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PROJECT REPORT ON ANALYSIS OF ARPU OF VODAFONE ESSAR AND RELIANCE COMMUNICATIONS FOR UNITECH WIRELESS PVT.

LTD

SUBMITTED IN PARTIAL FULFILLMENT OF MBA SUBMITTED BY:DINESH TUKARAM GIRI SPECIALIZATION FINANCE ROLL NO- 57 BATCH- 2009-2011 INDIRA INSTITUTE OF MANAGEMENT PUNE WAKAD, PUNE

SUBMITTED TO:ZONAL OFFICE, UNINOR MAGARPATTA CITY HADAPSAR, PUNE

PREFACE
Summer training is an integral part of our academic curriculum, during the training a student gets an opportunity to set the partial aspect of theory and raining makes the concept clear. This project report is the outcome of summer training that I have undergone at Uninor Telecom, PUNE for the partial fulfilment of Master of business administration. I got an opportunity to apply my theoretical knowledge and meaning full concept to actual business condition and to familiarize with actual activities of the product. All the work done on this project is confide to my broad objectives i.e. ANALYSIS OF ARPU OF VODAFONE ESSAR AND RELIANCE COMMUNICATIONS FOR UNITECH WIRELESS PVT. LTD

ACKNOWLEDGEMENT
I would like to acknowledge and extend my gratitude to the following persons who have made the completion of this project possible: First of all I would like to thank our Project Coordinator Prof. Mrs Purvi Shah for his great help. As he is being my Project Coordinator he provided me very necessary and important guidance and support until the submission of my project. Secondly, I would like to thank Mr. Chetan Wakalkar, Chairman of INDIRA Group of Institute, and Mr. Pandit Mali Director of IIMP , to provide us such a very exciting

opportunity and for their good help to provide a better coordination and control among all the activities related to completion of the project. The entire project report owes its credit for the chlorite guidance and encouragement rendered by our mentor AKSHAY JODHA whose perception and sagacity not only opened for us. I record my sincere thanks to him with deep gratitude. I would like to thanks ASM KETAN SHETTY for giving me an opportunity to do this project, and for their valuable guidance in successful completion of project. Lastly, I would like to be very thankful to the whole Family of IIMP for their continuous effort in making the whole Project Activity very much learning and interesting.

INDEX
Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 Chapter Name Executive Summary Rationale of Study Industry Profile Company profile Literature Survey Objectives and Scope Research Methodology Data Analysis and Interpretation Observations and Findings Recommendations Conclusion References Page No

5 7 8 27 34 39 40 47 66 68 72 73

Executive Summary:
Introduction: The Indian telecommunications industry is one of the fastest growing in the world. Industry has reached subscriber base of 638 million in April 2010 with tele-density of 55.38. Considering big opportunity in Indian telecom sector, Norway based Telenor group in joint venture Unitech ltd has launched its service under the brand name Uninor in 11 circles. ARPU levels in emerging markets likes India have been dramatically decreasing because of increasing competition, price reductions, and a second wave of customer acquisition from predominantly lower income segments. The next wave of customers will primarily be low income. The mix of mobile subscribers in India was 71% urban versus 29% rural, according to the Telecom Regulatory Authority of India (TRAI). This is exactly opposite to the countrys demographic composition, with 30% of Indians in cities and 70% in rural areas. To reconcile this disparity, telecom operators in India are forced to seek subscriber growth in low-income, rural areas. So with 15 telecom operators competing for market share it has become challenge for telecom operators to earn substantial revenue and profit for share holders. This report aims at analyzing ARPU, reasons for decing ARPU and to recommend Uninor possible ways to increase ARPU. Research Methodology: Research is a scientific and systematic search for partisans information on specific topic. The type of research carried out in this project is analytical type of research. Facts and information was made available and analysis had to be undertaken to make a critical evaluation of the company. Secondary data has been used in this research. The information is collected from Company websites, annual reports, Analyst meet. Other websites and research reports.

Objectives: To Understand ARPU and its significance in the perspective of telecom Industry. In-depth analysis of circle wise APRU of telecom companies Vodafone Essar and Reliance communications. To determine reasons behind the decline of ARPUs of telecom companies. To find out ways to improve ARPU.

Data Analysis and Interpretations: After analyzing circle wise ARPU data of Vodafone, Reliance and all India on aggregate basis following things are found Continues decline in ARPU and has reached to Rs150 by Mar 2010 from 357 in Mar08 Subscriber base is increasing steadily with very less fluctuating growth rate. Where as though in all revenue has also increased but its growth rate was always below the growth rate of subscribers which ultimately result into low ARPU. As companies are focusing more on low income consumer and due to increased price war ARPU is bound to decline. So companies need shift their focus to AMPU i.e. Average Margin per Use, which will guarantee profit instead of low ARPU. So for uninor to earn substantial profit and revenue some recommendations are: o Focusing on AMPU o Price bundling o Network sharing o Value added services o Reducing Cost o Constant innovation and Quality of service.

Rationale of Study:
Indias economic growth has accelerated significant over the past two decades and so too, has the spending power of its citizens. Real average household disposable income has roughly, doubled since 1985 with rising incomes, household consumption has soared and a new Indian middle class has emerged. The Indian telecommunications industry is one of the fastest growing in the world. According to the Telecom Regulatory Authority of India (TRAI), the number of telephone subscriber base in the country reached 653.92 million as on May 31, 2010, an increase of 2.49 per cent from 638.05 million in April 2010. With this the overall tele-density (telephones per 100 people) has touched 55.38. Unitech Wireless is a joint venture company of Indias second largest diversified real estate major Unitech Ltd. and the Norway based worlds 6th largest mobile services provider Telenor Group with Telenor holding 67.25 per cent hold of the company. Unitech wireless which already holds license for 22 telecom circle has started their service in 13 circles under the brand name Uninor. With increased price war and 15 operators competing to capture more and more market share, ARPU of Indian telecom operator is been continuously declining and has reached Rs 131 for GSM users by Mar 2010 from Rs 144 in Mar 2009 and Rs 394 in Mar 2005. This continues decline in ARPU has result in decreasing profit margins and has put challenge in front of telecom service to sustain, to provide quality service and to earn profit for share holders. With its rollout in 11 circles like all other service providers falling ARPU is also challenge for uninor and hence company believes that now earning profits and generating substantial amount of revenue is more important than only increasing market share in terms of no of subscribers. Company has launched in Maharashtra and Goa circle with innovative pricing strategy i.e. Badlata Discount company has been able to gain substantial market share. This report is sincere effort to understand ARPU and its significance. It focuses on analyses of circle wise ARPU for two competitors (of Uninor) Vodafone Essar, Reliance Communications and also all India on aggregate basis. The report aims at determining reasons behind the decline of ARPU and to find out ways to increase ARPU. Based on analysis Report highlight the steps that Uninor can take to increase ARPU.
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Industry Profile in brief:


Telecom Industry: Telecommunications industry deals with the activities and services of electronic systems for transmitting messages through cables, telephone, radio or television. Components and factors responsible behind the growth of telecommunications industry Two major factors responsible for the growth of telecommunications industry are use of modern technology and market competition. One of the products of modern technologies is optical fibers, which are being used as a medium of data transmission instead of using coaxial or twisted pair cables. Optical fibers can carry a high volume of data and are easier to maintain and install. Use of communication satellites makes this telecommunications industry a booming industry. The use of mobile network has a crucial role behind the growth of an improved telecommunications industry. Leading companies are showing their interest to invest in this telecommunications industry. Telecommunications industry is going to be a digitized one. Use of ISDN (Inter Services Digital Network) makes this telecommunication industry a total digitalized system and eventually enhanced the speed and quality of digital communication. The introduction of these advanced technologies makes the telecommunications industry a competitive one, where a number of multinational companies have shown their interest to invest in this industry and consequently the prices are reduced, the quality is also improved. During the period of 1990, the telecommunication industry showed a speedy growth in terms of investment and eventually increased the competition. The competition between the companies led to the decline of revenues.

Global Telecom Industry: World telecom industry is an uprising industry, proceeding towards a goal of achieving two third of the world's telecom connections. Over the past few years information and communications technology has changed in a dramatic manner and as a result of that world telecom industry is going to be a booming industry. Substantial economic growth and mounting population enable the rapid growth of this industry. Market potentiality of world telecommunication industry The world telecommunications market is expected to rise at an 11 percent compound annual growth rate at the end of year 2010. The leading telecom companies like AT&T, Vodafone, Verizon, SBC Communications, Bell South, Qwest Communications are trying to take the advantage of this growth. These companies are working on telecommunication fields like broadband technologies, EDGE(Enhanced Data rates for Global Evolution) technologies, LANWAN inter networking, optical networking, VOIP, wireless data service etc. Economical aspect of telecommunication industry World telecom industry is a crucial part of world economy. The total revenue earned from this industry is 3 percent of the gross world products & is aiming at attaining more revenues. One statistical report reveals that approximately 16.9% of the world population has access to the Internet. Telecom industry trends Traditional telecom technologies are now being replaced by modern wireless technologies, specifically in case of mobile services. One of the major objectives of telecom industry is to enhance the quality and speed of Internet technology. These days, telecom industry is more concerned with texts and images (Internet technologies), rather than voice(telephone service). Most of the research works are going on Internet accessibility, specifically on data applications and broadband services. The other major division of telecom industry is mobile network sector, where lots of innovative research works are going on. Previously the traditional telephone calls used to earn the maximum revenues, but these days mobile service is going to replace traditional telephone services.

INDIAN Telecom Industry: Historically, the telecom network in India was owned and managed by the Government considering it to be a natural monopoly and strategic service, best under state's control. However, in 1990's, examples of telecom revolution in many other countries, which resulted in better quality of service and lower tariffs, led Indian policy makers to initiate a change process finally resulting in opening up of telecom services sector for the private sector.

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Market overview The telecom sector in India has witnessed unparalleled growth by global standards in the last decade and continues to be one of Indias biggest success stories. This growth has been built on the wireless revolution. At the end of March 2010, the overall tele-density was recorded at 52.74% with a total telephone subscriber base of 621.28 million registering the growth rate of 10.5%.

By 2012, the total telecom subscriber base is expected to reach approximately 700 million to include about 650 million wireless users and approximately 50 million fixed line users, driven by a rise in the demand for communications from semi-urban and rural India.

Revenues of the Indian telecom industry are projected to reach US$ 45 billion by 2012 as compared to US$ 26 billion in 2008.

Rural subscription continued to show increase in rate of growth. It increased from 14.96% in Dec-09 to 15.06% in Mar-10. Urban subscription grew at the rate of 8.47% as against 8.51% in the previous quarter. This in other words, implies rapid increase in rural subscriptions during the quarter.
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The key players in the Indian telecom market are Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Limited (MTNL), Bharti Airtel Limited, Reliance Communication, Vodafone, Idea Cellular, Aircel and Tata Teleservices.

Sources:Telecom Regulatory Authority of India (TRAI) Subscription Data June 2010 India 2012: Telecom growth continues, Ernst & Young Telecom Report, 2008

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Snapshot:
(Data As on 31st March 2010) Telecom Subscribers (Wireless +Wireline) Total Subscribers % change over the previous quarter Urban Subscribers Rural Subscribers Teledensity Urban Teledensity Rural Teledensity Wireless Subscribers Total Wireless Subscribers % change over the previous quarter Urban Subscribers Rural Subscribers GSM Subscribers CDMA Subscribers Teledensity Urban Teledensity Rural Teledensity Wireline Subscribers Total Wireline Subscribers % change over the previous quarter Urban Subscribers Rural Subscribers Teledensity Urban Teledensity Rural Teledensity 36.96 Million -0.29% 27.03 Million (73.1%) 9.93 Million (26.9%) 3.14 7.70 1.20 584.32 Million 11.28% 393.45 Million (67.3%) 190.88 Million (32.7%) 478.68 Million (81.9%) 105.64 Million (18.1%) 49.60 112.03 23.08 621.28 Million 10.5% 420.47 Million (67.7%) 200.81 Million (32.3%) 52.74 119.73 24.29

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Market Segment:

The Indian telecom industry can be primarily divided into basic, cellular and internet services. It also has smaller segments such as radio paging services, Very Small Aperture Terminals (VSATs), Public Mobile Radio Trunked Services (PMRTS) and Global Mobile Personal Communications by Satellite (GMPCS).

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Major Players wireless service: List of Cellular Mobile (GSM & CDMA) Service Providers currently providing service [As on 31st March 2010]
SLNo. 1 2 Service Provider Bharti Aircel Group Area of Operation All India AP, TN, Karnataka, Assam, Bihar, Chennai, Delhi, HP, J&K, Kerala, Kolkata, MH, Mumbai, NE, Orissa, UP(E), UP(W) & WB 3 4 5 6 7 Reliance Communications Reliance Telecom Vodafone Tata Teleservices IDEA (Including Spice) 8 Sistema Shyam Telelink Kolkata, TN (incl. Chennai), Karnataka, Kerala, Rajasthan, Haryana, Maharashtra, Mumbai, Delhi, Bihar & WB 9 10 11 12 BSNL MTNL Loop Telecom Private Ltd HFCL All India (except Delhi & Mumbai) Delhi & Mumbai Mumbai Punjab AP, Karnataka, TN (incl. Chennai), Kerala, UP(W), UP(E), Bihar & Orissa HP, Bihar & Orissa Haryana & TN (incl Chennai) AP, Delhi, Gujarat, Karnataka, Kerala, Maharashtra, Punjab, Rajasthan & UP(E) All India (except Assam & NE) Kolkata, MP, WB, HP, Bihar, OR, Assam & NE All India All India All India

13 14 15

Unitech S Tel Videocon

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Etisalat

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Market segments wireline The subscriber base of wireline services stood at 36.76 million as on January 2010 with a tele-density of 3.13. Public sector undertakings BSNL and MTNL have a major share of the wireline market covering about 85 per cent. MTNL is present in Delhi and Mumbai, while BSNL covers the rest of the country. Though private players such as Tata Teleservices, Bharti Airtel and Reliance have registered significant growth, BSNL still dominates the segment in terms of wireline subscriber base.

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Market segments wireless The wireless segment includes GSM and CDMA services and is much larger than the wireline segment in India. The segment is growing steadily because of the convenience and utility that it offers. The subscriber base of wireless services stood at 545.05 million as of November 2009 with a tele-density of 46.37 percent. During 200809, the cellular market recorded 328.83 million GSM subscribers accounting for 77 per cent of the market and 98.46 million CDMA subscribers accounting for the remaining 23 per cent. A major share of the wireless market is being held by private players such as Bharti Airtel Limited, Reliance Communication, Vodafone, Idea Cellular, Aircel and Tata Indicom.

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Key Trends: The wireless segment in India is much larger than the wireline segment and is growing steadily due to the convenience and utility that it offers. Wireless services hold a major market share of 93.4 per cent as compared to the wireline segment. The subscriber base of wireline segment is decreasing given its limited usage.

Rural markets will be the next key growth driver for the Indian telecom sector given the growing population and disposable income of rural India.

The subscriber base in the rural market has improved significantly in 200809 with teledensity recorded at16.61per cent as of June 2009.

By 2012, the rural subscriber base is expected to account for nearly half of the total subscriber base fuelling sector growth.

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Bharti Airtel has the largest market share in the GSM segment. During 200809, out of the total subscriber base of 328.83 million, private players accounted for approximately 84 per cent, while the public sector operators (BSNL and MTNL) accounted for the remaining share (16 per cent).

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Reliance Communications dominates the Indian CDMA mobile services segment with a subscriber base of 54.19 million.

The share of the private sector in total telephone connections has grown to 82.3 per cent in December 2009 as against 5 per cent in 1999.

From only 54.6 million telephone subscribers in 2003, the number increased to 562 million as on October 31, 2009. This growth has been entirely due to the wireless connections growing at a CAGR of 60 per cent per annum since 2004.

Operators are reducing operating costs and hiving off infrastructure elements such as towers into separate entities, thus inviting significant investments.

Passive infrastructure sharing has benefitted the Indian mobile industry and its customers, reducing the cost burden of each operator and speeding the rollout of mobile services.

In recent years, initiatives such as network cost optimisation, outsourcing of non-core activities, as well as low-cost business models have been in focus.

Every telecom service provider is looking beyond the basic voice services by offering a composite bouquet of bundled offerings. For example, nearly all the leading operators, including incumbents, are in the testing phase to launch commercial IPTV services. Indian operators are at a nascent stage in terms of offering quad-play using the existing network infrastructure for data, voice, video and basic communication services.

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Consumers can get all these services from the same telecom operator and enterprises can also access virtual private networks (VPN), video-conferencing, enterprise solutions, mobility and fixed telephony from the same integrated telecom service provider.

Investments: Despite the global economic slowdown in 200809, the telecom sector is one of the highest FDI attracting sectors in India. At present 74 to100 per cent FDI is permitted for various telecom services. The telecom market is witnessing several M&A activities. This trend has helped companies expand their presence in the Indian telecom market to offer better services to customers.

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Policy and regulatory framework: The Department of Telecommunications (DoT) governs the Indian telecom industry. The DoT, in coordination with the Telecom Commission, looks after licensing, policy formulation, frequency management, administrative monitoring, research and development, equipment standardisation and validation along with private investments. The Telecom Regulatory Authority of India (TRAI) was established in1997 by the DoT to streamline policy reforms and safeguard consumer interests. The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) was also established in the same year.

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Unified Access Licensing Regime (UALR) The establishment of the UALR (2003) eliminated the need for separate licencesfor different services. This regime allowed players to offer both mobile and fixed-line services under a single licence after paying an additional entry fee. The regime does not take into account the national and international long distance services and Internet access services. Between February and March 2008, the DoT granted 120 new licences to provide unified access services to various companies, including Datacom Solutions Pvt Ltd, Aska Projects Ltd, Swan Telecom Pvt Ltd, Loop Telecom Pvt Ltd and S Tel Ltd. Universal Service Obligations (USO) The USO policy was implemented along with the National Telephone Policy (NTP) in1999 to widen the reach of telephony services in rural India. All telecom operators are bound to contribute 5 per cent of their revenues to this fund. This system was put in place to bridge the gap between urban and rural tele-density, which is currently at 31 per cent. Initially, only basic service providers were under the purview of USO. Later, its scope was expanded to include mobile services also. Although it increases the cost burden for telecom companies, USO helps in building the telecommunication infrastructure in rural areas.

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Financial Data Of The Telecom Companies. Gross Revenue (GR), Adjusted Gross Revenue (AGR), License Fee (LF) & Spectrum Charges

Gross Revenue has increased by 1.28% and AGR declined by 1.02% compared with previous quarter.

Average License fee as % Gross Revenue: 5.98%. Average License fee as % Adjusted Gross Revenue: 8.35 %. Pass-through charges as % Gross Revenue: 28.40%. Public sector undertakings share to Total GR: 19.68%.

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Service-wise Gross Revenue, Adjusted Gross Revenue (AGR), Licence Fee and Spectrum Charges (Rs. in Crore)

Access services contributed 77.37% of the total revenue of telecom services. Access Services Service Provider wise Gross Revenue (Rs in Cr.)

In Access services, GR has increased from Rs. 31099.52 crore in QE Dec-09 to Rs. 31153.69 crore in QE Mar-10, thereby showing a growth of 0.17%.

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Category-wise share in Access Revenue (GR)

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Company profile:
Introduction: Uninor is a new mobile operator, with a localized approach to the Indian market. Its combine the force of Indias second largest real estate company, Unitech Ltd and Norway-based Telenor, the 6th largest mobile communications group in the world. Now they are bringing our services and innovation in communications to all of India. Holds a pan-India UAS license to offer mobile telephony services in each of Indias 22 circles. Has also received spectrum to roll out these services in 21 of the 22 circles. Agreement to raise Telenor ownership to 67.25% The Telenor Group has proven itself to millions of customers around the world over a long period of time. With over 150 years of telecom experience, the group is now present in 13 countries worldwide with over 168 million mobile subscriptions as of Q2 2009 and 40,000 employees across the globe. A dominant position in markets most similar to India means the group brings existing competencies in distribution, targeted offerings, and customer lifecycle management and organization culture to its operations in India. As Indias second largest diversified real estate major with over 30 years of presence across locations nationwide, the Unitech Group comes into this joint venture as a partner with decades of consumer facing experience in the Indian market. Unitech is the only Indian partner (among the new operators) to be listed on the Indian Stock Exchanges, and provides in-depth insights into business- as well as consumer marketing in the diverse Indian market. This unique partnership gives us the advantage of the most extensive and the most relevant experience to rollout services in India. Uninor in society believes that the demand for mobile services in India will continue to grow rapidly as a result of the following factors: Lower tariffs and handset prices over time; Growth in pre-paid customer category;

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Greater economic growth and continued development of India's economy; Higher quality mobile networks and services; and Greater variety and usage of value added services.

At Uninor believe in safeguarding human worth. A non-discriminatory and respectful attitude towards customers, colleagues and wider society will be the hallmark of our approach. And its will work to be at the forefront in matters of health, safety, security and the environment. Its primary responsibility is to help people communicate wherever they are. it will leverage on it combination of local heritage and global telecom experience to develop products and services that positively affect peoples lives. Driven by its values, it will work to: Maximize the enabling effect of mobile telecommunications Promote safer products and services Make responsible business practices part of everything we do.

Vision Our vision is simple, yet powerful. We exist to help you get the full benefit of communications services in your daily lives. Were here to help. This means providing services that bring solutions to your everyday endeavors and needs, enabling your future aspirations to come even closer. We are driven by this promise to you. - A promise to keep things simple. A promise to listen and respond. A promise to constantly innovate, motivate and support; so you see change.

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Telenor Core services of Telenor what we do These are the main services we provide to consumers and enterprises around the world:

Voice: Talk on the phone. From fixed-line to mobile or IP telephony, Telenor enables people to talk to each other using fast and reliable networks throughout the world. We provide fixed voice communication services in three Nordic countries and mobile voice in 13 countries across Europe and Asia.

Data: Internet and broadband. We offer fixed-line data services (e.g. ADSL and fibreoptic communications) in the Nordic countries, and mobile data services (e.g. mobile broadband, GPRS, UMTS) in 13 countries. As of 2008, 3G-based mobile broadband services have been launched in 7 of our operations.

Content: TV services and mobile content. Telenor offers TV services via cable, digital terrestrial and satellite networks in four Nordic markets. In several markets we also offer mobile content services (e.g. ring tones, music, movies, sports, and mobile TV).

Other services: We offer a wide range of telecom-related services, and the service portfolio varies from country to country. In several markets we provide Net-centric services like IT security to consumers and enterprises and machine-to-machine (M2M) services for enterprises. We also provide IT consulting, maritime communications and aircraft communications services.

Glogal market share of telenor The major part of our business is organised in three regions:

Asia: Bangladesh, Malaysia, Pakistan, Thailand and India. Nordic countries: Denmark, Norway, Sweden and Finland. Central and Eastern Europe: Hungary, Montenegro, Russia, Serbia and Ukraine.

For market information and country-specific data, please refer to our global presence section.

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The Telenor Group Strategy Telenor Group's ambition is to be a leading global mobile operator, while delivering attractive returns to our shareholders. To deliver on our ambitions, the Telenor Groups main focus areas in 2010-2012 are to:

1.Capture growth in our three regions 2. Strengthen operational performance and leverage Group scale and competence 3. Ensure capital discipline Through the Going Dynamic process, we link strategy to quarterly performance monitoring and forecasting. In addition, a combined financial and non-financial scorecard has been established at Group level. For all operating companies in the Group, the main ambition is to maintain or improve revenue market share while improving cash flow margins. This will yield an increase in Group cash flow over the period. Telenor Group should maintain or improve our position in the following non-financial areas:

Customer satisfaction Brand preference Human resources: Strength of our leadership pipeline HSSE: Total Recordable Injury Frequency Climate change: Carbon intensity of our operations.

The Telenor International Culture Prize Boundless communication For Telenor art is an integral part of the work environment. We create our own cultural concepts and encounters. Since 1995 Telenor has awarded a prize for outstanding performances in music, film, literature, visual or performing arts, etc. In recent years the focus of the Culture Prize has shifted from national to international contributions to culture. The prize is worth NOK 250,000 (50,000 USD)

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History The company Unitech Wireless was until 2009 a subsidiary of Unitech Group, holding a wireless services licence for all 22 Indian telecom circles since 2008. In early 2009, Unitech Group and Telenor agreed on a majority take-over by Telenor of Unitech's wireless business, including Unitech Wireless' national-wide mobile licence. By March, May and November, Telenor acquired a 33%, 49% and 60% stake in Unitech Wireless, respectively. In September, the mobile operation changed its name to Uninor. On October 19 the Indian Cabinet Committee of Economic Affairs (CCEA) announced that it has approved Telenor's acquisition of up to 74% in Unitech Wireless, and the shareholder's agreement sets a 67.25% Telenor ownership in Uninor. Uninor's strategy == Uninor is India's eighth nation-wide mobile operator, in a competitive landscape of 13 nation-wide or regional mobile operators. The company is targeting an 8 % panIndian market share, and the opening of one million retail points and breaking even on EBITDA within three years. It will provide mobile communication and Value Added Servic. In order to reduce time-to-market, Uninor will outsource infrastructure and back-end services to partner organizations with established core competencies. The operational model is low-cost with a gradual network-build up, infrastructure sharing, GSM equipment at competitive cost, fullscale IT-outsourcing and a long term cost and capex efficiency. Uninor will organise with headquarters just outside Delhi (Gurgaon), and 11 regional hubs covering one or more of the total of 22 telecom circles. Hub head offices are located in the following cities:

Kochi- Kerala Circle Chennai - Chennai, Tamil Nadu Bangalore - Karnataka Circle Hyderabad- Andhra Pradesh Circle Kolkata - Kolkata, West Bengal & Orissa Circle Delhi / Noida (NCR) - Delhi, Western Uttar Pradesh, Uttarakhand & Rajasthan Circle

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Patna - Bihar & Jharkhand Circle Mumbai - Mumbai, Maharashtra & Gujarat Circle Lucknow Guwahati Chandigarh Indore Ahmedabad

To quickly launch mobile services only nine months after the foundation of the new company, Uninor has entered into network and base station service agreements with partners. Tower sharing agreements are concluded with Wireless-TT Info Service Limited and Quippo Teleco Infrastructure Limited Telecommunications, network and radio equipment is to be supplied by Alcatel-Lucent, Huawei Technologies India, Nokia Siemens Networks and Ericsson. The company's IT services and infrastructure is to be shared with Wipro Technologies.

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Literature Survey:
ARPU stands for "average revenue per user per month (Rs/User/Month)," which refers to the average telecom revenue receiving from each subscriber per month. In the telecom industry, there are numerous instances when one comes across the term ARPU stands for "average revenue per user per month (Rs/User/Month)," which refers to the average telecom revenue receiving from each subscriber per month.. In common parlance, it is simply total revenue divided by the total subscribers for a particular time period. Importance to the telecom industry: ARPU plays a key role in an industry like telecom in particular and any service industry that has a mass base. Average is the measure of central tendency of data and can only be taken when standard deviation is low. Thus, in most cases, wherein the service has too many users, the standard deviation usually reduces and ARPU becomes an effective tool. It helps not only in understanding how the industry as a whole is faring but also assists in benchmarking a particular player against others or industry average. However, despite being a simple ratio, it is the most misused term the definition of which changes with changing context. In common parlance, it is calculated by dividing the total revenue by the total subscriber over a particular time period. It is while calculating these three terms, revenue, subscribers and time period, that one comes across many anomalies. Anomalies associated with time period: Whenever ARPU is mentioned, one should also mention whether it is the ARPU figure per month, quarter, half year or a year. Time frame should be clearly mentioned. In most cases, we make intuitive guess to figure out if the given ARPU is per month, quarter, or year. Types of ARPUs Based on revenue calculations: Across the globe, telecom companies use different revenues to calculate ARPU. The revenue could be net or gross. There might have rental income that is included in gross revenue but has nothing to do with services revenue. According to common practice in the US, only that revenue, the service equivalent of which has been consumed by the customer should be accounted for. In many cases, organizations do not provide this clarity. They tend to quote a high or low numerator

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depending on what proves beneficial for them in any context. One could have ARPUs like gross ARPU, net ARPU, gross services ARPU, net services ARPU, among others. Broad ARPU: Broad or consolidated ARPU is arrived at by calculating the gross or total revenue and dividing it by total number of subscribers/users for any given period. This should ideally be termed as average gross revenue per user. Net ARPU: The need to calculate net ARPU can be attributed to the fact that not all the revenue that any telecom operator (cellular or fixed) collects is retained by the operator. Consider a cellular operator for example. When its customers go to a circle where the same operator does not provide its services, then some portion of the total bill goes to another operator. Similar costs borne by the cellular operator that include revenue share with the government (as license fee), interconnect charges, roaming charges to other service providers, national and international long distance charges to long distance carriers and service taxes. Again, if one is considering the pre-paid segment, then there are channel margins to be paid. Thus if one was to subtract all the above costs from gross revenue to get the net revenue and then divide by the total subscriber base for a given period, one arrives at net ARPU, which gives a clearer picture. Blended ARPU: Based on the classifications mentioned till now, whatever ARPU one talks about and mentions, the overall ARPU might not be of great use. The pre-paid and post-paid customers show drastically different tendencies. Pre paid subscribers are generally low-end subscribers and post-paid subscribers are the high-end users. When one calculates ARPU without differentiating between the pre-paid and the post-paid subscribers then the ARPU figure one arrives at is called the blended ARPU. Thus based on the different classifications discussed above, we can arrive at blended gross ARPU, blended net ARPU, gross ARPU of pre-paid, gross ARPU of post-paid segment, net ARPU of pre-paid segment, net ARPU of post-paid segment.

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Variations in total subscriber base calculation: Subscriber numbers, which is the denominator of the said ratio, also plays key role. It is critical to know what exactly does the number of subscribers being considered stand for. First, is the number of users/subscribers being considered? Typically, number of users is the number of active connections while the number of subscribers is always less than this for many subscribers might have multiple connections. When the organizations want to portray high ARPUs, they use number of subscribers at the beginning of the period (though the revenue is calculated for the entire period in question). In cases where less ARPU is beneficial (say, while lobbying with the government), they might use the number of subscribers at the end of the month. In many cases, they also use the simple average of number of subscribers at the beginning and the close of the month. Ideally, one should take the number of active subscribers who have contributed to revenue in that period. This takes care of excluding those subscribers who are in the grace period of pre-paid connection. Significance: ARPU is important because it provides a breakdown of what is driving revenue growth, and it also gives some indications of what is driving margins. Growing by increasing revenues from users tends to be better for margins than increasing revenues by increasing the user base, as the latter incurs additional costs. ARPU growth can also indicate how successful a company is being in moving users to new services (e.g. pictures messaging, data connections etc.) that are regarded as strategically important and an indicator of how margins will fare (newer services tend to be higher margin). However, companies often disclose the composition of their revenues streams separately in any case. Average revenue per unit allows for the analysis of a company's revenue generation and growth at the per-unit level, which can help investors to identify which products are high or low revenue-generators. The values of the measures obtained can be used as a comparison between companies. Companies may also use this information to determine which product lines are lagging.

36

Average margin per user (AMPU): AMPU is one of several criteria for measuring the success of telephone companies. It is an alternative to ARPU, which focuses on revenue per unit or per customer, typically measured as the revenue minus the costs and divided by the number of users. The central premise is that by attention to the margin produced per sold unit, not the amount of cash (revenue) earned from each customer, one can afford low volumes and still have a healthy company. High volumes can also bring a significant edge, but only until competition forces prices down. Telecom analysts are traditionally highly focused on ARPU because the typical telco has had huge infrastructure costs that needs to be serviced by a considerable ARPU. Minutes of use (MoU): MoU is a measurement usually in minutes time unit that show how long each user (in average) consumes a product/service in a month. This measurement often used in telecommunication industries or other industries which the product/service consumption is due to time unit (time based pricing) such as: electric/power companies, gas companies, sterilized water companies, etc. The value of MoU can be used as one of performance indicators in some businesses.

37

MoU vs. ARPU: Both of MoU and ARPU are indicate the business performance that still could be related to the revenue as its end result. In the reverse mathematical operation we can see the differences of these two kinds methods. We can see the differences from its formulated variables. Variables that effect to MoU are totally time usage (for all customers) and number of customers. In other side, ARPUs variable are : the number of customers and the totally revenue. Either ARPU or MoU is indicate the using of each customer in a month or one periodic time. The only different is its the measurement unit. ARPU measured in currency but MoU measured in time unit. They both have the same variable, number of customers. To the increasing of revenue, they both still indicates the same symptomp too. The increasing of ARPU indicates the increasing of revenue, and so does the MoU. The only question is : when do we use ARPU and when do we use MoU in our analysis ? ARPU usually use for two or more products consumption combination, and usually the measurement unit also variated too. For example a telecommunication operator that provides voice call (pricing in US $ per minutes), data internet (pricing in US $ per Mbyte), and also mailbox feature (pricing in US $ per month). We should use ARPU method for analysis. For getting the ARPUs value, we have to calculate the average of invoice of all customers we have. But if in case internet service provider which used flat rate time based charging method, we could use MoU method for analysis in order to evaluate the business performance.

Actually, MoU and ARPU would be better used in complementary one another. In case above, for heterogenic products we usually use ARPU for our analysis. But for further analysis, we could also use MoU (for detailed specific product) such as MoU for International Call, MoU for VOIP, and MoU for local call. MoU also could be used for analysis which the objective is to know or evaluate the effect of marketing program especially in pricing to the increasing of the usage of every customer (in average).

38

Objectives and Scope:


To Understand ARPU and its significance in the perspective of telecom Industry. In-depth analysis of circle wise APRU of telecom companies Vodafone Essar and Reliance communications. To determine reasons behind the decline of ARPUs of telecom companies. To find out ways to improve ARPU.

39

Research Methodology
MEANING OF RESEARCH Research in common parlance refers to a search for knowledge. Once can also define research as a scientific and systematic search for pertinent information on a specific topic. Research is an academic activity and as such the term should be used in a technical sense.

TYPES OF RESEARCH The basic types of research are as follows: (i) Descriptive vs. Analytical: Descriptive research includes surveys and fact-finding enquiries of different kinds. The major purpose of descriptive research is description of the state of affairs as it exists at present. In social science and business research we quite often use the term Ex post facto research for descriptive research studies. The main characteristic of this method is that the researcher has no control over the variables; he can only report what has happened or what is happening. Most ex post facto research projects are used for descriptive studies in which the researcher seeks to measure such items as, for example, frequency of shopping, preferences of people, or similar data. Ex post facto studies also include attempts by researchers to discover causes even when they cannot control the variables. The methods of research utilized in descriptive research are survey methods of all kinds, including comparative and correlational methods. In analytical research, on the other hand, the researcher has to use facts or information already available, and analyze these to make a critical evaluation of the material.

(ii) Applied vs. Fundamental: Research can either be applied (or action) research or fundamental (to basic or pure) research. Applied research aims at finding a solution for an immediate problem facing a society or an industrial/business organisation, whereas fundamental research is mainly concerned with generalisations and with the formulation of a theory. Gathering knowledge for knowledges sake is termed pure or basic research.
4

Research concerning some natural


40

phenomenon or relating to pure mathematics are examples of fundamental research. Similarly, research studies, concerning human behaviour carried on with a view to make generalisations about human behaviour, are also examples of fundamental research, but research aimed at certain conclusions (say, a solution) facing a concrete social or business problem is an example of applied research. Research to identify social, economic or political trends that may affect a particular institution or the copy research (research to find out whether certain communications will be read and understood) or the marketing research or evaluation research are examples of applied research. Thus, the central aim of applied research is to discover a solution for some pressing practical problem, whereas basic research is directed towards finding information that has a broad base of applications and thus, adds to the already existing organized body of scientific knowledge.

Quantitative vs. Qualitative: Quantitative research is based on the measurement of quantity or amount. It is applicable to phenomena that can be expressed in terms of quantity. Qualitative research, on the other hand, is concerned with qualitative phenomenon, i.e., phenomena relating to or involving quality or kind. For instance, when we are interested in investigating the reasons for human behaviour (i.e., why people think or do certain things), we quite often talk of Motivation Research, an important type of qualitative research. This type of research aims at discovering the underlying motives and desires, using in depth interviews for the purpose. Other techniques of such research are word association tests, sentence completion tests, story completion tests and similar other projective techniques. Attitude or opinion research i.e., research designed to find out how people feel or what they think about a particular subject or institution is also qualitative research. Qualitative research is specially important in the behavioural sciences where the aim is to discover the underlying motives of human behaviour. Through such research we can analyse the various factors which motivate people to behave in a particular manner or which make people like or dislike a particular thing. It may be stated, however, that to apply qualitative research in practice is relatively a difficult job and therefore, while doing such research, one should seek guidance from experimental psychologists. (iii)Conceptual vs. Empirical: Conceptual research is that related to some abstract idea(s) or theory. It is generally used by philosophers and thinkers to develop new concepts or to reinterpret existing ones. On the other hand, empirical research relies on experience or observation alone, often without due regard for system and theory. It is data-based
41

research, coming up with conclusions which are capable of being verified by observation or experiment. We can also call it as experimental type of research. In such a research it is necessary to get at facts firsthand, at their source, and actively to go about doing certain things to stimulate the production of desired information. In such a research, the researcher must first provide himself with a working hypothesis or guess as to the probable results. He then works to get enough facts (data) to prove or disprove his hypothesis. He then sets up experimental designs which he thinks will manipulate the persons or the materials concerned so as to bring forth the desired information. Such research is thus characterized by the experimenters control over the variables under study and his deliberate manipulation of one of them to study its effects. Empirical research is appropriate when proof is sought that certain variables affect other variables in some way. Evidence gathered through experiments or empirical studies is today considered to be the most powerful support possible for a given hypothesis. Research Methodology Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. In it we study the various steps that are generally adopted by a researcher in studying his research problem along with the logic behind them. Research Process:

42

1. Formulating the research problem: There are two types of research problems, viz., those which relate to states of nature and those which relate to relationships between variables. At the very outset the researcher must single out the problem he wants to study, i.e., he must decide the general area of interest or aspect of a subject-matter that he would like to inquire into. 2. Extensive literature survey: Once the problem is formulated, a brief summary of it should be written down. At this juncture the researcher should undertake extensive literature survey connected with the problem. For this purpose, the abstracting and indexing journals and published or unpublished bibliographies are the first place to go to. Academic journals, conference proceedings, government reports, books etc., must be tapped depending on the nature of the problem. 3. Development of working hypotheses: After extensive literature survey, researcher should state in clear terms the working hypothesis or hypotheses. Working hypothesis is tentative assumption made in order to draw out and test its logical or empirical consequences. 4. Preparing the research design: The research problem having been formulated in clear cut terms, the researcher will be required to prepare a research design, i.e., he will have to state the conceptual structure within which research would be conducted. 5. Determining sample design: All the items under consideration in any field of inquiry constitute a universe or population. A complete enumeration of all the items in the population is known as a census inquiry. A brief mention of the important sample designs is as follows: Deliberate sampling, Simple random sampling, Systematic sampling, Stratified sampling, Quota sampling, Cluster sampling and area sampling, Multi-stage sampling, Sequential sampling.

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6. Collecting the data: In dealing with any real life problem it is often found that data at hand are inadequate, and hence, it becomes necessary to collect data that are appropriate. There are several ways of collecting the appropriate data which differ considerably in context of money costs, time and other resources at the disposal of the researcher. Primary data can be collected either through experiment or through survey. If the researcher conducts an experiment, he observes some quantitative measurements, or the data, with the help of which he examines the truth contained in his hypothesis. But in the case of a survey, data can be collected by any one or more of the following ways: (i) By observation: This method implies the collection of information by way of investigators own observation, without interviewing the respondents. The information obtained relates to what is currently happening and is not complicated by either the past behaviour or future intentions or attitudes of respondents. This method is no doubt an expensive method and the information provided by this method is also very limited. As such this method is not suitable in inquiries where large samples are concerned. (ii) Through personal interview: The investigator follows a rigid procedure and seeks answers to a set of pre-conceived questions through personal interviews. This method of collecting data is usually carried out in a structured way where output depends upon the ability of the interviewer to a large extent. (iii)Through telephone interviews: This method of collecting information involves contacting the respondents on telephone itself. This is not a very widely used method but it plays an important role in industrial surveys in developed regions, particularly, when the survey has to be accomplished in a very limited time. (iv) By mailing of questionnaires: The researcher and the respondents do come in contact with each other if this method of survey is adopted. Questionnaires are mailed to the respondents with a request to return after completing the same. It is the most extensively used method in various economic and business surveys. Before applying this method, usually a Pilot Study for testing the questionnaire is conduced which reveals the weaknesses, if any, of the questionnaire. Questionnaire to be used must be prepared very carefully so that it may prove to be effective in collecting the relevant information.

44

(v) Through schedules: Under this method the enumerators are appointed and given training. They are provided with schedules containing relevant questions. These enumerators go to respondents with these schedules. Data are collected by filling up the schedules by enumerators on the basis of replies given by respondents. Much depends upon the capability of enumerators so far as this method is concerned. Some occasional field checks on the work of the enumerators may ensure sincere work. The researcher should select one of these methods of collecting the data taking into consideration the nature of investigation, objective and scope of the inquiry, finanical resources, available time and the desired degree of accuracy. Though he should pay attention to all these factors but much depends upon the ability and experience of the researcher. In this context Dr A.L. Bowley very aptly remarks that in collection of statistical data commonsense is the chief requisite and experience the chief teacher. 7. Execution of the project: Execution of the project is a very important step in the

research process. If the execution of the project proceeds on correct lines, the data to be collected would be adequate and dependable. 8 Analysis of data: After the data have been collected, the researcher turns to the task of

analysing them. The analysis of data requires a number of closely related operations such as establishment of categories, the application of these categories to raw data through coding, tabulation and then drawing statistical inferences.\ 9. Hypothesis-testing: After analysing the data as stated above, the researcher is in a position to test the hypotheses, if any, he had formulated earlier. Do the facts support the hypotheses or they happen to be contrary? 10. Generalisations and interpretation: If a hypothesis is tested and upheld several times, it may be possible for the researcher to arrive at generalisation, i.e., to build a theory. 11. Preparation of the report or the thesis: Finally, the researcher has to prepare the report of what has been done by him. Writing of report must be done with great care keeping in view the following: 1. The layout of the report should be as follows: (i) the preliminary pages; (ii) the main text, and (iii) the end matter.
45

In its preliminary pages the report should carry title and date followed by acknowledgements and foreword. Then there should be a table of contents followed by a list of tables and list of graphs and charts, if any, given in the report. The main text of the report should have the following parts: (a) Introduction: It should contain a clear statement of the objective of the research and an explanation of the methodology adopted in accomplishing the research. The scope of the study along with various limitations should as well be stated in this part. (b) Summary of findings: After introduction there would appear a statement of findings and recommendations in non-technical language. If the findings are extensive, they should be summarised. (c) Main report: The main body of the report should be presented in logical sequence and broken-down into readily identifiable sections. (d) Conclusion: Towards the end of the main text, researcher should again put down the results of his research clearly and precisely. In fact, it is the final summing up. At the end of the report, appendices should be enlisted in respect of all technical data. Bibliography, i.e., list of books, journals, reports, etc., consulted, should also be given in the end. Index should also be given specially in a published research report. 2. Report should be written in a concise and objective style in simple language avoiding vague expressions such as it seems, there may be, and the like. 3. Charts and illustrations in the main report should be used only if they present the information more clearly and forcibly. 4. Calculated confidence limits must be mentioned and the various constraints experienced in conducting research operations may as well be stated.

46

Data Analysis and Interpretation: ARPU analysis of Vodafone, Reliance and all India:
Graphs for circle wise APRU, average monthly subscribers, average monthly revenue and growth rate of average monthly subscribers and average monthly revenue for are shown below. Graphs are drawn on quarterly basis from 1st quarter of 2008 to 1st quarter of 2010. Two Y-axes are used one for growth rate of subscribers and revenue in percentage over the previous quarters (i.e. right Y-axis) and another for ARPU, average monthly revenue and average monthly subscribers(i.e. left Y-axis). Purpose of using two Y-axes is to understand clear relation between ARPU, subscribers, revenue and growth rate of subscribers and revenue. Graphs for individual circles separately are not shown because ARPU trends of individual circle is very much in line with aggregate ARPU trend of the all the circles belonging to the type of circle to which circle belongs. Dotted lines are used for growth rate of average monthly subscribers and revenue, and thick dark black line is used for ARPU, other thin lines are for average monthly subscribers and revenue during the corresponding quarter. Relation Between ARPU, average monthly subscribers and revenue: Let R stand for the revenue of operators, NA stand for the average number of subscribers, and ARPU stand for the Group's ARPU, then we get the formula

Differentiating equation (1), and get:

47

From equation (2), we can conclude that ARPU is positively related to R, and negatively related to NA. When both R and NA change, the change direction of ARPU could be drawn by comparing dR and (R*dNA/NA)

From equation (3), it is clear that, when R and NA change in the same proportion, ARPU would remain constant. And there could be three possibilities for its declination: R keeps the same but NA increases, NA remains constant but R falls, and both R and NA change in the same direction with larger change proportion of the later one. Number of Circles and there types: In India there total 23 circles which are categorized into four types namely Metro, Type A, Type B and Type C. Name of the circle along with their type are given below.

Circle Type Metro Type A Type B Type C

Name of Circles Delhi, Mumbai, Kolkata, Chennai Maharashtra, Gujarat, AP, Karnataka, TN Kerala, Punjab, Haryana, UP(W), UP(E), Rajasthan, MP WB, HP, Orissa, Bihar, Assam, NE, J&K

48

ARPU analysis of Vodafone circle wise and all India:


Company Circle Q1 08 Avg Monthly Subscribers (in lacs) Growth Rate of Subscribers Avg Monthly Revenue(in crores) Growth Rate of Revenue ARPU Avg Monthly Subscribers (in lacs) Growth Rate of Subscribers Avg Monthly Revenue(in crores) Growth Rate of Revenue ARPU Avg Monthly Subscribers (in lacs) Growth Rate of Subscribers Avg Monthly Revenue(in crores) Growth Rate of Revenue ARPU Avg Monthly Subscribers (in lacs) Growth Rate of Subscribers Avg Monthly Revenue(in crores) Growth Rate of Revenue ARPU Avg Monthly Subscribers (in lacs) Growth Rate of Subscribers Avg Monthly Revenue(in crores) Growth Rate of Revenue ARPU 141.42 489.63 346 90.76 245.92 271 187.78 441.89 235 Q2 08 151.90 7.42 476.37 -2.71 314 100.14 10.34 248.17 0.92 248 214.56 14.26 485.50 9.87 226 Q3 08 162.56 7.02 461.26 -3.17 284 109.45 9.29 242.75 -2.18 222 246.73 15.00 498.40 2.66 202 Quarter Wise Data Q4 08 Q1 09 Q2 09 173.71 6.86 490.00 6.23 282 119.15 8.86 256.74 5.76 215 281.74 14.19 564.46 13.25 200 1.83 2.58 141 419.96 1177.43 280 466.61 11.11 1210.04 2.77 259 518.74 11.17 1202.41 -0.63 232 576.43 11.12 1313.77 9.26 228 186.30 7.25 472.65 -3.54 254 130.34 9.39 261.01 1.66 200 319.64 13.45 612.41 8.50 192 12.23 567.27 18.24 606.92 149 648.50 12.50 1364.32 3.85 210 198.91 6.77 483.32 2.26 243 142.33 9.20 265.37 1.67 186 358.47 12.15 628.12 2.57 175 26.38 115.72 27.53 50.92 104 725.54 11.88 1404.34 2.93 194 Q3 09 209.61 5.38 471.80 -2.38 225 153.14 7.59 250.58 -5.57 164 394.98 10.18 599.69 -4.53 152 38.75 46.89 36.32 31.92 94 796.48 9.78 1358.39 -3.27 171 Q4 09 221.19 5.52 476.47 0.99 215 165.16 7.85 241.40 -3.66 146 432.80 9.58 604.88 0.86 140 52.10 34.44 43.79 20.57 84 871.24 9.39 1366.54 0.60 157 Q1 10 236.68 7.00 494.55 3.79 209 180.22 9.12 236.15 -2.17 131 475.44 9.85 634.11 4.83 133 68.97 32.39 58.79 34.26 85 961.30 10.34 1423.60 4.18 148

Metro

Type A

Vodafone Essar

Type B

Type C

All India

49

600

Vodafone Metro Circles

8 6 4

500

400 346 300 314 284 282 254 200 243 225 215 209 -2 100 -4 -6 Q1 08 300 271 250 248 222 200 215 200 186 164 150 146 131 100 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 0 2

Groth Rate in Percetage

Avg Monthly Subscribers (in lacs) Avg Monthly Revenue(in crores) ARPU

Growth Rate of Subscribers Growth Rate of Revenue

Vodafone Type A Circles

12 10 8 6 4 2 0 Avg Monthly Subscribers (in lacs) Avg Monthly Revenue(in crores) ARPU

Groth Rate in Percetage

-2 -4 50 -6 0 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 -8

Growth Rate of Subscribers

Growth Rate of Revenue

50

700

Vodafone Type B Circles

20 Avg Monthly Subscribers (in lacs) Avg Monthly Revenue(in crores) ARPU

600

15

500 10 400 5 300 235 200 226 0 202 200 192 175 152 Groth Rate in Percetage

Growth Rate of Subscribers Growth Rate of Revenue

140

133

100

-5

0 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10

-10

160 140 120 100 80 60 40 20 0 Q1 08 Q2 08 Q3 08

Vodafone Type C Circles 149


141

700 Avg Monthly Subscribers (in lacs) Avg Monthly Revenue(in crores) ARPU

600

500 104 94 84 85 Groth Rate in Percetage

400

300

200

Growth Rate of Subscribers Growth Rate of Revenue

100

0 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10

51

1600

Vodafone All India

14

12 1400

Avg Monthly Subscribers (in lacs)

10 1200 8 Avg Monthly Revenue(in crores)

1000 6

Groth Rate in Percetage

ARPU 800 4

2 600 Growth Rate of Subscribers

0 400 -2 280 200 259 232 228 210 194 171

157

148

-4

Growth Rate of Revenue

0 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10

-6

52

Vodafone Circle Type Wise ARPU:


Q1 08 346 271 235 NA 280 Q2 08 314 248 226 NA 259 Q3 08 284 222 202 NA 232 Q4 08 282 215 200 141 228 Q1 09 254 200 192 149 210 Q2 09 243 186 175 104 194 Q3 09 225 164 152 94 171 Q4 09 215 146 140 84 157 Q1 10 209 131 133 85 148

Metro Type A Type B Type C All India

Vodafone Circle Typewise ARPU


400 350 300 250 200 150 100 50 0 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Metro Type A Type B Type C All India

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Interpretation:
Continues decline in ARPU in all type of circles. Increase in no of subscribers in all type of circles. Almost linear decrease and linear increase in ARPU and average subscribers during the period respectively for all types of circles. Average revenue for Metro and Type A circles is fairly constant i.e. there is no or very less increase in average revenue of such circles where as Type C circles has shown increase in both subscribers and revenue and for Type B circles it is fairly constant from 1st quarter of 2009. After launch in 4th quarter of 2008 sharp rise in the both subscribers and revenue followed by sharp decline in ARPU of Type C circles is seen. Growth Rate of subscribers for all types of circles is fairly constant with very less fluctuations. Continues fluctuations in the growth rate of average revenue in all the graphs. In some quarters there is also negative growth rate of average revenue. In all the graphs growth rate of average revenue is very less as compare to growth rate of average subscribers. Company is generating very high amount of average monthly revenue in metro and Type B circles with around Rs 480 crores and Rs600 crores of average monthly revenue in metro and Type B circles respectively. Growth Rate above 100% for Type C circles in 2nd quarter after its launch in Type C circles. ARPU of Metro Circles is high as compared to other types of circles. ARPU of Type C Circles is very low and is below Rs100 in last four quarters till March 2010.

54

ARPU analysis of Reliance circle wise and all India:


Company Circle Q1 08 Avg Monthly Subscribers (in lacs) Growth Rate of Subscribers Avg Monthly Revenue(in crores) Growth Rate of Revenue ARPU Avg Monthly Subscribers (in lacs) Growth Rate of Subscribers Avg Monthly Revenue(in crores) Growth Rate of Revenue ARPU Avg Monthly Subscribers (in lacs) Growth Rate of Subscribers Avg Monthly Revenue(in crores) Growth Rate of Revenue ARPU Avg Monthly Subscribers (in lacs) Growth Rate of Subscribers Avg Monthly Revenue(in crores) Growth Rate of Revenue ARPU 3.21 Q2 08 4.05 26.34 2.96 92 14.86 2.57 -13.12 64 16.57 11.48 19.30 16.02 117 54.86 16.68 82.08 175 65.09 93.24 13.59 170 75.48 15.97 101.68 156 115.12 13.21 153 Avg Monthly Subscribers (in lacs) Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 5.14 26.87 3.33 29.47 65 18.50 11.65 17.54 -9.13 95 62.79 14.45 88.25 -5.36 141 86.43 14.51 109.12 -5.21 126 5.99 16.60 2.85 -14.47 48 21.13 14.22 21.92 25.00 104 70.68 12.55 81.02 -8.18 115 97.80 13.15 105.80 -3.04 108 7.24 20.80 6.10 114.08 84 24.19 14.47 24.90 13.56 103 78.09 10.49 91.24 12.61 117 109.52 11.98 122.24 15.54 112 9.38 29.52 7.67 25.61 82 27.48 13.63 28.00 12.46 102 85.10 8.97 92.76 1.67 109 121.96 11.35 128.43 5.06 105 11.19 19.34 14.23 85.65 127 30.37 10.52 28.79 2.83 95 91.26 7.24 86.25 -7.02 95 132.82 8.91 129.28 0.66 97 Q4 09 12.72 13.66 10.33 -27.40 81 35.06 15.42 35.08 21.85 100 99.63 9.17 90.47 4.90 91 147.41 10.98 135.89 5.12 92

Metro

Type B

16.64 112 47.02

Reliance

Type C

All India

55

140

Reliance Metro Circles


127

140.00

120.00

120

Avg Monthly Subscribers (in lacs)

100.00 100 92 84 80 80.00 Groth Rate in Percetage Avg Monthly Revenue(in crores)

82

81

60.00 ARPU

64 60

65

40.00

48 40

20.00

Growth Rate of Subscribers

0.00

20 -20.00

Growth Rate of Revenue

0 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09

-40.00

56

140

Reliance Type B Circles


112 117

30.00 25.00 20.00 Avg Monthly Subscribers (in lacs) Avg Monthly Revenue(in crores) ARPU

120

100 95 80

104

103

102 95

100 15.00 10.00 5.00 0.00 Groth Rate in Percetage

60

40 -5.00 20 -10.00 -15.00 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09

Growth Rate of Subscribers

Growth Rate of Revenue

200 180 160 140 120 100 80 60 40 20 0 Q1 08 Q2 08 Q3 08 141 175

Reliance Type C Circles


170

20 Avg Monthly Subscribers (in lacs) Avg Monthly Revenue(in crores) ARPU

15

10 115 117 109 95 91

Groth Rate in Percetage

Growth Rate of Subscribers Growth Rate of Revenue

-5

-10 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09

57

180

Reliance All India


156 153

20 Avg Monthly Subscribers (in lacs) Avg Monthly Revenue(in crores) ARPU

160

15

140

120 108 100 112 105 97 92

10

80

Groth Rate in Percetage

126

60

Growth Rate of Subscribers

40 -5 20 Growth Rate of Revenue

0 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09

-10

58

Reliance Circle Type wise ARPU:


Q1 08 92 112 175 156 Q2 08 64 117 170 153 Q3 08 65 95 141 126 Q4 08 48 104 115 108 Q1 09 84 103 117 112 Q2 09 82 102 109 105 Q3 09 127 95 95 97 Q4 09 81 100 91 92

Metro Type B Type C All India 200 180 160 140 120 100 80 60 40 20 0

Reliance Circle Type wise ARPU

Metro Type B Type C All India

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

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Interpretation:
Most of the trends for reliance are same as that of Vodafone. o Continues decline in ARPU except in Kolkata i.e metro circle where it shows continues fluctuations. o Increase in no of subscribers. o Almost linear decrease and linear increase in ARPU (except Kolkata circle) and average subscribers during the period respectively for all types of circles. o Growth Rate of subscribers for all types of circles is fairly constant with very less fluctuations. o Continues fluctuations in the growth rate of average revenue in all the graphs. o In some quarters there is also negative growth rate of average revenue. o In all the graphs growth rate of average revenue is very less as compare to growth rate of average subscribers.

For Metro circle i.e. Kolkata company has shown very high inconsistency in ARPU and in Growth rate of subscribers and average monthly revenue. Companys ARPU is been consistently very low as compare to Vodafone and overall all India (i.e. putting all operators together) and it is below Rs100 for All India (Reliance). ARPU of Metro Circles is very low and most of times its below Rs100 and Type C circles ARPU is high as compared to other types of circles which is exactly opposite of trend seen for Vodafone or All Indias general trends .

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ARPU analysis of all India:


Company Circle Avg Monthly Subscribers (in lacs) Growth Rate of Subscribers Avg Monthly Revenue(in crores) Growth Rate of Revenue ARPU Avg Monthly Subscribers (in lacs) Growth Rate of Subscribers Avg Monthly Revenue(in crores) Growth Rate of Revenue ARPU Avg Monthly Subscribers (in lacs) Growth Rate of Subscribers Avg Monthly Revenue(in crores) Growth Rate of Revenue ARPU Avg Monthly Subscribers (in lacs) Growth Rate of Subscribers Avg Monthly Revenue(in crores) Growth Rate of Revenue ARPU Avg Monthly Subscribers (in lacs) Growth Rate of Subscribers Avg Monthly Revenue(in crores) Growth Rate of Revenue ARPU Q1 08 242.51 866.72 357 551.32 1426.67 259 443.23 1045.79 236 211.92 478.96 226 419.96 3818.14 253 Q2 08 240.82 -0.70 765.15 -11.72 318 634.97 15.17 1583.82 11.02 249 500.82 12.99 1139.26 8.94 227 247.60 16.84 520.88 8.75 210 466.61 11.11 4009.11 5.00 247 Avg Monthly Subscribers (in lacs) Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 259.99 283.06 307.96 331.73 355.23 7.96 8.87 8.80 7.72 7.09 766.67 823.71 800.09 785.20 803.05 0.20 7.44 -2.87 -1.86 2.27 295 291 260 237 226 701.48 772.41 852.12 932.92 1011.99 10.48 10.11 10.32 9.48 8.48 1623.58 1785.19 1826.98 1878.61 1825.11 2.51 9.95 2.34 2.83 -2.85 231 231 214 201 180 564.24 631.71 706.39 785.36 866.58 12.66 11.96 11.82 11.18 10.34 1175.98 1343.73 1414.78 1461.98 1412.04 3.22 14.26 5.29 3.34 -3.42 208 213 200 186 163 286.12 329.15 387.00 448.57 510.61 15.56 15.04 17.57 15.91 13.83 541.44 612.88 690.49 721.19 730.18 3.95 13.19 12.66 4.45 1.25 189 186 178 161 143 518.74 576.43 648.50 725.54 796.48 11.17 11.12 12.50 11.88 9.78 4107.68 4565.50 4732.35 4846.98 4770.38 2.46 11.15 3.65 2.42 -1.58 227 222 208 191 174 Q4 09 379.08 6.71 764.13 -4.85 202 1091.40 7.85 1807.98 -0.94 166 963.68 11.20 1412.48 0.03 147 582.14 14.01 712.28 -2.45 122 871.24 9.39 4696.88 -1.54 156 Q1 10 397.04 4.74 796.52 4.24 201 1196.77 9.65 1869.02 3.38 156 1041.79 8.11 1444.12 2.24 139 565.30 -2.89 698.99 -1.87 124 961.30 10.34 4808.64 2.38 150

Metro

Type A

All India

Type B

Type C

All India

61

5000

All India

14

4500

12

Avg Monthly Subscribers (in lacs)

4000 10 Avg Monthly Revenue(in crores)

3000

Groth Rate in Percetage

3500

ARPU 2500

4 2000

2 1500

Growth Rate of Subscribers

0 1000 Growth Rate of Revenue

500 253 0 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 247

-2

227

222

208

191

174

156

150 -4

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All India Circle Type-wise ARPU analysis:


Metro Type A Type B Type C All India Q1 08 357 259 236 226 253 Q2 08 318 249 227 210 247 Q3 08 295 231 208 189 227 Q4 08 291 231 213 186 222 Q1 09 260 214 200 178 208 Q2 09 237 201 186 161 191 Q3 09 226 180 163 143 174 Q4 09 202 166 147 122 156 Q1 10 201 156 139 124 150

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All India Circle Type-wise ARPU


340

320

300

280

260 253 247 240 Type A ARPU 227 220 222 Type B 208 200 191 180 174 All India Type C Metro

160 156 150 140

120

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100 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10

Interpretation: Continues decline in ARPU in all circles. For all India it declines from Rs357 in Q1 2008 to Rs150 in Q1 2010. Continues Increase in no of subscribers and at the end of March 2010 there were 961.30 lacks average monthly subscribers. Almost linear decrease and linear increase in ARPU and average subscribers during the period respectively. Growth Rate of subscribers is constant in 2008 and after one spurt increase in 1st quarter of 2009 it decrease subsequently in remaining three quarter and again increased to 10.34% in 1st quarter of 2010. Continues fluctuations in the growth rate of average revenue. In 3rd and 4th quarter of 2009 there is negative growth rate of average revenue i.e. around 1.55%. Growth rate of average revenue is very less as compare to growth rate of average subscribers. ARPU of Metro Circles is high as compared to other types of circles. ARPU of Type C Circles is very low and is below Rs100 in last four quarters till March 2010.

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Observations and Findings:


Reasons for Declining ARPU: Though there is almost increase in subscribers and revenue, growth rate of revenue has always remained below the growth rate of subscribers, which ultimately leads to continues decline in ARPU. As it can be seen from the above graphs for all circles, the ARPU is declining in the recent past. There may be many reasons for this. Following may be some of the reasons for declining ARPU. Subscriber base has had a negative impact on the average revenue per user (ARPU) for operators because of one main reason: the moment an operator adds a new customer, the operator's ARPU falls as the new customer takes some time to add revenue to the operator. The mix of mobile subscribers in India was 71% urban versus 29% rural, according to the Telecom Regulatory Authority of India (TRAI). This is exactly opposite to the countrys demographic composition, with 30% of Indians in cities and 70% in rural areas (Exhibit 3). To reconcile this disparity, telecom operators in India are forced to seek subscriber growth in low-income, rural areas. Higher validity period- Another reason for the decline of ARPU is the increase in the validity period for talk time. Due to this customers are recharging a small amount and using it less because it has a larger validity period. Customers in emerging markets are principally prepaid customers, who change consumption when confronted with budget constraints. In the current economic environment, a significant portion of consumption is at risk in low- to mid value segments. Price pressure will increase as markets become more competitive. In India, some circles already have 13 licensed operators due to the recent award of additional 2G licenses and in all there are 15 telecom operators are providing there service in India. The customer mix will change dramatically, tending to poorer and more rural residents. The roughly 40% of the world population that remains without phones is also the poorest, with most earning less than $2 per day. The monthly ARPU from new customers can be

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as low as $1 in some markets. In addition, most of the potential new customers live in rural areas, where operators face higher network and distribution costs. Due to reduction in the costs of the Mobile Handsets and due to the availability of Dual SIM Mobile Handsets in the market at cheaper rates, people are using multiple SIM cards due to which the ARPU is constantly declining. Due to entry of many Players in the market and due to the introduction of per second billing, there has been an introduction of Price war in the market, which has ultimately resulted in the decrease in ARPU of various companies in various circles. ARPU is also on the decreasing side due to the extensive use of Internet as a communication medium. Due to the use of Emails, Chats etc., the use of Mobile has been reduced to a considerable level thus resulting in the decline in ARPU. People are using multiple connections and making use of cheaper services from different connections. Suppose one operator provides free night calling while the other provides free SMSs then people are taking the benefits respectively. There are some people who have taken many connections but keep most of their connections idle for most of the time. This ultimately results in less use of most of the connections and as a result there is a decrease in revenue. ARPU is also on the declining side due to some poor segmentation in the markets. Due to the poor segmentation of the market, people are taking advantage of it and this is resulting in decrease in ARPU. Also people are making effective use of the Price war in the Markets. The decreasing number of SMSs can be attributed mainly to the fall in voice tariff. The younger generation finds it more comfortable and affordable to call, instead of text messaging. As the Companies are in expansion mode, so as new customers are added the ARPU decreases. New customer means that revenue is divided by a larger number and ARPU decreases. Saturation Research has suggested that saturation of the market by telecom companies could also be a reason behind decline of ARPU. Lesser usage of value added services - Lesser usage of value added services is also a reason behind declining ARPU.
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Suggestions / Recommendations:
Even though the ARPU is continuously descending, the mobile operators should be sober toward this phenomenon, because the decline of ARPU is not directly correlated with the movement of revenue. They should improve the factors that are positively related to ARPU, and meanwhile, be cautious to keep the expenditures at a reasonable level. The shifting focus: ARPU to AMPU In today world of declining ARPU companies should shift their focus from ARPU to AMPU i.e. Average Margin per User. Positive AMPU will assure profits in spite of low ARPU as long as ARPU exceeds average cost per user. ARPU vs. AM

PU: The Comparison

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Methods or ways to increase ARPU or AMPU:


By reducing existing costs - ARPU can be increased by reducing the existing cost of the company. This is especially required in the time of this stiff competition between the operators. Network shaping - With a precise knowledge of what their users do on the network, operators are able to size and design their network according to their real needs, and not according to supposedly uniform usage figures. Therefore, data networks can then be seen as real manageable assets from the companys perspective. This does not impact directly on the ARPU but has an effect on the AMPU (average margin per user) and radically changes the way operators plan their return on investment. Bundled pricing- The emerging approach of bundled pricing is a powerful technique for driving mobile voice usage and kick-starting much-needed new revenue from mobile data services. With bundled pricing, mobile operators offer a defined usage allocation of one or more services for a set fee. Bundles can encourage users to adopt and use more data services than they would if the services were purchased individually. Beyond driving the take-up and usage of services, bundled pricing also has important strategic benefits for mobile operators. It can help them to strengthen their relationships with customers, to reduce churn and to avoid price competition Offering customers high-priced value-additive services - Another way to increase ARPU is by offering customers high-priced value-additive services such as ring-tone downloads and mobile phone games By providing various services that are valuable, so that the customer does not feel the need of using dual SIM for particular advantage in some of the services. The Company should try to recover profits from those services which are not yet facing the price war situation. Reduce costs by leveraging new technologies and services. Network costs can further be reduced by using three levers: o Pushing services that minimize network capacity requirements, such as off-peak voice plans, mobile IM chat or SMS.

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o Deploying flexible technologies that reduce transmission and switching costs. Bharti Airtel is about to become the second operator worldwide after Australian operator Telstra to roll out the bladecluster Mobile Switching Center of Ericsson, a move that can save 45% in server operational expenditure. o Harnessing alternative energy sources, such as wind, biodiesel, or solar poweror a hybrid combination. Solar panels will become increasingly affordable and batteries increasingly efficient with technological progress and manufacturing scale.

Network Sharing As network costs typically represent between 15% and 25% of operating expenditure (Opex) and 75% to 80% of capital expenditure (Capex), the benefits of network sharing are obvious. Indus Tower, jointly-owned by Vodafone Essar, Bharti Airtel, and Idea, has approximately 90,000 sites, making it the largest tower company worldwide. So by use of network sharing operators can substantially reduce their both oerating and capital expenditure. Despite the hype surrounding network sharing in India, the practice is still in its infancy. Operators need to accelerate passive infrastructure sharing. The key to savings is a high sharing ratio, maximizing the average number of tenants per tower. The sharing ratio is now less than 1.3, which translates into roughly 5% Capex savings, as there are costs to accommodating several tenants on one tower. Increasing the ratio to 2 would translate into a 20% savings on total Capex spend. These estimates assume a simplistic model where operators still directly fund their entire passive infrastructure Capex. In practice, operators also seek significant financial efficiency gains by transferring a large portion of their infrastructure assets off their balance sheets to tower subsidiaries. Active sharing of a towers electronic components, such as radio transmitters, is starting to take hold, although the benefits are less straightforward than with passive sharing. Operators lose the ability to differentiate on network quality and the complexity of managing agreements increases exponentially. In a best-case scenario, active sharing could generate a 10% saving on total Capex spend. National roaming agreements may prove in many cases a sound alternative to active sharing deals.

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Extend the value proposition beyond plain voice and communication: Value-added services are increasingly important for raising ARPU, and their positive

impact on customer loyalty reduces churn and lowers retention costs. One service with great potential is mobile banking (or mobile money) within the largely unbanked low-income segment. Customers load money into a virtual account attached to their SIM at cash-in/ cash-out centers, often housed in gas stations or other local shops, and then send money to relatives in villages or buy goods from selected merchants. By implementing intra-group shared services in the fields of IT, billing, customer care, network operating centers, or HR, market leaders could extract further benefits. Shared services in IT and billing, for example, can bring savings of 25% on total IT spend, and up to 5% savings in total Capex spend.

Constant Innovation The Company should try to recover profits from those services which are not yet facing the price war situation. The Company should do constant Innovation and come up with Innovative Plans and strategies and in order to make people spend more and thus result in the increase in ARPU. The companies should encourage the people to talk more through various offers, which may also result in the increase in ARPU. With a precise knowledge of what their users do on the network, operators are able to size and design their network according to their real needs, and not according to supposedly uniform usage figures.

Quality of service: By providing quality service which can lead to overall subscriber satisfaction, more subscribers will be eager to spend time and money using mobile data services. Quality of service can be improved by: Addressing Customer Complaints Effectively, Reducing Call Drops, Voice clarity etc.

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Conclusion:
The Indian telecommunications industry is one of the fastest growing in the world. Industry has reached subscriber base of 638 million in April 2010 with tele-density of 55.38. Considering big opportunity in Indian telecom sector, Norway based Telenor group in joint venture Unitech ltd has launched its service under the brand name Uninor in 11 circles. ARPU levels in emerging markets likes India have been dramatically decreasing because of increasing competition, price reductions, and a second wave of customer acquisition from predominantly lower income segments. The mix of mobile subscribers in India was 71% urban versus 29% rural. Whereas countrys demographic composition is 30% of Indians are in cities and 70% are in rural areas. To reconcile this disparity, telecom operators in India are forced to seek subscriber growth in low-income, rural areas. So with 15 telecom operators competing for market share it has become challenge for telecom operators to earn substantial revenue and profit for share holders. Hence After analyzing APRU it is found that though both subscribers and revenue is increasing but the growth rate of revenue has been always below the growth rate of revenue which results into continues decline in ARPU. For telecom operators shifting focus to AMPU will assure profit instead of low ARPU. It is found that Companies need to reduce the cost by way of network sharing using economies of large scale etc. They also need to find out innovative way of generating revenue such as VAS, price bundling etc.

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References:
www.uninor.in www.trai.gov.in www.dot.gov.in www.ibef.org www.coai.com www.economywatch.com

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