India - A Potential 3G Market

A Feasibility Study

Arnab SinhaSudipta Ray

Indian Institute of Technology, Kharagpur

ServicePromotion

3G SERVICES & INDIAN MARKET

Market Trends

Existing MarketCompetition

Business BaseEvaluation of Policies

CostStructure

Technology Requirements

ServicePromotion

3G SERVICES & INDIAN MARKET

Market Trends

Existing MarketCompetition

Business BaseEvaluation of Policies

CostStructure

Technology Requirements

PROJECTED SUBSCRIBER POPULATION

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440

su

bscri

ber

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lati

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subscriber population (millions) Poly. (subscriber population (millions))

394350 350394

469

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AR

PU(R

s/m

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)

Expected Usage in 2007:111 million

(from CAGR of 94%)

Market Trends

Cheaper Infrastructure

Cost

ServicePromotion

3G SERVICES & INDIAN MARKET

Market Trends

Existing MarketCompetition

Business BaseEvaluation of Policies

CostStructure

Technology Requirements

Existing Market Competition

Stake in Existing Market :Technology relied upon :

Total Investment :

Analyzing the predicted Market Revenue Trends, expected Break Even Period for Vodafone

BHARTI (10%)GSM (Larger service

range in India)1.5 billion USD

Our Target Break Even before

February 2008

Vodafone Break Even

ServicePromotion

3G SERVICES & INDIAN MARKET

Market Trends

Existing MarketCompetition

Business BaseEvaluationof Policies

CostStructure

Technology Requirements

Business Base

Current Position of Reliance in market- 20.3 % of the subscriber population- Largest CDMA provider in India

- 54% of the population is below the age of 241

- Estimated youth’s annual spending US$10.5 billion1

Population Count in 2006(millions)

10%

20%

11%

10%16%

13%

9%

4%7%

0-4

5to14

15-19

20-24

25-34

35-44

45-54

55-59

60&above

Collaboration with Reliance!

Targeting the Youth Section!Launching the service on Valentine’s Day!

Customer Base

ServicePromotion

3G SERVICES & INDIAN MARKET

Market Trends

Existing MarketCompetition

Business BaseEvaluationof Policies

CostStructure

Technology Requirements

• Increased talk time• Superior Power Control • Lowest radiation level• Hi-Speed Internet Access

– India has less than 0.4% penetration CDMA1x handsets (140 kbps)

• Most successful 3G Tech– CDMA2000 controls 85% of the World’s 3G market – Adds 15 million new users per quarter Worldwide

• Better Voice & Consistent Quality• Advanced platform supporting innovative

applications• GSM 3G evolution relies on CDMA

Technology Requirements

Hence CDMA – choice for the 3rd generation!

ServicePromotion

3G SERVICES & INDIAN MARKET

Market Trends

Existing MarketCompetition

Business BaseEvaluation of Policies

CostStructure

Technology Requirements

Cost Structure

Total RelianceRevenue =

Normal Revenue + 3G RevenueYoung Reliance

CustomersReliance SubscriberAccessing Internet

Estd. Avg Packet Consumption

per month (APC)Charge (C)Packet wiseBilling

Cost Structure

50p for each 128

Bytes packet

Billing Structure

Following Japan’s estimate5

APC=8192(1MB)

Reliance Customer Base 20.3% of

38.5 Mn6= 7.82 Mn

Target 54%1 Young Customer= 4.22 million

Total RelianceRevenue =

Normal Revenue + 3G Revenue

Young Reliance CustomersReliance Subscriber

Accessing InternetEstd. Avg Packet Consumption

per month (APC)Charge (C)Packet wisebilling

07 07

06 06

( ) ( ). 0.36 ( ).Dec Dec

Feb Feb

ARPU t pop t dt C APC pop t dt

Target Break even December 2007

COMPUTATION STEPS

Estimated Breakup of Expenses

Estimated cost for infrastructure, planning services, site civil works (based on other countries’ statistics)14

106.4 billion INR Licensing fees, sales and marketing cost

(26%15 of the acquired revenue) 7.49 billion INR

Total Expense (Approx) 115 billion INR

Feb, 2006 Dec, 2007

Estd. Revenue Earned143 billion

Large Profit Margin

ServicePromotion

3G SERVICES & INDIAN MARKET

Market Trends

Existing MarketCompetition

Business BaseEvaluation of Policies

CostStructure

Technology Requirements

Service Promotion

Attractive RateUtilities as per demand Handset Cost

Communication

Entertainment

Information Services

Agro-business

Optional CommercialServices

Communication

Entertainment

Information Services

Agro-business

Optional CommercialServices

Average HandsetPrice

19, 448 INR

Average HandsetPrice

19, 448 INR

ARPU 1475 INR only

ARPU 1475 INR only

Advertisement

ServicePromotion

3G SERVICES & INDIAN MARKET

Market Trends

Existing MarketCompetition

Business BaseEvaluation of Policies

CostStructure

Technology Requirements

Largest CDMA Provider

Defeat VodafoneLucrative Offers

after Dec’07

Appeasementof

Government

Adaptive to Market Forces

Evaluation of Policies

Reliance

Target Break Even – Dec’07

Survival of Competition

Early Start

BeneficialUtilities

Wider Estd.Profit margin

Thank You!

ServicePromotion

Market Trends

Existing Market

Competition

Business Base

Evaluation of Policies

CostStructure

Technology Requirements

References

1. Statistical Outline of India 2002-032. http://www.indiadaily.com/editorial/5826.asp,Dec 7, 2005 Media Release3. http://www.stylusinc.com/internet_potential_india.htm4. http://www.hardwaresecrets.com/article/1515. http://ojr.org/japan/wireless/1084495929.php6. http://www.indiadaily.com/editorial/5826.asp,Dec 7, 2005 Media Release7. http://shopping.yahoo.com.au/8. http://www.umtsworld.com/umts/faq.htm#f39. http://blogs.zdnet.com/ITFacts/?p=906510. http://www.w2forum.com/item/us_wireless_market_reach_neartotal _saturation_200911. http://www.mouthshut.com/review/GSM_Mobile_Technology_Vs_ CDMA_Mobile_Technology-34613-1.html13. http://www.businessworldindia.com/sep2004/news08.asp14. http://www.umtsworld.com/umts/faq.htm#f3615. www.auspi.org/presentation/AUSPI-press-conference.ppt

Backup Slides

World-Market Share

Samsung11%

Motorola15%

SonyEricsson

5%

NOKIA34%

others27%

siemens8%

₤178-570

$990 ₤190-279

₤215-420

The Average International Market Price of 3G mobile Handsets =

World market sharei x Avg. handset cost x conversion factori

= 19,448 INR

Source: Gartner, 2003

Back

Computation Steps under Packet-Wise Billing Current Internet User Count=38.5million2

Reliance Subscriber Count=20.3%of 38.5=7.82million Targeted Youth Population=54%of 7.82=4.22million Customer Base for Reliance=11.65million(data

provided) Ratio for Target Customer for 3G= 4.22/11.65 = 0.36

Considering this ratio remaining constant, Revenue earned within the breakeven period limits::

Revenue earned by telephony Revenue earned by internet usage

Computation Steps cont..• Revenue earned by telephony:

∫ ARPU(t)xsub.population(t) = Area under the Revenue

Curve

= 1485.76 billion INR

• Revenue earned by internet usage:=Charge per packet ( C ) x Avg.Packetconsumption (APC) x Ratio of Target Customers x ∫Sub.population(t)= 0.5x8192x0.36x{Area under the Subscriber Poplulation Curve}

=5558.501 billion INR

• Total Revenue =7044.26billionINR

Plot Depicting [ARPU(t) x population(t)]

22572.2620574.68

38951.5

75572

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Plot Depicting

Subcriber Popluation(t)

57.2952.22

111.29

215.92

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Computation Steps cont.

• Total Revenue = 7044.26 billion

• Total Reliance Revenue = 20.3% of 7044.26 = 1429.99 billion

If acquired a 10% stake,• Returns to the company = 10%

of 1429.99 • ≈ 143 billion >> 115 billion

(investment cost)

07 07

06 06

( ) ( ). 0.36 ( ).Dec Dec

Feb Feb

ARPU t pop t dt C APC pop t dt

Back

Vodafone’s Returns: Computation steps for the Breakeven

833.5

1617.24

483.04

440.3481.9

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Voda

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R)

Vodafone's returns 481.85717 440.29815 483.04636 833.5621 1617.2408

12/1/04 3/1/05 6/1/05 6/1/06 6/1/07

• Based on the PlotReturns(t) = Area Under the Plot= 10667.93 +89.71 t2 +833.56 t

(billions)

• Returns till Breakeven period = 1.5 billion USD= 63000 million INR*

• Solving for t:t =19.95 months ≈ 20 months By February 2008.*Exchange rate =Rs 42/- Back

Aiming the technologyAiming the technology Source: CDG, AUSPI, TelecomWatch,COAI, TRAI

Wireless Technology trends

39

64

71

79

84

5

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25

34

44

2001

2002

2003

2004

2005

No. of networks.

CDMA

GSM

Tariff fall and teledensity increase

43.5

21.5

1

0.5 12.8

4.66.5

012345

2001 2002 2003 2004 2005

Tarif

f(Rs/m

in)

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2

4

6

8

Teled

ensit

y(%)

Tariff(Rs/min) Teledensity(percentage)

Wireless growth after introduction of CDMA4:Subscriber growth in GSM: CAGR of 74%*

Subscriber growth in CDMA: CAGR of 205%*

Increase in Teledensity: 6%*

Decrease in tariff: 75%*

Indian MarketIndian Market FeasibilityFeasibility

Indian Market Feasibility

239 236

287

93

33 32

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Australia Singapore China India

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TARGETED CUSTOMER : THE YOUTH?TARGETED CUSTOMER : THE YOUTH?Population Count in 2006(millions)

10%

20%

11%

10%16%

13%

9%

4%7%

0-4

5to14

15-19

20-24

25-34

35-44

45-54

55-59

60&above• 54% of the population is below the age of 24• Estimated youth’s annual spending US$10.5bn with growth

rate of 12%1

• 55% of young India opts for career in web related activities3

• Demand for internet access (38.5 Mn currently) may shoot up to 100 Mn in 2 years.

Trends in population

190.8

120.8122.4105108.5 117.490.2

156.6170.6

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2001 2005 2010

Popu

latio

n(m

illion

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15to19 20-24 25-34