

Liberalization Policy

• Facilitated the emergence of Internet services in India

• Specific targets announced to be achieved by 1997

• Paved way for the entry of the private sector in telephone services

National Telecom Policy (NTP-94)

• Affordable communication for citizens • Provision of universal service to all uncovered areas,

including rural areas • Convergence of IT, media, telecom and consumer

electronics • Build manufacturing capabilities and strengthen R&D • Efficiency and transparency in spectrum management

New Telecom Policy (NTP-99)

• Aimed at regulating telecom services

• Separated the regulatory function from policy-making and operation from DoT

Establishment of TRAI

• Establishment of BSNL; privatization of VSNL • 2002: Establishment of Universal Service

Obligation Fund to finance subsidies for rural areas

• 2003: Introduction of Unified Access Licensing (UASL) regime

• 2005: Increase in FDI limits from 49% to 74% • 2006: Proposal for mobile number portability

Developments After 2000

1984 1991 1994

1997 1999 2000

Note: Source: D&B

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News & Politics

Indian Telecom Market Overview