27 June 2014

Voyagecapital@iimidr.ac.in
Voyage Capital Team
Ankita|Ankur|Ashhar|Dhruv|Kunal|Moses|Munish

INDUSTRY REPORT: TELECOM SECTOR

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ANKUR SHAH

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TABLE OF CONTENTS

INDUSTRY BRIEF ............................................................................................................. 3

KEY GROWTH DRIVERS................................................................................................... 4
KEY OPERATING METRICS .............................................................................................. 4
PLAYERS PROFILE ........................................................................................................... 5
BHARTI AIRTEL ......................................................................................................... 5
VODAFONE INDIA*................................................................................................... 6
IDEA CELLULAR ........................................................................................................ 7
RELIANCE COMMUNICATION .................................................................................. 8
RELIANCE JIO INFOCOMM....................................................................................... 8
OUTLOOK ....................................................................................................................... 9
CONCLUSION .................................................................................................................. 9
REFERENCES...... .......................................................... .................................................10

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INDUSTRY BRIEF
The telecom sector, one of the most promising sectors in India, has experienced tremendous growth over the past
years, in terms of number of subscribers and revenues. The strong growth in the industry can be attributed
primarily to the countrys large population, healthy economic growth, affordable handsets, and most importantly
low tariffs. With urban teledensity reaching 166%, it is showing signs of maturity. However, the rural teledensity
is only 40%, and hence there lies tremendous scope for penetration. Also, with advent of new telecom policy, and
fresh spectrum auction, the sector is again becoming active.
Graph 1: Subscriber Growth
951

1000
846

900
800
700

621

600
500

429

400
300

300
206

200
100
0
2007

2008

2009

2010

2011

2012

Number of Subscribers(million)
Source: Cellular Operators Association of India

It has always been a capital intensive industry, requiring investments right from buying spectrum, to setting up
necessary infrastructure to support services. But, with rise in number of subscribers at a tremendous rate, the
revenue generated is also terrific, as indicated by the graph below.
Graph 2: Capital Expenditure and Revenue

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Source: Euromonitor International

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27 June 2014
It mainly consists of two types of technologies;

GSM (Global System of Mobile Communication): It is the de factor global standard for mobile
communication, being used in 219 countries and territories. In India, the frequency of use for this technology
are the 900 MHz, 1800 MHz, and 2100 MHz bands
CDMA (Code Division Multiple Access): This technology allows users to share the same frequency band,
avoiding collision through the use of code division multiplexing. In India, the frequency of use is the 800 MHz
band.
Majority of the players are present in the GSM segment, with only Reliance Communication, BSNL, Tata
Teleservices in the CDMA segment and GSM segment, whereas others are only there in GSM segment.

KEY GROWTH DRIVERS

1. Regulatory support
Policies relating to spectrum frequency, usage charges, base price, mergers and acquisition, foreign
investment, services that can be offered etc.
2. Technology
Adoption of modern technology such as 3G, 4G, LTE, and offering them to customers at affordable rates is
the key.
The signal quality and network coverage, decide customer satisfaction and retention, leading to substantial
attention to number of towers
3. Rural Demand
Rural demand and the rising rural income, with low rural penetration at present, allowing for wide scope
for expansion
4. Demographic shift
Increasing population of youngsters, leading to increasing internet usage, leading to rise in data usage and
demand for services on mobile

KEY OPERATING METRICS

Average Revenue Per User: It is defined as the total revenue generated divided by the total number of
subscribers for the applicable period. It is usually reported on a monthly basis.
Revenue Per Minute (RPM): It is defined as the total net revenue divided by the number of minutes of traffic
over the network for the applicable period. It is usually reported on a monthly basis.
Table 1: Operating Metrics (December 2013)

Average Revenue Per User(ARPU)

Average Revenue Per Minute(RPM)

GSM
Rs 105
Rs 0.29

CDMA
Rs 71
Rs 0.30

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PLAYERS PROFILE

Market Share(Number of Subscribers)

0.6%

1.4%

0.4%

Bharti Airtel
Vodafone India

7.2%

Idea Cellular

22.6%

8.0%

Reliance Communications
BSNL

12.2%
18.3%
14.6%

Tata Teleservices
Aircel
MTS

14.8%

MTNL
Loop

BHARTI AIRTEL
Key Financials
Company Information
Bharti Airtel is an Indian multinational telecommunication company, operating in
20 countries across South Asia, Africa, and the Channel Islands. It initially came
into existence in 1986, in form of Bharti Telecom Limited, which became the first
company in India to offer push-button telephones, and later went on to offer
telecom services. Bharti Airtel was founded in July, 1995.
Key Features
Worlds 4th largest telecom operator by subscribers, with over 272 million
subscribers across 20 countries. It is Indias largest operator, and 2nd largest
in-country operator in the world by subscribers after China Mobile.
It is the first Indian telecom service provider to achieve Cisco Gold
Certification
It covers over 465,000 villages and towns in India, to have daily data usage of
271 TB, daily voice usage of 3,263 million[3]
It deploys, owns and manages passive infrastructure pertaining to telecom
operations through its subsidiary, Bharti Infratel Limited, which owns 42% in
Indus Towers Ltd. Together, Bharti Infratel Ltd and Indus Towers Ltd are the
largest passive infrastructure service providers in India.
It acquired Kuwait-based Zain, African cellular operations for $9 billion, to
gain access to 15 African nations

Revenue: Rs 803 bn
EBITDA: Rs 248.7 bn
Net Profit: Rs 22.7 bn
Net Debt: Rs 638.4 bn
Operating Free Cash
Flow: Rs 113.4 bn
Key Fundamentals
Market Capitalisation:
Rs 136,291 cr
CMP: Rs 340
P/E: 20.65
52 week high/low:
373.5/277.1
ROE: 5.04
Operating metrics
ARPU: Rs 192

RPM: Rs 0.29

Recent Developments
It acquired 115 MHz of spectrum in India for Rs 185.3 billion in the auction
1 Year Price Chart
conducted in February 2014, with an upfront payment of Rs 54.25 billion, and
the remaining in ten equal annual instalments of Rs 13.1 billion, starting from
2016.[4]
In February 2014, it signed an agreement to acquire Loop Mobiles three
million customers and its 2G network, to replace Vodafone India as the
number one operator in Mumbai
Vodafone Group Plc may have to sell its stake worth $1 billion in Bharti Airtel
Ltd, if rules no longer allow telecom operators to keep stake in competitors.
Vodafone has 4.4% stake in Bharti Airtel Ltd.[5]
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VODAFONE INDIA*
Key Financials(2013)

Company Information
Vodafone India is a subsidiary of Vodafone Group Plc that is headquartered in
London, and having equity interests in 27 countries and partner network in 48
more countries, serving 434 million customer worldwide . The Indian subsidiary
is headquartered in Mumbai. It came into existence through acquisition of 67%
stake of Hutchinson in Hutchinson-Essar, for $11.1 billion in 2007. In 2011, it
bought additional stake from Essar to own 76% in Vodafone India, for $ 5
billion[6].

Key Features

Revenue: Rs 356 bn
EBITDA: Rs 106.5 bn
Operating Free Cash
Flow: Rs 63 bn
Capex: Rs 47.3 bn
Net Debt: Rs 300 bn
Operating metrics:
ARPU: 178
RPM: Rs 0.446

It is the 2nd largest mobile network operator in India by subscriber base, with
160 million subscribers.
It offers total communications package including voice, data, fixed-line and
wireless services through 2G, 2.75G, and 3G services.
It has over 100,000 base stations; 120,000 kms of fibre optic cable, and over
300 Point-Of-Present points in 130 cities[7]

Recent Developments
In 2014,it became wholly owned subsidiary, by buying stake from Analjit Singh
and Neetu Analjit Singh for Rs 101.5 bn, and further 11% stake from Piramal
Group, to obtain 100% ownership[8].
Vodafone is facing tax claims and interest totalling more than Rs 27,000 crores
in India, including Rs 14,200 crores for the acquisition of Hutchinson and
claims worth Rs 9,900 crores related to transfer pricing, and a one-time
spectrum charge[9].
It spent Rs 19,200 crores to acquire spectrum in the 2014 spectrum auction. It
renewed its licenses in 900 MHz band in Mumbai, Delhi, and Kolkata, which
were to expire in November 2014. Apart from this, it bought spectrum in
1800 MHz band in 11 circles.

It plans to spend around Rs 7000 cr to expand its data network and coverage,

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in addition to the capital expenditure of Rs 5000 cr, over the next few years.

* Vodafone India is an unlisted subsidiary, and hence, key fundamentals and price chart is not available

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IDEA CELLULAR
Key Financials
Company Information
Idea cellular is an Indian mobile network operator based in Mumbai. It came into
existence in 2000, when Tata cellular and Birla-AT&T merged to form Batata,
which was later renamed as Idea. Later, both AT&T and Tata exited, to leave Idea
with only one promoter, the AV Birla Group, which current holds 49.1% stake in
the company[10].

Key Features
It ranks 7th in the world based on number of subscribers in single country
operations, and ranks 3rd in India based on subscribers.[11]
It serves 136 million subscribers across India
It owns 9,446 towers, and a 16% stake in Indus Towers through its subsidiary,
and has 82000 km optic fibre cable network
It offers 2G in 22 circles, 3G services in 12 out these 22 circles, and is capable
of offering 4G services in 8 of these 22 circles

Recent Developments

Revenue: Rs 265.2 bn
EBITDA: Rs 83.3 bn
Net Income: Rs 19.7 bn
Net Debt: Rs 192.2 bn
Cash Flow from
Operations: Rs 62.9 bn

Key Fundamentals:

Market Cap :
Rs 48,995 cr
CMP: Rs 137
P/E : 23.35
52 week high/low:
188.4/125.1
ROE: 12.77

Operating Metrics:
ARPU: 173
RPM: Rs 0.436

In the February 2014 auctions, it acquired 5 MHz in the 900 MHz band , and
60.2 MHz of spectrum in 1800 MHz band, out of which 45 MHz is contiguous 1 Year Price Chart
spectrum that can be used to offer 4G services
It got approval from Reserve Bank of India, relating to increasing the
investment limit for overseas investors to 49% from current 24% under the
portfolio investment scheme
Obtained access to long-disputed permits in Punjab and Karnataka zones,
originally held by Spice Communications, which it had acquired in 2008. It will
help Idea launch 3G services in Punjab, where airwaves were bought, but
services not started.

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RELIANCE COMMUNICATION
Company Information
It is an Indian mobile phone operators, based in Mumbai. It was initially known as
Reliance Mobile, launched in 2002, which later became Reliance Communication,
offering both CDMA and GSM services. It operates in several segments; wireless,
broadband, Direct-to-Home(DTH). It has several subsidiaries, such as Reliance
Telecommunication Limited, Reliance Tech Services, Reliance Digital TV etc.
Key Features
It has over 130 million subscribers over India, covering 24,000 towns and
600,000 villages in India
It operates CDMA in 22 circles , 2G in 22 circles, and 3G in 13 circles in India
It has the largest network of backhaul fibre optic cable among private players
in India, running around 190,000 kms, and the worlds largest private
submarine cable system owner with over 70,000 kms of sub-sea fibre
It provides Ethernet services, reach in more than 163 countries, more than
30,000 managed sites being serviced, and over 1,000 MNC customers
It has LTE capable spectrum in 850 MHz, 900 MHZ, 1800 MHZ, and 2100 MHZ
bands, with additional access to 2300 MHz band due to reciprocity agreement
with Reliance Jio
Recent Developments

Key Financials
Revenue: Rs 223.2 bn
EBITDA: 67.7 bn
Net Income: Rs 11.37
bn
Net Debt: Rs 400.2 bn

Key Fundamentals:
Market Cap :
Rs 30,981 cr
CMP: Rs 151.35
P/E : 29.55
52 week high/low:
164.5/105.6
ROE: 3.16

Operating Metrics
ARPU: Rs 128
RPM: Rs 0.432
1 Year Price Chart

Entered into comprehensive business co-operation agreement with Reliance

Jio, including sharing of 45,000 towers; sharing of 120,000 kms of inter-city
cable, with RCOM having reciprocal access to towers and cable built by
Reliance Jio
It won 1 circle in the February 2014 auctions, with a total payout of $44 mn
over ten years
7 circles in the 900 MHz band will be up for renewal in 2016, requiring payout
of $255 mn, and other circles will be up for renewal in 2022 for $186 mn

RELIANCE JIO INFOCOMM

Company Information
It is the latest to enter the telecom sector in India, though it has still not begun operations. It was formerly
known as Infotel Broadband Services Limited, and later changed its name in January 2013. The company was
incorporated in 2007, and is based in Mumbai. It operates as a subsidiary of Reliance Industries Limited.
Recent Developments
The only player to have pan-India 4G license, obtained through BWA auctions in 2010 for Rs 12000 crores
It acquired spectrum in the 1800 MHz band in 14 circles across India, for Rs 11,054 crores in the February
2014 auctions.
It plans to offer 4G services, as well as voice services on the network, which could play a game changer not
only in the data segment, but in the voice segment too. It has not started services yet, nor has it detailed its
planned to its investors, though it has invested $5 billion to build infrastructure for offering the service
It has signed multiple tower sharing agreements with Bharti Infratel Ltd., Reliance Infratel Ltd., Viom
Networks Ltd., Tower Vision India, and ATC India Tower Corp, apart from building its own towers. It also
has optic fibre sharing agreements with Bharti Airtel Ltd. and Reliance Communications Ltd[12].
Reliance Industries Ltd., through Independent Media Trust, acquired the stake of Indian partner of Viacom
Inc. for $ 678 million, to gain news and entertainment content for Reliance Jio Infocomm. It will control 73.1
percent of Network 18 Media and Investments Ltd., and 55 percent of TV18 Broadcast Ltd.(TV18)[13] 8

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OUTLOOK
Growth in subscribers
Number of subscribers expected to increase from 961 million to 1.2 billion by FY2016.
Rural teledensity to increase
Rural penetration expected to increase from 41% to 70% by 2017
Increasing clarity related to regulations
Relaxed FDI norms, reduction in SUC, and increase in M&A from liberal norm of up to 35% market share of
resultant entity for merger or acquisition, subject to presence of 12 or more providers in that circle, leading
to consolidation in the industry, and boarding well for the industry
Consolidation in the sector
With new companies bidding for spectrum in the recent auctions, the price-war is set to resume, with fierce
competitors such as Reliance Jio Infocomm, Sistema etc, with increasing possibility of takeovers of smaller
players
Increasing internet usage
With rising number of mobile applications, smartphones, and internet-related services, the use of internet is
bound to rise, leading to greater use of data on mobile network.

CONCLUSION
Telecom sector has seen the highs of the telecom boom, and the lows related to aggressive pricing war coupled
with regulatory hurdles. There are still certain issues that need to be sorted by the government, such as the
refarming clause requiring operators from 900 MHz band to move to 1800 MHz band; sharing of spectrum for
roaming that will allow operators to offer services even in those circles where they do not have spectrum. Clarity
of the government on these issues is vital for the progress of the sector. Also, with the recently concluded
spectrum auction, companies have shelled out large amounts of money, leading to not so comfortable debt levels.
However, with consolidation happening in the sector, operators increasing the prices, and the vast amount of
untapped rural population, there is still a long way to go for the telecom sector.

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REFERENCES
1. National Telecom Statistics- Cellular Operator Association of India
http://www.coai.com/Statistics/Telecom-Statistics/National/Nationalhttp:/
2. Technology, Communications and Media: India, Euromonitor International
3. Annual Report 2013- Bharti Airtel Limited
http://www.airtel.in/about-bharti/investor-relations/results/annual-results/
4. Bharti Airtel Ltd acquires prime spectrum to lead data growth story
http://in.reuters.com/finance/stocks/BRTI.BO/key-developments/article/2921934
5. Vodafone Group Plc may sell stake in Bharti Airtel Ltd
http://in.reuters.com/finance/stocks/BRTI.NS/key-developments/article/2997422
6. Vodafone Group Plc Annual Report 2014
http://www.vodafone.com/content/annualreport/annual_report14/downloads/full_annual_report_2014.
pdf
7. https://www.vodafone.in/business/pages/whyvodafone.aspx
8. Vodafone Takes Full Control of Indian Business
http://in.reuters.com/article/2014/04/11/vodafone-piramal-stake-idINDEEA3904520140411
9. Vodafone Facing Tax Liability of Over Rs 27,000 crore in India
http://profit.ndtv.com/news/corporates/article-vodafone-facing-tax-liability-of-over-rs-27-000-crore-inindia-441524
10. http://economictimes.indiatimes.com/idea-cellular-ltd/infocompanyhistory/companyid-3154.cms
11. Investor Relations Presentation, March 2014
http://www.ideacellular.com/wps/wcm/connect/bbc09e5a-2686-4a48-9a60a14fcda3e193/Investor+Presentation_19May+2014.pdf?MOD=AJPERES&CACHEID=bbc09e5a-2686-4a489a60-a14fcda3e193
12. Inside Reliance Jios plan for Telecom, Information, and Entertainment
http://www.livemint.com/Companies/x9bETJVXMoNYQBOdjcGe0O/Inside-Reliance-Jios-plans-fortelecom-information-entert.html
13. Mukesh Ambani Buys Viacoms India Partner for 4G content
http://www.bloomberg.com/news/2014-05-29/reliance-to-spend-40-billion-rupees-for-control-ofnetwork-18.html
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