INDUSTRY ANALYSIS TELECOM

Presented By Amit Kumar Choudhary M.Sai Krishna B.V.Rajendra Gowda Tushar Rai

- 24NMP04 - 24NMP17 - 24NMP21 - 24NMP28

AGENDA
Industry Overview Competitiveness SWOT Analysis Five Forces Analysis Analysis of key performance indicators Outlook Market Perception Sources of Information

Industry Overview
Telecom industry, for the purpose of this analysis, consists of wireless & wireline service providers and broadband services. Other sub-sectors include telecom equipment manufacturing, cable TV, DTH and Radio broadcasting. The telecom sector in India was a government monopoly until the year 1994 when liberalization was gradually unrolled. For the first time, cellular services were launched in India in Kolkata in the year 1995 Indian telecom market is one of the fastest growing markets in the world Indian telecom network has about 885.99 million connections as on 30 June 2011 (Source : TRAI) With 851.70 million wireless connections, Indian telecommunication network has become the third largest wireless network and 2nd largest in Asia, after China

Competitiveness
10 players, on average, in the industry which is the highest in the world Four firm HH index is 0.10 and eight firm HH index is 0.13 indicating low concentration Oligopoly structure with top four firms commanding around 64% of market Fierce competition in a regulated environment

Source : www.investorzclub.blogspot.com www.coai.com

Total GSM subscriber

SWOT ANALYSIS

Strengths
Huge Customer potential Tele-density still being 73.97. Rural tele-density 35.6. Urban tele-density is 163.13. ( Tele- density : No. of connections per 100 users) The broadband subscribers grew from about 7.98 million at the end of the December 2009 to 12.35 million by June 2011. High Growth Rate Wireless subscribers growing at a CAGR of 40 per cent per annum since 2009. Allowed FDI limit of 74% The total FDI equity inflows in telecom sector have been US$ 2558 million during 2009-10 and US$ 1665 million in 2010-11. Liberalization efforts by Govt. The share of private sector in total telephone connections is now 85.62% as per the latest statistics available as against a meager 5% in 1999. Draft NTP (New Telecom Policy)

Growth of Telecom

SOURCE : TRAI

10

Weakness
Telecommunication Infrastructure Result : Large number of call drops. Late adopters of New Technology India among the last countries in the world to get access to 3G technology. Most competitive market 10 to 12 companies offer mobile services in most parts of India, globally, the average is 4. A market strongly regulated by Government. Slowdown in addition of subscribers Difficult to enter because of requirement of huge financial resources. e.g Auction of 3G license was awarded for Rs 50995.37 crores. (Source : DoT, Govt. Of India)

GSM Subscriber Base

12.1

Opportunities
3G Telecom services and 4G services More Quality Service Mobile Number Portability has forced the Service provider to improve their quality to avoid losing subscribers Value added Services (VAS) The mobile value added services include, text or SMS, menu based services, downloading of music, mobile TV, sophisticated m-commerce applications etc. Boost to Telecom Equipment Manufacturing Companies Production of telecom equipments in 2011 has been 213 million units. It is expected to grow to 231 million units in 2012 (8.5% growth). The Indian telecom industry is expected to reach a size of Rs. 3,44,921 crore by 2012 at a growth rate of over 26 per cent. Horizontal Integration Entry Into other consumer segments leveraging the present channels E.g. DTH service like Reliance BIG TV, Tata SKY, Airtel digital TV by telecom majors like Reliance, Tata and Airtel Respectively. Providing fiber connectivity to all 2,50,000 gram panchayat by Dec, 2012 { Ref. National Broadband Plan 2010 (NBP) }

Threats
Telecommunication Policies TRAI's 2G direction affecting new players Renewal of 2G license on the basis of market rates of 3G auctions TRAI intentions of rolling out 4G or the fourth-generation technology, known as the ultra-broadband soon, raising fears that 3G services would become somewhat obsolete. Declining ARPU (average Revenue per user) Price wars like per-second billing which is deflating revenues and making sure the survival of the fittest Partiality on the part of the Govt. Allowing 3G service in a PSU (MTNL,BSNL) before auctioning to Private Sector . Content Piracy

PORTER FIVE FORCE ANALYSIS

Threat of new entrants

Favorable for new entrants Low Customer Switching Costs Cost of new connection low Mobile number portability Unfavorable for new entrants Declining ARPU

Capital Requirement
Extremely high infrastructure setup costs Spectrum License cost Incumbent Advantages

Established brand image

Reliability of network Restrictive Govt Policy Spectrum and license allocation 74% FDI cap.

Overall Influence on the Industry - LOW

Power of the buyer

Lack of differentiation among the service provider Cut throat competition Customer is price sensitive Low switching costs Number portability to have negative impact Overall influence on the industry HIGH

Supplier Bargaining Power

Large number of suppliers. Shared tower infrastructure. Physical Infra
Network Infrastructure

Supplier
-Ericsson -Siemens Networks -Cisco -Huawei -IBM -TCS -Bharti Infratel -Indus Towers -IBM Daksh -Mphasis -Hinduja TMT -Aegis BPO -Nortel

Limited pool of skilled managers and engineers

especially those well versed in the latest technologies. Supply of Spectrum Medium cost of switching since changing their hardware would lead to additional cost in modifying the architecture. Overall influence on the industry MEDIUM

Information Technology Passive Infrastructure Call Center Outsourcing

Rivalry among Existing Competitors

High Exit Barriers High Fixed Cost

Around 10 players on average in each region

3 out of 4 BIG-Four present in each region Very less time to gain advantage by an innovation (Eg. Caller tunes, life time card) Price wars Overall influence on the industry HIGH

Threat of Substitutes
Some Substitutes: VOIP (Skype, Messenger etc.) Online Chat Email Satellite phones None of the above a major threat in current scenario. Price-Performance trade-off very high. Issues of mobility and penetration with the substitutes.

Overall influence on the industry LOW

Summary of the Five Forces

Supplier bargaining power (medium)

Threat of new entrants (low)

Rivalary among competitors (high)

Threat of substitute (low

Customer bargaining power (high)

Analysis of key performance indicators

Key Performance Indicators

Average Revenue Per User per month (ARPU) Minutes of Usage per month (MOU) Addition to the Subscriber base Tenancy ratio (users per tower) of tower companies Capital Expenditure Cost of Operations Return on Capital Employed (ROCE) Profit after tax (PAT)

Average Revenue (or Rate) per Minute in Rs.

Network Operating Expenses as % of Revenue

ROCE of Selected Companies

Source: Annual Filings of Operators with the Registrar of Companies (Extracted in July 2011). Capitaline. India Infoline, Company Website, PwC Analysis.

OUTLOOK
Telecom companies in weak financial state New Telecom Policy awaited by the end of the year May loosen up M&A rules, triggering consolidation Policy boost to Broadband growth Industry to look towards increasing high paying customers rather than market share Tariff increase likely after consolidation Overall outlook neutral at this point. Needs to be reassessed once the NTP comes into force.

Market Perception
Stay away or remain underweight www.business-standard.com Negative for 2012 Rating agency Fitch Careful optimism Dua Consulting Underweight in short term Nomura Neutral in short term Angel Broking

Sources of Information
TRAI reports from website Cellular Operators Association of India (COAI) Capitaline ISI Emerging Markets Asia Datamonitor Numerous reports available online for sale ET Intelligence Group

THANK YOU