Panorama
JULY 2010 ISSUE ONE
Indian telecom sector - An Overview
This article explores the
important terms, value chain
and discussions on performance
metrics in the telecom sector
TRAI (Telecom Regulatory Authority of
India)Act 1997 d e fi n e s
telecommunication services as “service of
any description (including electronic mail,
voice mail, data services, audio tex
service, video tex services, radio paging
and cellular mobile telephone services)
which is made available to users by
means of any transmission or reception
of signs, signals, writing, images and
Subscriber base
(in millions)
500
375
250
125
0 of telecommunications in India. The
1999 2002 2005
2008
sounds or of any nature, by wire, radio,
visual or other electro-magnetic means
but shall not include broadcasting
services.”
The growth story
•Overview of telecom sector
•3G bidding strategies
•News updates
The total number of subscribers in the technological advancements, liberal
telecom sector has grown from 22.81 policy initiatives and healthy competition.
million in 1999 to more than 650 million
(May 2010). This includes both
wireless (618 million) and wireline
(36 million) subscribers as per the Important Terms
definition of this sector by TRAI.
Between 2005 and 2009 the
number of subscribers has nearly
quadrupled. While the number of ARPU-Average Revenu
e Per User
wireless subscribers has been
growing at a healthy rate, the RP M-Revenue Per Minute
number of wireline subscribers has
been declining.
MoU -Minutes of Usage
In terms of internet subscribers,
less than half of the wireline
internet connections (about 15
million) are broadband while there
are about 120 million wireless internet Telecom Infrastructure
subscribers.
In order to maintain low costs to support
As a watchdog over telecom, a network low tariffs, controlling infrastructure costs
natural monopoly, TRAI (Telecom is critical. The industry needs two kinds
Regulatory Authority of India) is of infrastructure: passive and active.
responsible for creating policy guidelines Passive infrastructure consists of telecom
and for creating conditions for the growth towers, wires etc. while active
infrastructure consists of the network
telecom space includes well-established equipment, computers etc. required to
large wireless providers like Airtel, run operations. Some operators have
RCom, Vodafone, BSNL and new come together to share network
entrants like Tata Docomo and MTS. infrastructure both by pooling passive
infrastructure (e.g. towers) and forming
The explosive growth, especially in
alliances with the equipment providers.
wireless sector, has been largely
contributed by a low tariff regime which Performance metrics
has been borne out of several factors
Industry performance is measured
including an innovative cost structure,
through various metrics and some
1

common ones used are: ARPU (Average
Revenue Per User), RPM (Revenue Per
Minute), and MoU (Minutes of Usage).
These measure the revenues being
earned per subscriber, per call minute
and the number of minutes used on the
network respectively.
Over the past few years, due to the low
tariffs ARPU’s have been falling. A more
worrying aspect for the telecom
companies has been the decline in RPM’s
Telecom Sector Value
Chain
due to lower tariffs inspite of rising
MoUs. This has been driven by the price
wars unleashed with aim of wrestling
more share from the market leaders. The
players are therefore looking at other
avenues like Value Added Services (VAS)
to be a key driver for future growth in
revenues. With the advent of 3G, data
services are expected to increase revenues
through raised RPMs which will more
than compensate for a decrease in the
voice RPMs. Operators are actively
scouting for opportunities to provide
focused content e.g. Airtel’s tie up with
Manchester United to provide exclusive
content.
3G - Bidding Strategies
The recent 3G auctions saw various
operators compete fiercely for the three
licenses to operate 3G in 22 circles in
India. T he gover nment raised a
whooping Rs 67,719 crores from the
process. The bid values exceeded the
DoT expected valuation of 2x to 3x the
reserve prices and the average bid was
4.8x the reserve price (representing Rs.
16,571 crore for a pan-India license).
Finally, none of the operators bid for the
pan India licenses but opted for select
circles. In this article we try to analyze the
strategy behind the choice of circles by
the bid-winning operators.
Revenue per subs
T h e Te l e c o m Va l u e 300
Chain
All three parts of the chain 225
have witnessed changes in
the recent times. While 150
mobile operators have either
pooled resources to share
passive infrastructure like 75
towers, several new mobile
operators like Videocon, 0
Uninor etc. have Oct-Dec 2008 A
joined in. The
VA S b u s i n e s s
continues to grow
with the largest music revenue subsidies from its Universal Service
in the country being generated Obligation Fund (USOF) encouraged
through caller-tunes etc.
Looking at telecom towers in
more detail, this is a highly
Capex intensive business.
Here, tenancy ratios drive the telecommunications to the next level by
payback periods. Companies
with larger asset base can rap effective services to mobile users.
economies of scale as each
tower has different rental
agreements and costs. The
companies mostly work on one of the
four business models:
Captive: Towers are owned & operated
by telecom operators
Operator Controlled: Operator
consolidates tower infrastructure and
hives it off as a separate company e.g.
Bharti Infratel
Pool and share: Operators jointly setup
an independent company for sharing
tower infrastructure e.g. Indus towers
Build and operate: Independent tower
companies operate on a ‘build-and
operate’ model
Bharti Airtel
Bharti Airtel, India’s market leader, won
13 circles which cover 59% of India's
cellular subscribers—the maximum 3G-
coverage any telecom operator has
managed. These circles account for 61%
of Indian telecom revenues. The nine
circles where Bharti has lost the license,
its ARPU is 15-20% lower than the
national ARPU. Bharti has a unique
advantage that large parts of its networks
are already 3G-enabled lowering
deployment time and capex required.
Vodafone
Vodafone India seemed to have followed
a ‘defensive’ strategy like Bharti, by
acquiring spectrum in key markets, 9
2
crib er per month
GSM CDMA
pr-Jun 2009 Oct
-Dec 2009
Positive TRAI initiatives such as granting
infrastructure sharing in its initial phase.
Value Added Services is a low capex,
high technology business. Advent of
Mobile VA S has taken
providing easy accessible and cost-
Unlimited mobile Internet (GPRS) and
bundling of various SMS VAS services
are the main drivers of VAS growth in
India. This space is mostly fragmented
with a lot of start-ups, attracting PE/VCs
for investments in the businesses.
Recent Changes
The recent 3G spectrum allocation has
made the telecom space more complex.
The price wars and new offerings are
expected to continue as firms seek to
differentiate themselves in a market that
seems to have, going by the history of
developed markets, more players than it
might have been able to accommodate
circles for Rs 11,617 crores, while
foregoing a few big circles where it does
not enjoy leadership or has a substantial
difference to the leader like Karnataka
and Rajasthan. Vodafone’s strategy
clearly seems to be focusing the entire
kitty that they have on the top circles so
as to actually make a meaningful business
out of the 3G friendly circles or circles
with uptick.
Reliance
Reliance Communications (RCOM)
bagged 3G-spectrum in 13 circles
including all the metros and category ‘C’
circles. Reliance Communications put up
an aggressive show in the 3G auctions
implying that RCOM may dilute equity
to fund the payout. The tower business
looks to be the likely source of dilution.
The company plans to strongly leverage 3G spectrum winners
i t s m e d i a , g a m i n g, c i n e m a a n d (Operator, Present 2G market share)
broadcasting capabilities to offer its
customers a unique 3G-experience.
CIRCLE HIGHEST 2ND HIGHEST 3RD HIGHEST OTHER
Aircel MKT SHARE MKT SHARE MKT SHARE WINNERS
Aircel, 74% owned by Malaysia’s Maxis, OF REVENUE OF REVENUE OF REVENUE
with a strong presence in Southern and
Eastern India concentrated on circles like Delhi Airtel (37.6%) Vodafone (23.6%) RCOM (13.1%)
Tamil Nadu and the North-East. Its main
focus was to ensure contiguity – presence Mumbai Vodafone (35.9%) Airtel (20.6%) RCOM (18.0%)
in all the southern circles and Assam,
West Bengal, Bihar and Orissa. Aircel’s
Maharashtra Idea (30.4%) Airtel (21.9%) Vodafone (20.7%) Tata
strategy helped it to defend 93% of its
revenues. Airtel and Aircel won 13 circles
each but Aircel paid only half of that Gujarat Vodafone (39.9%) Airtel (20.9%) Idea (18.0%) Tata
paid by Airtel. Aircel’s bid is still
aggressive at 1.5 times its annual
A.P. Airtel (39.6%) Idea (16.8%) Vodafone (12.6%) Aircel
revenues.

Tata Tele
Karnataka Airtel (54.4%) Vodafone (15.9%) RCOM (9.7%) Tata, Aircel
Tata Tele was able to capture only 9
circles, which are mostly in category A
and B, enabling it to protect its presence Tamil Nadu Airtel (32.9%) Aircel (20.4%) Vodafone (20.1%)
in 43% of it 2G revenue-generating
areas. Tata Tele’s 3G coverage of its 2G
Kolkata Vodafone (31.4%) Airtel (30.1%) RCOM (18.1%) Aircel
footprint is the lowest among the six
successful bidders. Tata focused on
obtaining contiguous licenses in the Kerala Idea (28.4%) Vodafone (20.8%) Airtel (19.9%) Tata, Aircel
Western parts of India, while avoiding
Category C circles to maximize capex Punjab Airtel (38.4%) Vodafone (17.8%) RCOM (6.5%) Tata, Idea,
utilization. Aircel

Idea Haryana Vodafone (19.4%) Idea (16.0%) Airtel (15.3%) Tata

Idea Cellular, the 3rd largest GSM
mobile service operator won 3G spectra
in 11 circles. Idea went for higher U.P. East Vodafone (31.0%) Airtel (28.7%) RCOM (12.1%) Idea, Aircel
geographical coverage and avoided the
metros, especially Delhi and Mumbai, U.P. West Idea (27.7%) Vodafone (23.7%) Airtel (18.2%) Tata
which saw the most aggressive bidding. It
managed to win licenses covering 77% of Rajasthan Airtel (44.8%) Vodafone (22.8%) RCOM (8.2%) Tata
its subscriber base and its 3G Spectrum
footprint covers 81% of the total national
revenues. M.P. Airtel (30.3%) Idea (28.7%) RCOM (20.8%) Tata

CDMA operators viz. Reliance and Tata West Bengal Vodafone (36.5%) Airtel (28.6%) RCOM (13.3%)
Tele plan to leverage the EVDO services
already available on their CDMA
H. Pradesh Airtel (12.3%) RCOM (5.2%) Idea (1.8%) S Tel
network. EVDO services are ones that
are available on data cards and are
almost equivalent to 3G services. Their Bihar Airtel (24.7%) RCOM (9.9%) Tata(3.7%) Aircel, S Tel
strategy would be to combine the prowess
of CDMA and GSM technologies to Orissa Airtel (17.6%) RCOM (7.5%) Tata (3.6%) Aircel, S Tel
provide seamless high-speed data access
on dual mode handsets.
Assam Aircel (34.3%) Aircel (25.2%) RCOM (19.0%)
With none of the private teleco’s having a
pan India 3G presence, roaming North East Airtel (37.7%) Aircel (29.5%) RCOM (6.7%)
agreements between the different
operators would play a vital role in J&K Airtel (46.6%) Aircel (21.6%) RCOM (3.32%) Idea
recovering the huge license bid amounts.
The state owned BSNL and MTNL are Indicates that Operator has WON 3G Spectrum
in huge demand as partners for roaming
agreements.
Indicates that Operator could NOT WIN 3G Spectrum
3
 News Updates
Sun TV buys 37% stake in Spicejet
A 37% stake was bought in Spicejet by
Chief Executive of Sun TV, Kalanithi
Maran, through his airlines- KAL
Airways. He has also made an offer of
additional 20 per cent stake. After the
acquisition, the name of SpiceJet will be
changed to Sun Airways.
It seems a good time to invest in air
transport. SpiceJet made a profit of 274
million rupees in Q12010 as opposed to
the 78 million rupee loss in Q12009 and
expanded to fly overseas to Maldives,
Nepal and Bangladesh.
Kingfisher to join ‘oneworld’
alliance
Kingfisher has announced its intention to
join the ‘oneworld’ alliance, which
consists of 12 airline members currently.
This alliance will bring 56 Indian cities
on the map of ‘oneworld’ alliance,
increasing its reach to cover 800
destinations in almost 150 countries. The
customers will be a happy lot as this will
m a k e K i n g fi s h e r ’s f re q u e n t fl ye r
programme valid across all the alliance
partners, which consist of leading global
brands.
Kingfisher is India’s first private airline to
join any such alliance. It is said that Air
India and Jet Airways are moving
towards joining Star Alliance, the
Ruling in the Ambani case
On 7th May 2010, the Supreme Court
delivered a landmark judgment in the
dispute between Reliance Industries Limited
(RIL) and ADAG, a company owned by
estranged brother Anil Ambani. The court
ruled that RIL need not supply gas to
ADAG at the previously agreed price,
putting the profitability of many power
plants of the younger sibling under threat
and tightening government control over gas
pricing.
According to a private MOU between the
two brothers in 2005, RIL was supposed to
supply gas to Anil’s company at a lower
price of $2.34 per million British thermal
units (mmBtu). However, in 2007, the
government of India revised the gas price to
$4.20 per mmBtu, to make it in line with the
international prices. This prompted RIL not
competing alliance against ‘oneworld’.
The onboarding process into the alliance
will result in Kingfisher giving better
product offering and improved service
standards, spelling good news for
customers.
Please send in your suggestions and
Retail sector watchdog in the offing comments to
(Source: Business Standard)
teamconsult@iimahd.ernet.in
In a move being seen as a precursor to
opening the retail sector, the government
is contemplating setting up a regulatory
body for the retail sector. At present,
India does not allow foreign investment in Team Consult
multi-brand retail, while up to 51 per
cent is allowed in single brand retail.
Amber Maheshwari
Foreign direct investment (FDI) of up to Agam Khurana
100 per cent is allowed in wholesale cash- Chaithanya Rao
and-carry trade. The commerce ministry Gurveen Bedi
is keen to extend FDI to retail of
foodgrain with a view of creating a
Kommu Nageen
parallel to the inefficient public Mohit Garg
distribution system. FDI is expected to Murali Nair
bring in addition to investment, lower Simit Batra
cost products and provide support to Utsav Kheria
small manufacturers within the country.
However, the concerns that 'kirana' stores
Vamsi Krishna
will be impacted adversely is a real one,
going by the large-scale closures resulting
from new Walmart stores in the US.
Hence, the need for a regulator to create
a level-playing field.
to supply gas at the previously agreed
upon lower price. Did you know?
While contracts between
two parties are in
The Supreme Court cited that the their private domain, the
y could be
MOU between the Ambani brothers challenged in the court of
law under
in 2005 as a personal agreement "public interest", that is
the larger good of
wh i ch i s n o t b i n d i n g o n t h e the nation. The contract
in question falls
companies and ruled that RIL is not under the domain of na
tural resources
bound to supply gas at a lower price. making it all the more am
enable to such
litigation.
The court further instructed both the
parties to renegotiate favorable terms
for gas supply within six weeks.
The judgment impacts the
industries as it sets a precedent that
profitability of environment friendly gas
Government policy can be retroactively
based power generation plants with an
applied to commercial agreements between
overall capacity of 10,000 MW. This may
parties.
affect the power generation capabilities in
the near future. Moreover, this could be a
landmark judgment that could affect other