Prevision

P R É V I S I O N SITM Annual Telecom Forecast ‘07

Symbiosis Institute of Telecom Management

PRÉVISION SITM Annual Telecom Forecast Oct 06 - Sept 07

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Analyst Report © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

Disclaimer In no event shall Symbiosis Institute of Telecom Management, Pune; hereafter referred to as SITM, be liable for any indirect, punitive, incidental, special, or consequential damages arising out of or in any way with any content (or any material provided hereunder), whether based on contract, tort, strict liability, or otherwise, even if SITM has been advised of the possibility of damages. All rights reserved. This document is the sole property of SITM. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of SITM.

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Index Executive Summary .............................. 5 Methodology ......................................... 7 List of Figures .......................................

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Abbreviations ....................................... 10 Global Economy .................................... 11 Global Telecom ..................................... 14 Indian Economy .................................... 17 Indian Telecom ..................................... 19 Telecom Technologies .......................... 21 Mobility ................................................. 23 Broadband ............................................. 26 Telecom Software .................................. 28 Communication Infrastructure ............ 30 Consumer Electronics ........................... 32 References ............................................. 34 About SITM .......................................... 35 Team Prevision ...................................... 36

© Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

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PRÉVISION SITM Annual Telecom Forecast ‘07

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Executive Summary Global Economy

Indian Telecom

The overall scenario seems to be very promising for the majority of the world. US consumerism will remain strong but the economy will slow down as Central Bank prepares for a soft landing. US's GDP will be hit adversely by the high oil prices while Canada will benefit. Brazil's GDP will be positively affected by rising coffee prices. For oil-exporting countries like Ecuador and Venezuela, rising oil prices will help boost growth. Western European countries will grow at a slower pace. South East Asia will be witnessing stagnation in growth due to high crude oil prices. China is going to witness the same high growth pattern despite government's attempt in cooling down the economy; China's trade surplus with US will increase further. Japan is going to witness economic recovery led by private investment and consumption. Middle East may emerge as next big investor but continue to lag in political instability. Countries like Morocco, Egypt, Algeria and Nigeria are going to be the preferred investment destinations in Africa.

The telecom industry has seen rapid growth in the last few years due to various factors like government regulations, improved incomes, changed customer behavior etc. The Urban and Rural tele-densities will move northwards. NLD/ILD tariffs will see a down slide. On the FDI front, India will remain a lucrative destination for the investors. Telecommunication manufacturing will see a major investment this year. VSAT and DTH market will be on an upswing. Government polices will see further liberalization so as to boost Rural Telecommunication.

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Global Telecom

Telecom Technology

Telecom market in developed countries will grow with the rise of MVNO's and in developing countries with increase in penetration. India is set to topple China in net additions in subscribers in 2007. In North America, market will see an inclination of operators to move towards 4G technology. IPTV is set for a roll out next year. Wi-Max will be adopted as a backhaul technology. In Latin America, with strong growth in mobile markets, mobile networks will continue to upgrade to GSM. In Europe, the ARPU for mobile operators will decrease but data services will grow. There will be a mass adoption of 3G and IMS will mature by the end of 2007. In Africa, market will see strong growth in both mobile and broadband; In Middle East, operators will upgrade their networks to HSDPA to offer VAS like Video Conferencing. Asia Pacific region will continue to add maximum number of subscribers. Wi-Max is expected to come in a big way and make way for pilot testing.

Wi-Max rollouts are expected in the second quarter of the next year, subject to spectrum clearances. In W-CDMA, heavy investments are likely to continue. DSL will gain grounds in India, and ADSL2+ will be the preferred technology. Investments in MPLS will continue. Metro Ethernet will gain marginally over the next year. Wi-Max will be experimented because it is cheaper and more efficient backhaul technology. Existing users and falling equipment prices will contribute to VSAT growth. In Mobile operating Systems, established players like Symbian are expected to face tough competition from open source operating systems like Linux and also from Windows as a Mobile OS. In IPTV, the investments will be committed to the technology front in the next one year.

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Indian Economy Indian economy in the past quarters is singing the melody of fundamentally strong sectoral growth backed by increase in consumer demand from various spheres. Growth is expected to flow in moderate levels in agriculture and manufacturing. Services will drive the GDP closer to last fiscal's levels. Price index of

21 commodities will keep a tight watch on inflation levels but financial markets are expected to grow. Effect of global forces will impact the Indian markets but with monetary and fiscal policy right in place the impact will be normalized. The economy will make further milestones in terms of growth and will pose another strong fiscal in the year 2007.

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Mobility

Communication Infrastructure

The growing telecom sector in India will attract another US$ 855 million as foreign investment over the next two years. The most promising circle is circle C. The overall mobile density for quarter ending September 2007 is expected to be 19.2. This ever increasing market will amount to revenue of $1214Mn while ARPU will come down by 28% to $5.8 by quarter ending September 2007. It is less likely that 3G will be introduced as a service even though some infrastructure deployments might happen in some pockets of the country. The revenues from VAS sector is forecasted to be 22% of the total revenues generated from the mobile operators and will reach around $255.5Mn in 2007.

The infrastructure market will see a change over. The operators will primarily invest in GSM rather than CDMA. Also deployments in WCDMA are expected, which will have to compete with WI-MAX 802.16e in the 3.3 GHz spectrum. VSAT will continue to move upwards. The structured cabling industry will garner increased revenues with companies going in for heavy deployments as a result of reduced capex. IP telephony will move from being a niche application to mainstream application with a shift from TDM to IP. 1G switch will lead the growth of soft switches deployment. With the new announcements made in the DTH/FM radio industry and an expected reach of about 400 million people the market for both is going to boom with huge revenues from advertising alone.

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Broadband

Consumer Electronics

The Broadband market in India will see high growth rate in the next one year. PC penetration will be one of the major impediments in the adoption of broadband. The retail broadband market is all set to have a re-launch and the BWA sector will see an exciting time ahead. The major impetus for the Broadband adoption process will come from the incumbent. The enterprise segment will have its own drivers for the adoption of broadband.

The Consumer Electronics vertical identifies leading trends and offers strategic analysis of key factors influencing the market based on scientific models and past trends. The scope of the vertical is restricted to the following popular consumer electronic devices: Mobile handsets, Personal computers & laptops and Portable multimedia devices. With rapid consumerism sweeping the nation, 2007 will see companies defining clear strategies to target India as a consumption as well as a production center.

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Telecom Software The telecom software market is expected to grow at a better pace than before due to coming up of new technologies. Legacy based system will be replaced by next generation framework to support the complex networks being deployed. There will be convergence

along with emergence of a new set of software like antivirus & versatile mobile OS. The expected rise in demand for data will drive the OSS/BSS market in the coming year.

28 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

6

Methodology SITM Research Wing 800 Alumni Mentorship

Industry Interaction

Analysis Focus

Student Research Projects

Industry Inputs

Industry Watch

Prévision - SITM Annual Telecom Forecast is in its 4th year, initiated in the year 2003, with the purpose of providing the industry a neutral and insightful single point of view regarding the emerging trends in the telecom sector for the forthcoming year, after accumulating inputs from detailed research into contemporary telecom technologies, telecom business and other determinants of change. Prévision is a culmination of the collective endeavor of SITM students with 1500 man hours of efforts put in by them. The student forecast team is guided by the SITM faculty and some of our esteemed alumni. It is the only effort of its kind in the telecom domain at this level, which provides comprehensive coverage over various domains in the telecom sphere. The success of Telecommunications in any country depends upon its reach and acceptance by the masses. On the same lines, the consumer spending has a major impact on telecom spending across geographies and hence the forecast begins with an economic analysis of geographies across the world. The derived consumer spending is then used to study the telecom spending across the major markets. The challenges posed by upcoming technologies and the migrations of existing technologies to newer versions are also studied. With strong focus on supply side and demand side drivers for various technologies, an economic analysis coupled with an in depth study of potential regulatory changes and market forces, has resulted in creating a vision of future trends. The developments across the value chain with respect to the supply-demand equations in the country are studied in order to project the scenario in these domains over the next one year.

Following are the major forecasting models, which have been used in this report:

The Gompertz Model The Gompertz model forms an S-shaped curve, but it is asymmetric, with the adoption slowing down as it progresses. The formula for the Gompertz model can be written: -b(t-a) -e y(t) = e Where; a is the year the substitution reaches 37% b measures how fast the adoption progresses This model is used to forecast the future course of a partially complete substitution variable. Using regression methods, the model is fit to the historical data to obtain best-fit estimates of the parameters a and b; which can then be used to obtain projections for future years.

Time Series Model Another graphical form is a time plot; where data are plotted over time and it reveals any trends over time, any regular seasonal behavior, and other systematic features of the data. Technically Time Series is defined as “an ordered sequence of values of a variable observed at equally spaced time intervals.” Often historical data will consist of a sequence of observations over time that is a “time series”. In forecasting we are trying to estimate how the sequence of observation will continue into the future. Here we assume that the time of observation is equally spaced. As most of the series are measured

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daily, monthly, quarterly, or yearly; therefore they are equally spaced.

Extrapolation Statistically extrapolates established pattern and/or existing relationship in order to predict their continuation, assuming that such pattern relationship will not change during the forecasting phase. Majority of judgmental forecasts are based on extrapolating patterns/relationships.

Trend Analysis Trend analysis represents long-term changes in the level of series and it sometimes consist of trend and cyclical components. Trend data = pattern + error = f (trend-cycle, seasonality, error)

Regression & Correlation Regression analysis helps to find a function that best describes the relationship between causal variable and dependent variable.

y = a(x) + b; linear log(y) = log(a) + x *log(b); non linear Regression is most often used for medium term, followed by long-term predictions as for medium and long term forecasting more emphasis is placed on understanding the variables to be forecast and the factors influencing those variables. A correlation coefficient is the covariance between a pair of standardized variables.

PPP model This model is being used for currency convertibility calculation. A unit of home currency should have same purchasing power worldwide. Inflation here is taken as expansion of money supply in excess of real output growth. Formula: e1/e0 = {(1+ ih )/ (1+if )} Where; e1 = Spot exchange rate e2 = Dollar value of home currency ih = Inflation in home country if = Inflation in foreign country

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List of Figures Figure 1.1

Global Economic Model..................................................................................................... 11

Figure 2.1

Global Telecom Model.......................................................................................................

14

Figure 3.1

Economic Outlook for 2007...............................................................................................

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Figure 4.1

Fixed Line & Cellular Subscriber growth.........................................................................

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Figure 4.2

Tele-density Projection for 2007........................................................................................

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Figure 4.3

Mobile as a % of total telephone subscribers.................................................................... 19

Figure 5.1

Telecom Technology Drivers.............................................................................................. 21

Figure 6.1

Indian Mobile Industry Outlook 2007..............................................................................

23

Figure 6.2

ARPU Projection 2007.......................................................................................................

24

Figure 6.3

VAS Scenario.....................................................................................................................

24

Figure 7.1

Broadband Value Matrix Outlook for 2007.......................................................................

26

Figure 7.2

Industry-wise drivers of broadband consumption...........................................................

26

Figure 7.3

Broadband as a % of total internet subscribers................................................................

27

Figure 8.1

Telecom Software Revenue Projection for 2007................................................................ 28

Figure 8.2

Future Trends in OSS / BSS Market..................................................................................

Figure 9.1

Service Provider CAPEX / OPEX Distribution....................................................................... 30

Figure 9.2

Base Station Average Price Projection 2007......................................................................

30

Figure 9.3

2G & 3G CAPEX Projection for 2007.................................................................................

30

Figure 10.1

PC Market Determinants.................................................................................................... 33

Figure 10.2

Desktop, Laptop & PC Market Projection for 2007............................................................ 33

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Abbreviations ADC

Access Deficit Charge

ISP

Internet Service Provider

ADSL

Asymmetric Digital Subscriber Line

ITES

Information Technology Enabled Services

AGR

Adjusted Gross Revenue

IUC

Interconnect Usage Charge

ARPU

Average Revenue Per User

LBS

Location Based Services

ASEAN

Association of South East Asian Nations

LCD

Liquid Crystal Display

ATM

Asynchronous Transfer Mode

LLU

Local Loop Unbundling

BFSI

Banking, Financial Services & Insurance

MOD

Music On Demand

BOP

Balance Of Payment

MPLS

Multi Protocol Level Switching

BPO

Business Process Outsourcing

MTNL

Mahanagar Sanchar Nigam Ltd

BSE

Bombay Stock Exchange

MVNO

Mobile Virtual Network Operator

BSNL

Bharat Sanchar Nigam Ltd

NLD

National Long Distance

BSS

Business Support System

NMS

Network Management Solution

BT

British Telecom

OFC

Optical Fiber Cable

BWA

Broadband Wireless Access

OFDM

Orthogonal Frequency Division

CAGR

Compound Annual Growth Rate

CDMA

Code Division Multiple Access

OSS

Operation Support System

CMSP

Cellular Mobile Service Provider

PBX

Private Branch Exchange

CRM

Customer Relationship Management

PMR

Public Mobile Radio Trunked Services

CRR

Cash Reserve Ratio

RA

Revenue Assurance

DEL

Direct Exchange Lines

SDR

Software Defined Radio

DSL

Digital Subscriber Line

SENSEX Sensitive Index

DTH

Direct To Home

TCO

Total Cost of Ownership

DVB-H

Digital Video Broadcasting-Handheld

TDM

Time Division Multiplexing

DWDM

Dense Wavelength Division Multiplexing

TDMA

Time Division Multiple Access

EDGE

Enhanced Data Rate for GSM evolution

TRAI

Telecom Regulatory Authority of India

ERP

Enterprise Resource Planning

VAT

Value Added Tax

FDI

Foreign Direct Investment

VOD

Video On Demand

FED Rate Federal Rate

VOIP

Voice over Internet Protocol

FII

Foreign Institute of Investors

VPN

Virtual Private Network

FTTH

Fiber To The Home

VPT

Village Public Telephone

FWP

Fixed Wireless Phone

VSAT

Very Small Aperture Terminal

GDP

Gross Domestic Product

VSNL

Videsh Sanchar Nigam Ltd

GPRS

General Packet Radio Service

W-CDMA Wideband Code Division Multiple Access

GSM

Global System for Mobile

Wi-Fi

Communication

Wi-MAX Wireless Microwave Access

HSDPA

High Speed Downlink Packet Access

WLAN

Wireless Local Area Network

ILD

International Long Distance

WTI

World Trade Institute

IMS

IP Multimedia Subsystems

YOY

Year on Year

IP

Internet Protocol

IPTV

Internet Protocol Television

Multiplexing

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Wireless Fidelity

Global Economy Economy Macro

Micro

Interest Rates

Government Expenditure

Profitability

Employment

Government Policies

Wages

Disposable Income

Consumption

Investment

Impact on Telecom Figure 1.1 Global Economic Model

Scope Economies of major countries and areas of the world are interdependent on each other and this interdependence forms what we can call the Global Economy. This vertical aims to forecast the global economic trends of the major contributors of economy and to predict trend of geo-political areas and specifically of countries that are growth drivers.

Analysis The major catalysts behind global economic growth, i.e. consumption and investment, are the major impacting factors for the telecom sector. Both investment and consumption will continue to remain strong. High oil prices, increasing interest rates and imbalance in trade will continue to be the worrying factors in the path of global growth. Following are the key parameters that impact the global economic scenario:

US Fed Rate Seventeen consecutive rises in the fed rate saw ripples being created across many emerging markets. The rising current account deficit and high global liquidity forced the central bank to raise short term rate. The move is less likely caused by inflation fears

and more as a tool to attract investment in the US to settle current account claims. The main concern though, is the impact of rate hikes on US consumer demand, which drives many economies world over. We anticipate US Fed rate to remain in the range of 5.25%, as long term rates differential with short term fed rates has reduced to less than 1%.

Currency Convertibility The US Dollar will continue to loose against the Yuan (renminbi) and the exchange rate is expected to be 7.64CYN for $1 (plus minus 0.3). The Euro will also continue to strengthen against dollar and trade at 0.7953euro per $ (plus minus 0.0447).

Crude Oil Crude oil is the most important commodity that depends on the three global exchanges. We predict the WTI Crude oil prices to reach $84 per barrel (+/5%) which looks quite realistic owing to the Middle East crisis.

Regional Analysis North America The US economy expansion will continue in 20062007. The economy will grow by 3.5% in 2006, the

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same pace as in 2005 and will come down to 3.0% in 2007. Employment will continue to rise through 2007 and the nation's unemployment rate will stabilize near the level of 4.6% in 2007 down from 5.1% of 2005. Inflation will escalate at 3.4 % rate in 2006 before decreasing to 2.6% in 2007. Not much relief is expected from high energy prices. The Canadian economy will continue to grow around 3%, continuing the trend of past two years. Inflation will remain well in control and is expected to be 2.5 % in 2007 a little higher than 2.2% of 2006. Unemployment rate will reduce from 6.8% in 2005 to around 6.3% in 2007 due to potential job creation. The rise in energy prices (pre- and post-Katrina) benefitted Canada as an energy exporter (natural gas and electricity to the United States.

Latin America The GDP growth will be driven by a combination of factors. For oil-exporting countries like Ecuador and Venezuela, rising oil prices will help boost exports, but net importers of oil - especially in Central America - will be adversely affected. Chile will benefit from rising copper prices, while countries like Argentina, Brazil and Peru will continue their successful exports of agricultural products. Colombia, Costa Rica and other coffee-exporters should benefit from tighter coffee futures prices. The top three economies - Brazil, Mexico and Argentina - accounted for a whopping 73.5 % of the region's GDP. Brazil's economy, Latin America's largest, is expected to expand by 3.5 % in 2007, a slight improvement over 2006 growth of 3.3 %. Inflation is set to fall to 4.4 % in 2007 - from 4.9 % in 2006 and 6.8 % in 2005. Relatively good economic results are forecasted to come despite of uncertainty surrounding the outcome of the October 2006 presidential elections. Unlike in the past, political uncertainty has not weakened the economy. Much of Brazil's GDP is driven by booming exports, especially to China. Higher commodity prices and improving domestic demand further backed by rising incomes has aided growth.

Western Europe In Germany high household savings due to unemployment have not translated into investments. The FIFA World Cup has lead to an increase in economic activity. The consumer sentiments have seen some revival in 2006 and will rise further. Increase in VAT rate from 16% to 19% in 2007, will negatively impact consumption. It will see a dip in current account surplus due to rising crude prices and the likely slow down in US economy which is a net importer for Germany. In 2006 Germany is

expected to grow 1.6%, but 2007 will witness some decline. Stronger first quarter growth in the UK of 2.2% in 2006 has shown some positive signs after sluggish growth during last year. The U.K. would be particularly exposed to a slowdown in the U.S. economy next year, as 15% of British exports head to the U.S. Hence we forecast the growth for the next year to be 2.4%. The GDP of France is expected to grow by 1.8% and 1.9 % in 2006 and 2007 respectively, largely driven by domestic demand. Private consumption is expected to increase in line with households' disposable income and a benign inflation rate vis-à-vis growth of GDP per capita. Private consumption was very weak and investments contracted in 2005 for Italy. GDP grew by 0.1% and in year 2006 it is expected to grow by 1.3%. The recovery is expected to be largely driven by domestic demand. Private consumption is going to increase underpinned by the revival of job creation and nominal wages growing above inflation.

Central and Eastern Europe As net oil exporter Russia will be benefitted from high crude prices and will drive the growth in Central Europe. The high corruption and double digit inflation are causes for concern with inflation estimated at 11%. Growth rate will slow down slightly in 2006 to 6% from 6.5% in 2005. Turkey's growth in 2005 was 7.4% and is expected to reach 7.2%. Recent strengthening of currency with a tight fiscal policy will support the current disinflation process in spite of pressures arising from high oil prices. Elections, due in 2007, will positively affect public spending supported by a decreasing inflation rate. Poland's GDP is expected to grow by 4.8% in 2007 with domestic demand being the main driving force. Investment is likely to pick up strongly due to a low interest rate and private consumption due to lowering of effective personal income tax rate due in 2007.

Asia Pacific ASEAN countries have reduced fuel subsidies to avoid further fiscal aggravation and monetary policy has been tightened to reduce inflation. South Korea is expected to maintain steady growth rate of 4% supported by private consumption. Indonesia which performed well with above average growth rate of 5.6% will slow down due to rising inflation and

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interest rate rise. Malaysia is also expected to suffer due to lack of external demand. In the Pacific region Vietnam will be the star performer, attracting foreign investment. The growth rate of Vietnam will be around 8% due to domestic demand and exports. The fastest growing major economy, China, will continue to drive global demand and supply. The GDP expanded by 11.6% in Q2 2006 and is further expected to grow at 9.5% in 2006. The Yuan revaluation will not be able to reduce current account surplus with developed economies (mainly US), and surplus will expand further to $173.3 billion. Trade surplus with US, where the government is threatening to impose tariffs on Chinese import, will expand by 13% to $227.67 billion. Excessive liquidity has already found its way into asset prices which have inflated in some cities. This has forced the central bank to curb lending and raise interest rates, which is dampening consumption. Thus the economy will be driven by foreign sponsored investment and export, troubled by widening income disparity, lack of transparency in financial sector and mounting environmental pressure. In Japan the recovery of economy will continue to be led by global demand, private investment and consumption. Current account surplus will decline from 3.6% in 2005 to below 3% due to rising crude prices and high consumption (non oil imports). Domestic demand though, has started showing decline in 2006 and seems to have pulled down real growth. For 2007, we expect growth to be led by private consumption in anticipation of tax hike in 2008. Interest rates (short term) have been lifted from 0% in 2006 indicating a solid recovery of demand in the economy and we predict a subsequent rise in rates in 2007. Political situations are becoming more severe in the

Middle East, particularly in Iran, Iraq, Palestine, and Israel. There is no sign of a restoration of public order yet in Iraq. In Saudi Arabia, Iran, and other oilproducing countries, the international balance of payments and fiscal balances have continued to improve due to sharp rise in oil prices. These countries have concentrated investments on economic and industrial development, using increased oil revenues. On the premise that political stability will continue in Saudi Arabia and Iran, we expect that they will continue to achieve strong economic growth in 2006 and 2007.

Africa Northern Africa is the most promising belt consisting of fast growing countries of Morocco, Egypt and Algeria. A lot of growth will be seen in the African continent due to high investments in these economies ranging at around 20% of GDP. Oilexporting countries, however, are outpacing others by a substantial margin. Moreover, some countries continue to face serious problems like conflicts and political unrest, drought and food crisis affecting several areas in a number of East, West, and Southern African countries. Oil rich country like Nigeria is also facing problems due to security threats. South Africa is the largest economy in the African continent. The GDP has been growing at an increasing rate since 2001. Unemployment is a concern hovering around 26%. Fairly strong global demand and high commodity prices will help to boost exports and hence drive the economy that exports commodities like platinum and gold.

Conclusion The overall scenario seems to be very promising for the majority of the world, except terrorism and turmoil in Middle East. For telecom, South Asia, Latin America and African Countries will continue to be the attractive markets.

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Global Telecom Scope

North America

Global Telecom encompasses the telecom industry in countries and major regions across the globe. The vertical aims to cover major regions of the world i.e. North America, South America, Europe, Asia Pacific, Middle East and Africa. Focus on these regions will evaluate the trends for the next year in terms of technological changes and to evaluate the changing market dynamics of telecom globally.

Both U.S. and Canada are expected to see their mobile penetration numbers skyrocket now that 50% thresholds have been breached; thanks partly to the MVNO burst which is helping both countries grow their mobile subscriber bases.

Analysis Driving the path breaking global trends for 2007 will be: i. Mobile subscriber base set to reach 2.9 billion mark by the end of 2007. We expect six markets, notably-China, India, Russia, USA, Brazil to account for more than 50% of the total net additions in 2007. ii. The difficulty of the mobile operator business model formed on high subscriber acquisition costs (principally handset subsidies), high churn levels and falls in the price per minute of mobile voice telephony. iii. The rapid evolution of the MVNO concept and operators' realization that a wholesale strategy can, in some cases, will be more profitable than a retail business. iv. The impact of IP, in particular, web based alternate service providers is rapidly driving down the price of voice telephony. One thing is clear – mobile voice prices are on the slide. v.

Walled Garden Approach of Mobile operators in Europe will see a significant change forced by premium content operators.

vi. The telecom industry is moving away from a royalty based model to an open source based model.

s

North America

og

y

y

Consumers

Content Providers

ol

om

Europe

to r gu

la

on

Service Providers

Re Asia Pacific

Te ch n

Recent consolidation in the equipment vendor market trend shows that in the near future there will be only 3 to 4 major vendor groups serving the telecom operators with their rationalized operations and product portfolios. These vendor groups will form segments to support 3G and 4G technology. The IMS adoption will initially be by fixed operators to converge their IP Services offerings but later will also be adapted by the mobile operators. However, maturity of IMS will take time, may be by the end of 2007. The GSM operators like T-Mobile and Cingular Wireless will enhance their HSDPA coverage to larger markets with further investments in network. Public announcements of large carriers like Sprint Nextel indicate adoption of OFDM technologies. Wi-Max will compete with technologies like FTTH and DSL. Even Laptop vendors like Dell, HP and Lenovo will integrate HSDPA, Rev – A and Wi-MAX technologies in their equipment. In broadband, the system integrator market is heating up with the introduction of IPTV. Tie-ups are being done between system integrators and equipment vendors to offer end to end solutions to the service providers. We see very slow adoption rate of IPTV at least next year.

Latin America Ec

Equipment Vendors

Unicast based Mobile TV failure is prompting mobile companies to adopt multicast broadcast based Mobile TV technology like DVB-H and Mediaflo. Market adoption for value added services will increase due to greater penetration of video capable handsets with further integration to HSDPA and RevA transmission technologies.

Co

d oli ns

i on at

Middle East & Africa

South America is one of the fastest growing mobile markets in the world driven by growth in Brazil, Argentina and Venezuela. Many CDMA operators in this region are moving towards GSM. As many as 40 operators out of 48 of existing operator in CDMA service providers are declaring changeover from CDMA to GSM. 3G still seems to be a distant prospect for South America mainly because of two reasons: Spectrum issues and low operator interest for further investment for enhancement of infrastructure. Migration from TDMA network to GSM technology will continue. 2007 will see consolidation similar to past trends. There could likely be entry of new

Figure 2.1 Global Telecom Model

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external global operators through acquisition. Latin America is also the third fastest growing broadband market in the world with many countries reporting more than 50% growth rate. Wi-Max trial runs are likely to be done in almost all major South American countries. Operators like Telefonica will focus on broadband penetration and grow in the market with further investments in Latin America. The stability in the political scenario adds a further positivity to the growth.

Europe Europe is one of the toughest markets for a mobile operators to survive. Heavy spectrum license fee and slow adoption of 3G has made most companies show heavy losses on their balance sheets. 3G will deliver on its promise of significantly increasing data ARPU. However, 3G is set for explosive growth in this region in the coming year. Mobile Operators will continue to cut down operating costs to survive and show meaningful profit to their investors. Following the most recent mergers, where we have seen KPN acquiring Telfort in Netherlands, T-Mobile acquiring Tele.ring in Austria, France Telecom taking over Amena in Spain, Eircom taking over Meteor in Ireland and Orascom moving in to acquire WIND in Italy, we expect further activity in other key western European mobile markets in 2007. The vendors' solution will largely focus on the total cost of ownership. The handset subsidy will drive the replacement market for handset sales; we predict more than 95% of the new handsets sold in the replacement market to be W-CDMA, though HSDPA handsets and Data card sales will increase in the last two quarters of the next year. The terminal applications will be more integrated with Mobile TV solutions like DVB-H. In the Capex portion, the Handset subsidy is going to play a larger role pressuring the operators to reduce their infrastructure cost savings.

primarily from the ISP investment point of view. The fixed line operators like BT will further integrate WiMax into their 21C network. We don't see the trend of mobile operators shifting their focus from WCDMA / HSDPA to Wi-Max anywhere in Europe. However they will keep evaluating their 4G options. EU pressure on operators regarding reduction of roaming prices will lead to reduction in Operator's ARPU which is already being challenged as a result of saturation in the market. The MVNO market in Europe will be more conducive rather than the approach followed in US. The Eastern European market presents clear growth potential as the penetration there is much less as compared to the Western European nations. In Russia, after saturation of subscriber growth, a high growth in VAS market is expected.

Middle East and Africa Africa is the fastest growing region in terms of telecommunications services. With liberalization yet to happen in most of the African nations, the growth rate is expected to increase further. The low penetration of African markets and high growth potential sets Africa as a prime target for investment. Subscriber base is set to explode to nearly 400 million subscribers by the end of 2007 and nearly 20% of contribution is expected from Nigeria which will reach around 50 million subscribers. The countries like Nigeria, Kenya, Morocco and South Africa will drive the growth of the market with larger growth contribution. There will be a quantum increase in the acquisition interest for the African operators looking to the future potential. Africa will be the investment destination for successful Asian players especially from India and China who are looking for expansion. Players like China Mobile will continue to pursue the operators for investment even after the fall of their Millicomm project. Broadband market is also growing at extraordinary rate. Morocco is going to see highest growth among peer countries.

Fixed Mobile Convergence which started with BT's Fusion is expected to spread all over the Europe, adopted by mobile operators like Vodafone. Traditional networks will continue to grow with LLU based ADSL network. The operators will further consolidate their fixed mobile operations with further migration to IMS. We believe the BT 21st Century Network and the growing number of HSDPA networks will drive the network architecture changes. However the killer application will be Mobile TV and IPTV.

Extensive liberalization and increased private sector funding in the majority of the Middle-East nations is going to further increase the telecom penetration in the region. 3G penetrations will increase and more investments from European operators will boost the market as it is identified as the high ARPU market mainly driven by voice. There will be more operators migrating to HSDPA networks to offer value added services like video conferencing, mobile TV etc.

Wi-Max adoption will be considerably slower in Western Europe but will be higher in Eastern Europe

The most populous region of the world which at present contributes around 40% of the total mobile

Asia - Pacific

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subscribers is expected to cross personal 1bn mark in the early 2007. China is going to award three 3G licenses by mid 2007. The subscriber base in China is expected to cross 475 million subscribers by the end of 2007 but the rate of increase in subscribers will constantly decrease. India will probably sort out the Spectrum allocation issues in 2007 and we will see some activity in the deployment of 3G by the end of 2007. India will continue to be the centres of fastest growing areas. We also see 3G rollout in Indonesia in the early part of 2007. Japan, followed by Australia and Hong Kong will continue to be the main drivers of WCDMA growth. Japan will introduce Mobile Number Portability next year. Many operators despite limited spectrum are migrating towards IP based HSDPA networks purely because of spectrum constraints and increasing voice traffic.

Broadband through DSL is the fastest growing technology in Asia. Broadband players are going for Wi-Max in a big way and we foresee lot of pilot tests being conducted by most operators. Wi-max is seen as next big thing in this market and will be preferred technology for investment by major service providers. Service Providers are seen tying up with vendors for pilot tests of Wi-max next year before they could commercially launch it. Wi-Max adoption will be more in developing countries like India with low broadband penetration.

Conclusion: There will be tremendous growth in mobile subscribers especially in developing countries across the world. ARPU are to is going down, so focus is shifting towards VAS. IPTV, Wi-Max and IMS roll outs and pilot tests will be done across major economies. Equipment Vendors across the world will consolidate to form 3-4 vendor groups, focusing on different technologies.

16 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

Indian Economy Scope The Indian economy is affected by many micro and macro economic factors and is dependent on different sectors, which includes manufacturing, agriculture and services, and their performance. This paper covers Sector-wise predictions and economic outlook for the year 2007. It also deals with the Fiscal, Monetary, Inflation, BOP and Financial Markets.

liberalization of the communications sector. From 2001-06 services sector contribution has been 52% of GDP with major investments in hotel, transport & communication areas and this trend is bound to continue. Banking & financial services will grow considerably. IT companies are expected to account for 8-10% of GDP by 2008. We forecast the services sector to grow at around 11 to 13%.

Monetary Policy

Analysis Indian Economy in its transitional phase has been creating new milestones and outperforming itself in every quarter. The Indian economy achieved the growth rates 8.1% in 2005-06, despite rising oil prices and decreasing operating margins. The economy is will operate under global pressures of tightening of liquidity and growing interest rates, whereas on the supply side, growth will continue to be fuelled by the opening up to private investment and good performance of the economy.

Agriculture The agriculture sector, with a share of about 20% of GDP in the year 2005-06, registered only a 2.3% growth rate. Government's Policy initiatives have been announced for enhancement of accessibility to Farm Credits and the banks have been working towards micro-credit facilities for the farmers. We predict that with a good monsoon and introduction of concept of corporate farming in different areas of the country will add to growth in this sector to around 2.3 to 2.6%.

Industry The industrial sector, which accounts for approximately 26% of GDP, grew by 9.0% in 2005-06. A strong performance in this sector will be driven by manufacturing. Investor concern over India's infrastructure deficit continued to mount especially with regard to a shortage of power generation capacity and continued financial problems of many state electricity boards. Urban planning remains worrisome with shortcomings in transport, sanitation, hotel accommodation, and other facilities usually required by investors. In spite of the listed problems we expect the manufacturing sector to drive growth and is expected to grow by around 10 to 12%.

Services This sector accounts for 54% of economic output and grew by an unprecedented 9.8%. The export-oriented Information Technology (IT) and Business Process Outsourcing (BPO) sectors also continue to perform very well due to substantial investment in telecommunications infrastructure and the phased

In its first quarter review of the annual monetary policy 2006-07, the RBI further raised reverse repo and repo rates by 25 bps each to 6.00 % and 7.00% respectively, whereas the central bank however, kept the Bank Rate(at 6%) and cash reserve ratio (CRR) unchanged. The steps taken are to make the economy attuned to global movements based mostly on the Federal rates, LIABOR and Bank of Japan where the increase in repo rates will cause tightening of liquidity but it is unlikely to affect the demand for long-term credit rate or the long-term fixed rate for corporate borrowing.

Fiscal Policy During 2006, there has been a reversal of the phenomenon of consumer prices lagging wholesale prices, indicatinf of the increase in food prices which constitute a relatively larger share in the consumer price basket. In the last year fiscal deficit fell to 4.1% of GDP, but this year's target of 3.8%, as set by the budget, looks tough as we have already reached 75% of the planned expenditure of the year in the 1st quarter.

Financial Markets The Bombay Stock Exchange's Sensitive Index (SENSEX) crossed the 10,000 mark in February 2006 and the 11,000 mark in March 06. This is attributed to strong fundamentals of the economy and large purchases by mutual funds and international investors. Due to the liquidity contraction in the global markets, indices all over the world seem to have stagnated. Investments by FIIs been hit after this scenario and even retail investors may prefer not to invest their money in equity. The index might lean to 13500 levels by 2007.

Bank Credit Bank deposits and credit recorded strong growth during the first quarter of 2006-07. Scheduled commercial banks' non-food credit, on a year-on-year basis, registered a growth of 32.9 % as on July 7, 2006 on top of a high base of 31.0 per cent a year ago. Deposits have not kept pace with credit growth. There have been changes in the composition of loan portfolios to include higher-yield, though riskier,

17 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

loans. Banks increased their deposit rates by about 25-100 basis points across various maturities and it might well lead to more credit generation eventually in this tight liquidity scenario.

Inflation Due to sustained high levels of raw material costs, corporate are facing pressure to increase prices and some increase in oil prices is expected in the coming year. With the apt preventive measures initiatives taken by the government we see inflation levels to linger around 5% levels.

GDP- 7.8% Agriculture 2.3-2.6%

Industry 10-12%

Services 11-13% Rupee Exchange Rate

Inflation

Real Output Growth

Interest Rate

Financial Market

Bank Credit

Consumer Spending

Investments

Balance of Payment

Risk Figure 3.1 Economic Outlook for 2007

Conclusion The efficiency of investment in the economy has grown steadily, as private investors have been allowed to invest in more sectors of the economy, and public investment projects have become more selective and better managed. On the strength of growing domestic demand and of high world oil prices, the trade deficit is expected to grow faster than GDP. Fuel, manufacturing intermediates, and consumer durables are likely to be the biggest contributors to import growth. Spending will also

rise. Controlling the rise of inflation and taking preventive measure to keep it around 5%, average monsoon and reasonably decisive action will improve both urban planning and incentives for private expansion of physical infrastructure are also predicted, including headway toward expanding power supplies and improving the power industry's financial efficiency. With preventive measures to counter global dynamics RBI has done an effective job to a great extent and the economy should be seen driving itself to another strong and fundamental growth year. We forecast a GDP growth rate of 7.8%.

18 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

Indian Telecom Scope Indian telecom envelops the entire telecom value chain, from manufacturers to service providers, in India including Fixed line, Cellular networks, Regulatory issues, Rural Telecommunications , ILD, NLD, and VSAT'. The aim of this vertical is to forecast the variables pertaining to the above mentioned areas including fixed and cellular subscriber growth, ARPU trends, urban and rural tele-density, expected trends in ILD/NLD market and VSAT market's.

Analysis

Indian Tele-density growth Year

Fixed Subscriber Base (mn)

Mobile Subscriber Base (mn)

Ratio Mobile : Fixed

2004

42.84

33.70

0.786

2005

46.19

52.22

1.130

2006

47.80

113.40

2.372

2007 Dec

54.95

190

3.457

1.55

20.79

2005

9.11

1.74

26.20

2006

14.8

2.1

32.40

2007 Dec

22.1

4.8

41.20

Figure 4.2 Tele-density Projection for 2007

Mobile as a % of total telephone subscribers (fig as on March XX)

Fixed line & cellular subscriber growth

Urban Tele-density

7.02

Year

Figure 4.1a Fixed Line & Cellular Subscriber growth

Rural Tele-density

2004

Fixed line & cellular subscriber growth Year

Tele-density

(fig as on March XX)

Mobile Subscribers (mn)

Total Telephone Mobile as a % Subscribers of total telephone (mn) subscribers

2004

33.70

76.54

44.029

2005

52.22

98.41

53.063

2006

113.40

161.20

70.347

2007 Dec

190

244.5

77.709

Figure 4.3 Mobile as a % of total telephone subscribers

200 Mn 190

180

Tele-density will reach 22.1% by December 2007 with urban and rural tele-density being 41.2 and 4.8 respectively. VAS revenue as a percentage of total Service provider's revenue will continue to grow at a CAGR of 29.8% and will reach $212 Million in December 2007.

160 140 120 100 80

The major driving factors for this growth will be: Reducing Tariffs Handset prices Increasing Per Capita Income New Subscribers in the lower income segment Government Regulations

54.95

60 40 20

2002

2003

2004

2005

2006

2007

Mobile Subscribers Growth

VSAT

Fixed Line Subscribers Growth

VSAT Market will grow at 19.5% in 2006-07, with many organizations adopting the technology. The total subscriber base will reach 57,500 by December '06 and 68,500 by December '07. The government's focus will increase on rural connectivity, contributing towards VSAT operators getting a share from the USO fund.

Figure 4.1b Fixed Line & Cellular Subscriber growth

Fixed subscribers will reach 54.95 million by December 07, showing a growth of 14.95% over 2006. The cellular subscriber number will reach 190 million, in the same period, exhibiting a growth of 67.54%. The total telephone subscribers in India will reach a figure of 245 million in December 2007. However, TRAI estimates this to be at 250 million.

The major business segments and applications targeted by the VSAT providers will be SMEs, Tier B cities, Telemedicine, Oil & Gas, Backhaul, distance

19 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

education and entertainment. Failure of INSAT 4 series will cause a slow down in DTH Market which will surge back in the second half of 2007.

NLD/ILD The government has reduced the revenue share fee (6% from 15%) & Entry fee for NLD & ILD licenses (Rs25 million & Rs 250 million from Rs 1 billion respectively).The roll out obligations for future NLD licensees as well as existing NLD licensees have also been waived off. New players will roll-out services (with as many as 13 new players applying for licenses) which in turn will result in STD & ISD tariffs dropping. ILD & NLD call charges will reduce by 26 % and 30 % respectively in 2007-08.

Rural Telecommunications Rural Tele-density will reach 4.8 by December '07, showing 123.25% growth from the current teledensity 2.15. The focus on Rural Telephony will be high in the coming year, which is evident from the fact that the operators are geared up with their expansion plans. Operators will see major subscriber growth in C circles. Aggressive expansion plans, effective distribution channels and drop in handset prices (low cost handsets: below US $20) will be the drivers of Rural Telecommunications. The Business Models for Rural Telecom would be based on risk optimization and revenue sharing. We predict the rural connectivity will be catered by Rural DELs, which will reach a figure of 16.2 million by December '07, a growth of 14.2%.VPTs, will reach 592 thousand by December 07, a growth of 9.83% over the previous year. The new revenue share regime will aim to exempt the fixed operators of ADC charges in rural revenues. The exemption given to CMSPs will further drive the rural penetration and make services more affordable in the rural areas.

The implementation of Number Portability in India will continue to remain ambiguous. There may be an intervention from the regulator so as to clear that who will bear the cost of the setup.3G would finally see the its first implementations; however its rollout will not be before the third quarter of 2007.

Investment Scenario The Indian Telecom sector is still far from saturation, thus making it lucrative for investments. This year we will see the investments crossing the $ 1 billion mark. We expect that FDI will be driven mainly for rural telecom and by GSM deployments. After Nokia, Motorola and Ericsson, other handset and equipment manufacturers will set up manufacturing units to counter the pressure of lowering margins. This in turn will see the component suppliers for these manufacturers getting into India with major investments being made to complete the entire manufacturing ecosystem. The Telecom Software segment will see capital being invested in the form of FDIs. Large telecom software vendors from India will look at acquiring smaller companies worldwide to cater to niche segments, like Fraud Management, Revenue Assurance and Analytics.

Conclusion Tele-density will reach 22.1 by December ‘07 mainly driven by mobile subscriber growth. 3G rollout will only happen towards the third quarter of 2007. Areas of substantial growth over the next one year will include VSAT market, ILD & NLD services and telecom equipment manufacturing. Government initiatives and entrance of new players will propel the developments across these areas. Rural telecommunications will exhibit the much awaited growth driven primarily by the untapped subscribers in C circles and lower income segments.

Regulatory issues We expect fall in tariff as a direct consequence of change in ADC\IUC charge structure from per min basis to 1.5% revenue sharing on AGR. Infrastructure sharing will improve utilization & reduce investments in the urban areas, while on the rural front it will increase penetration. Bundling FWP with services like broadband will help sustain the growth in the market. PMRTS market, which is planning to go digital, will witness a growth as soon as the license regime is relaxed.

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Telecom Technology WCDMA We predict WCDMA to be the preferred 3G Technology for Indian operators. However the lesser availability of spectrum with comparatively higher investment in the license fee might create barrier for growth. We expect W-CDMA to be the main stream technology for 2007 and this technology will continue to gain mindshare and board room investments, as a road map for migration. Both incumbents and large private operators will invest heavily in WCDMA, committing towards this technology in the next one year. However commercial rollouts will happen only in the next 2-3 years, as indicated by the initial trials carried out by the operators.

Scope In the Telecom Technology vertical we focus on underlying technologies that are the backbone for telecom applications. The vertical primarily concentrates on technologies that enable the telecom infrastructure at the back-end networks and at the consumer facing level. The vertical focuses on the market trends of the existing technologies and the impact of the upcoming technologies on the telecom domain over the coming year.

Core

Access Wireless WCDMA, WiMax (BWA), EVDO, EDGE/GPRS Wireline DSL & Copper Last Mile

Transmission WiMAX VSAT

PBT IP / MPLS IMS Metro Ethernet OFC & DWDM

a

EvDO We predict TTSL will look into CDMA technology migration to EV-DO Rev-0 as possible upgradation to 3G. The availability of the 800 MHz Spectrum for CDMA 3G will further help them in migration. The option of adapting CDMA EV-DO Rev-A may not take place soon until the technology adoption by the top operators and availability of Rev-A handsets. However we will still see a shift of CDMA operators moving from CDMA to other BWA technologies. WCDMA will be the technology of choice for large operators. With Reliance Communications moving towards a pan India GSM network, we see only TTSL may not bring a very good Ecosystem to support CDMA 3G.

Application Mobile OS IPTV Mobile TV a

DSL and Copper Last mile Like all geographies worldwide, DSL will gain ground in India, and we predict ADSL2+ to be the preferred technology of choice. The incumbents (particularly BSNL & MTNL) in India have not taken very aggressive stance in the introductory stage. They will be making a broad based market to uptake the triple play applications on their network. MTNL has already pioneered in this area indicating commitment to invest in network upgrade to deliver the services.

Figure 5.1 Telecom Technology Drivers

Analysis 1. Access WiMAX WiMAX shall be the preferred “new” technology to be implemented by operators in the next one year. We expect WiMAX rollouts to happen in the second quarter of the next year, subject to spectrum clearances. Large operators and new players will enter this segment, using this technology as an alternate to terrestrial networks for triple play services. Indian telecom operators do understand the ability of WiMAX as a suitable BWA technology option and will be looking for both as 802.16d & 802.16e deployment. The opening of 2.3 and 2.5 MHz band will further boost the Mobile Wi-MAX. Operators will look at entry strategies like equipment and PC bundling on a leased/ funded platform to make the technology affordable for the mass market right in the beginning. We predict a slow uptake in the next one year because of deployment issues, and the unorganized content industry, that would enable triple play content services through WiMAX.

a

EDGE/GPRS GPRS and EDGE will continue to gain market share in the next one year. This is because of the wide and increasing availability of multimedia and data enabled handsets. Operators will further introduce lucrative options for consumers to increase the usage of the data enabled services. We see further penetration of this technology in the B and C circles in the next year. The World Cup Cricket will have its impact on GPRS usage, and if the operators strategy to get the premium content works right, we will see a good uptake of sports content on GPRS / EDGE in the country in the next one year, though the price points will be significantly below that of the world average. The WCDMA operators will be planning their network

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mapping the demand of GPRS and EDGE Networks.

Microwave Links connecting BSC to BTS or BSC to BSC or BSC to MSC, helping present cellular service providers in planning their transmission network with the benefit of Non-Line of site and broad band network capabilities.

a

2. Core PBT & IP/MPLS With the expected change of core network strategy from IP/MPLS to PBT (Provider Backbone Transport) by operators like BT, who are leading the Next Generation Network investment will put PBT in a preferred technology for core network to be considered by other operators also. We predict major telecom operators will consider the core network strategy in PBT over IP/MPLS next year. Wireless carriers will look at the IP/MPLS options beyond SMS / Data looking at smarter networks to support their WCDMA roadmap in the next one year. We also see the consideration of PBT positioning next to IP-MPLS.

a

Broadband over Power Lines We see very ambitious broadband rollout by large power companies providing internet over state power grid lines. Though we do not see any proven field trials that technically show the availability of this technology. Also the challenge of how power companies will transform the monolithic distribution channels of small fragmented power corporations, some early action is expected in Andhra Pradesh over the next one year. a

4. Application Mobile Operating System Established players like Symbian will face tough competition from open source operating system like Linux and also from Windows as a Mobile O S . Symbian will continue to enjoy the major market share in excess of 50% in the next one year, with Microsoft gaining ground because of its wide support for enterprise applications on its platform.

a

OFC and DWDM Large and significant investments in both footprint and capacity are seen in the OFC and DWDM segments. We see fresh rollouts in excess of 5000 kms of coverage area, to be rolled out in the next one year. Carriers like Bharti, VSNL and BSNL will drive the investments in this segment. DWDM based networks will be preferred for all fresh investments in the next one year.

a

IPTV We see IPTV emerging as an application driving investments in the next one year. However, the investments will be committed to the technology in the next one year, and we do not see major network expansions happening to enable this in a major way in the first two quarters of the next year. Early uptake would start towards the end of the next year, and the technology will also move towards maturity, covering some of the problems faced during the field trials.

a

Metro Ethernet Metro Ethernet will be a strong contender for mind share as a technology for distribution of broadband. This technology has not seen its wide uptake in India, ever since its introduction in early 2002. We see this technology gaining marginally in the next one year, though it will be evaluated by all players looking at network expansion and thicker last miles for the triple play services. a

a

IMS We see that convergence is gaining momentum in applications and networks as the operators are going for IP backbone. The current trends also shows non-real time IMS based applications like Push-to-Talk, Instant Messaging, Video Sharing to take momentum. So we predict a promising future for IMS as a technology as the operators are moving towards IP backbone to give real time services like IPTV. The maturity of IMS will be in line with the maturity of Network elements like Access, Devices and application supporting SIP based services. The IMS strategy will be looked differently by Only Wireless Players, Only Wire line players and Fixed Mobile Converge players. a

3. Transmission WiMAX WiMAX will be experimented as a cheaper and more efficient backhaul technology in the rural areas. We also see WiMAX as an emerging technology in comparison to 14GHz and 15 GHz

Mobile TV We feel that the Mobile TV standard will go in line with the MBMS road map by the operator. We do see few commercial trails for MBMS and DVB-H and Media Flow technologies. a

Conclusion: The overall scenario in telecom technology seems to be promising. We predict that WiMAX and WCDMA will be the preferred technologies in the telecom industry for the next year. Established players will commit heavy investments on networks to enable triple play applications like IPTV. The year will remain bullish with wireless operators looking to expand coverage in the C circles and Capacity in the Metro's with focus on 3G. Wireline operators will expand their fiber optic networks and invest in overseas capacity. Overall we see a rise in the per-capita bandwidth availability in the next one year increasing, enabled by these technologies and applications.

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Mobility Indian Telecom Growth ARPU Mobi density

VAS

Revenue

Subscriber Base

Supply Side Changes

Demand Side Changes

Equipment Price Handset Price Further Shift of Competition in Rural

Coverage Extended to Rural Disposable Income

Indian Mobile Industry

Rural urbanization with new investment

Figure 6.1 Indian Mobile Industry Outlook 2007

Scope The Mobility vertical deals with Indian Mobile Industry, its growth, drivers and future trends. The scope of this vertical includes analysis of the Indian mobile industry describing the telecom circle trends and predicting the growth of Indian mobile industry on the basis of subscriber numbers, mobidensity, revenues and average revenue per user(ARPU). The analysis further includes the future 3G issues and VAS Scenario.

Analysis: We find supply side changes and demand side changes conducive and will drive India ahead in the Global Mobile Growth.

Country Trends The growth statistics of the sector combined with the government's decision to increase the foreign direct investment cap in the sector to 74 % will continue to generate interest among global investors. India, will continue to be one of the fastest growing countries in telecom manufacturing in the world, and will attract another $ 855 million as foreign investment over the next two years. On the fund investment we do find the valuation for GSM operators to rise, operators with allocation of W-CDMA license will further

command a premium valuation. We expect Global operators like Telefonica and T-Mobile showing interest in Indian Market. The Mobile subscriber base and mobile tele-density will grow up to 172.3 million by 2nd quarter of 2007 with GSM being 121.57 million and CDMA being 50.87 million subscribers respectively. The overall Mobidensity for quarter ending September 2007 will be at 19.2.

Telecom Circle Trends The most promising telecom circle is circle C, which will show a YoY growth of 70.6% followed by circle B that is estimated to grow by 42.2%. The circle A will be the slowest performer growing at 34.8% only. The already saturated Metro Circle will grow by mere 33.6 % YoY with value added services driving the growth. We expect the differential growth in the circles wise primary additions of customers to be from the low ARPU segment, however the growth for the C circles will be driven by the coverage expansion by the operators and the existing low penetration in the areas.

Revenue and ARPU This ever-increasing market will amount to revenue of $ 121.52 million while the blended ARPU will come down by 28% to $ 5.82 by quarter ending September 2007.

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VAS Scenario

Revenue / ARPU Vs Time

$ 140

$ 121.5

120 100 80

In the urban markets, where the voice mobile telephony is reaching its saturation levels the operators are looking at VAS as the new source of income. Currently VAS accounts for 16.4 % of total revenue and this figure will rise up to 22% of the total mobile revenue.

60

VAS Scenario

40

100

20

99%

$ 5.8

90 2000

2001

2002

2003

2004

2005

2006

2007

ARPU ($) Revenue (million $)

Figure 6.2 ARPU Projection 2007

80 70 63%

60 50

46% 39%

40

3G It is less likely that 3G will be introduced as a service in the next year even though some infrastructure deployments might happen in some pockets of the country, particularly in the Metros and high end cities. The GSM networks will migrate towards WCDMA, however there will be continued skepticism on the CDMA migration to EV-DO Rev-0 or Rev-A networks. WiMAX 3.3/3.5 GHz, 806.16d investment will continue, with the fixed operators as a fixed broad band non line of site technology led by VSNL, Reliance and few fragmented niche players. WiMAX will be explored as an alternate technology by operators who miss the W-CDMA licenses. WiMAX will establish itself as a Fixed Broadband Wireless technology in the form of 802.16d in next 12 years. Despite the availability of Mobile WiMAX technology in India W-CDMA 3G networks will get positive support for mobility. But knowing the strength of OFDMA technology, operators will watch and evaluate Mobile WiMAX technology for the future. We do not see any threat to 3G by WiMAX even if 802.16e fulfills its claims on the mobility front, atleast in the next 1-2 years. On the contrary WiMAX will compliment 3G in following two ways. l Operators will prefer 3G for voice with enhanced

mobility and adopt WiMAX as a best broadband technology offering limited mobility. l Operators will prefer WiMAX for backhauling their 3G network as laying cost will be less as compared to fiber. We predict the introduction of WCDMA along with handset bundling towards the last quarter of the Year'2007.

29%

30

19%

20

10%

10

17% 12%

13% 7%

8% 1.1%

SMS / Text messaging

Clip downloads

Roaming

Game downloads

Voice mail / Voice messaging

Ring tone downloads

Call waiting

Internet access

Call forward

Data service / ticketing

Dial in service

Mobile banking

Caller tune

Background tones

Figure 6.3 VAS Scenario

GPRS which accounts for 5% of the Non-Voice Revenue will increase its share partly because of wider reach and also because of a gradual shift to a Flat Rate Unlimited option given by operators. We have evaluated value added services into four services l SMS l Data l Infotainment l Roaming and voice based Infotainment contributes 52 % of the total revenue share. The demand for ring-back amounts to over 8 to 9 million downloads per day with over 20 million subscribers, which will further grow at an increasing rate, with organized music industry and clarity in copyright acts supporting it. Cricket, Racing, Bollywood and Religion will be the main areas from which operators will gain high

24 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

38%

returns. We expect Delhi, Rajasthan, Punjab, Karnataka, Andhra Pradesh to be the top circles for gaming content. The revenues from VAS sector is forecasted to be 22% of the total revenues generated, continuing the CAGR of 29.8 %, from the mobile operators and is expected to reach around $ 255.55 million in 2007 from its earlier $120.22 million. VAS demand will continue to increase in rural areas with the introduction of multilingual capabilities in the VAS services. Interconnect charges have been slashed to half; fueling a reduction in SMS prices. The Introduction of the India One plan will have its effects on various factors. The Premium SMS pricing will decline as direct result. Further, Incumbent operators like BSNL and MTNL are expected to book losses in excess of $ 666.67 million. This will further lead to an overall reduction in pricing points in the

market. The operators will continue to experiment with VAS services like background tunes, and tie-ups with enterprises for advertising, using sponsored voice calls.

Conclusion The Mobile subscriber base is expected to grow up to 172.3 million by 2nd quarter of 2007 with GSM share being 121.57 million and CDMA being 50.87 million. The overall Mobidensity for quarter ending September 2007 is expected to be 19. 2. As it is evident from the predictions VAS will be the biggest driver Indian mobile industry in future and total revenues generated from the mobile VAS is expected to reach around $ 255.55 million in 2007. There is a huge untapped area in VAS, which when fully exploited will bring big bucks for operators

25 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

Broadband

Fixed Broadband Access DSL will be the dominant access technology for broadband in India. Within DSL, ADSL2+ will be the preferred technology

the coming months will pave the way of entry of WiMAX in the Indian market. Principle frequency bands which will facilitate the deployment of WiMAX will be in 3.3 MHz to 3.4 MHz. WiMAX will be used as an alternate technology to deliver triple play services across India. We will witness the fixed access and portable access flavours of WiMAX as part of the initial deployments. WLAN deployments will focus on providing mesh networking solutions in India along with WiMAX and other BWA technologies. The number of WiFi hot spots will increase as the incumbents plan to set up more hot-spots in various locations across India.

Cable broadband will see an upsurge in demand. However, differential duty structures for cable equipment will prove to be impediment for cable as an access technology.

VSAT will find its niche in providing egovernance and corporate connectivity at places where other Broadband Access technologies have not proved cost effective.

Metro Ethernet deployment will gain impetus as Telcos like Reliance and VSNL expand their reach in India.

3. Industry wise demand for Broadband The table below mentions the key factor which will drive the consumption of broadband by various industry verticals.

BSNL and MTNL will be the key players who will drive the broadband access in India leveraging their last mile infrastructure in India.

Industry-wise drivers of broadband consumption

Scope This vertical aims to cover the broadband segment in India, with focus on both Wireless and wired broadband growth The Broadband ecosystem, covering the demand and supply side of broadband, with its impact on the Broadband Equipment market. The coverage includes the applications that would drive the changes in the market, and key technologies that are emerging in the Indian broadband landscape.

Analysis: 1.

2. Broadband Wireless Access(BWA) and Satellite communication Release of Spectrum for 3G and BWA services in

Sector Manufacturing BFSI

Broadband Value Matrix for the next one year

ERP Solutions, VPN ATM networks, inter-bank connectivity and e-banking

ITES

Voice over broadband solutions

Services

Voice over broadband solutions

Government

DSL

Applications / Solutions

E-Governance

Figure 7.2 Industry-wise drivers of broadband consumption

Metro Ethernet

Wi-Max

Cable Wi-Fi

VSAT

Low

High

Value for money for Consumer Note: WiMax is a spectrally efficient technology which facilitates cost effective, simple and flexible deployments of BWA networks. In future it has the potential to offer value exceeding that of existing broadband technologies . However, for the next one year its value proposition will be low.

4. Broadband VAS Multi-lingual and regional content will find favor with major service providers, with players like Sify already micro-segmenting this domain. Telemedicine, tele-education and other multimedia content like gaming, VOD, MOD will be the applications in the broadband VAS package. Triple Play Services (IPTV, Telephony and Multimedia) investments have already gathered momentum In the next one year we see commercial deployments, of networks catering to this application across metros and other Tier-1 cities.

Figure 7.1 Broadband Value Matrix Outlook for 2007

26 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

5. Retail Broadband market Poor last-mile connectivity, lack of a wireless alternative, and low personal computer penetration will continue hamper the growth of retail broadband in India, however decreasing prices of 25% of the last years figures, make it more affordable to the consumer. We will continue to see the lowering down of the prices, as indicated above, but at a lesser extent and finally stabilising at level which is also profitable to the service provider, however we see large players continuing the subsidize bandwidth to acquire customers, and later leverage the base for VAS services Cyber cafes will increase driven by deployment plans of players like VSNL/Railtel and emerge as competitors to established players like Sify Iways and Reliance web world. 6. Broadband Equipment Market The Broadband equipment market will continue to grow beyond the existing levels of 35%, with tenders for broadband equipment already indicating the bullish behavior of the major telco's. The major chunk of the investments will be in DSL(ADSL2+) and Ethernet deployments. The Indian market will also see the BWA equipment market size increase fuelled by WiFi and WiMAX network deployments.

7. IP/MPLS : With the expected change of core network strategy from IP/MPLS to PBT(Provider Backbone Transport) by operators like BT, who are leading the Next Generation Network investment will put PBT as a preferred technology for core network to be considered by other operators also. We predict that major Broad Band Players in India will also follow the similar strategy for core network preferring PBT over IP/MPLS in the next year 8. Broadband Subscribers Vs Total Internet Subscribers: Broadband as a cost effective solution for internet access will increase its presence as compared to

Broadband as a % of total internet subscribers 60 % 50 40 30 20 10

Mar-05

Jul-05

May-05

Nov-05

Sep-05

Mar-06

Jan-06

Jul-06

May-06

Nov-06

Sep-06

Mar-07

Jan-07

Jul-07

May-07

Nov-07

Sep-07

Figure 7.3a Broadband as a % of total internet subscribers

the traditional means of accessing the internet. The exhibit below shows the trend which represents the above fact. The table below gives the values predicted for the next one year:

Broadband as a % of total internet subscribers Month / Year

Percentage of broadband subscribers w.r.t total internet subscribers in India

May 2005

5.7%

May 2006

19.7%

May 2007

43.2%

October 2007

52.3%

December 2007

55.8%

Observed Values (TRAI) Predicted values Figure 7.3b Broadband as a % of total internet subscribers

Conclusion PC penetration in India will be one of the major impediments in the adoption of broadband, at present the figure stands at around 18 per thousand which keeps the broadband dream a distant one. The retail broadband market is all set to have a re-launch with new players coming in and also implementation of newer business models. Overall the broadband market will see high growth rate wherein both in the retail and the corporate customers will contribute equally.

27 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

Telecom Software Scope Telecom software are used at the back end of the IT infrastructure of telecom companies. It also includes mobile OS. In this the latest trends in the telecom software market, including OSS/BSS & software for 3G, Triple play, IPTV, Wi-Max, VOIP, SDR and Mobile OS, are predicted under the scope of this vertical.

to buy billing systems for their revenue-generating direct marketing skills, and not just for their accounting dexterity. Several billing vendors will leverage from merchandising and contextual advertising techniques to boost the bottom lines of their clients.

Future trends in OSS / BSS market

Analysis

BI

The Telecom software market will show phenomenal growth this year. Almost every telecom company is either investing in new software or spending in upgrading its IT backbone to meet the anticipated boom.

RA NMS Bi FM

Overall, the telecom software market will grow around 25.1 % in the year 2006-2007 as compared to 22% in the previous year. It will grow from $ 2581.1 million to $ 3229.96 million. As the telecom Industry is on high growth not only in India but around the world, new technologies are ready to replace the older ones in a shorter span of time as compared to the time taken by the earlier technologies to get popular. With infrastructure in place, the regulations are being molded and the market is getting ready for a new wave.

CC

Low

High

Operator Priority

Revenue (in Million US $) 3500 3000 2500 2000

Figure 8.2 Future trends in OSS / BSS market

1500 1000 500

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

Figure 8.1 Telecom Software Revenue Projection for 2007

Fig-Forecasted Telecom Software Revenue

Converging Postpaid and Prepaid Billing — Real time pre-paid and post-paid billing system will grow due to rising number of “dual use” phones and the advantages of pricing from a single consolidated database. This will force the pre-paid and post-paid billing markets to converge in the coming year.

The Software providers in India mostly had International players to cater to but now Indian CSP's will also upgrade their IT software to cater to rising demand and will not only invest in OSS/BSS but also on the CRM and Business Intelligence front.

The Rise of Virtual Network Operators — Uptake of customer management software and billing reconciliation is a critical need for emerging MVNOs. This will drive the demand for a prepackaged software framework for this market.

OSS/BSS

Wireline Billing Consolidation — While wireless markets is where we feel most of the billing growth will be, large basic service operators such as AT&T and BT are making great progress in billing system consolidation. We forecast that this trend will accelerate.

We are expecting the following market trends in the coming year: Real-time Revenue Generation —the explosion of data services in mobile markets is prompting Telcos

28 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

3G The market is all set to deploy 3G in India and 3G (WCDMA) ready handsets are already in the market. We expect the major areas for investment in terms of software will be in the fields of Video Conferencing, LBS (Location Based Services), Mobile banking, Mobile trading, Ticketing and Push & pull adds. Out of these, Video Conferencing is expected to come out as a killer application for 3G followed by Location based services.

Triple play and IPTV (Internet Protocol TV) A new set of software billing for content based billing is likely to evolve in the next year to support complex billing requirement of triple play and IPTV. We will see large operators and incumbents launching their services by 2nd quarter of 2007 in select cities.

Wi Max Complex real-time data application supported by WiMAX will fuel the uptake of complex billing software for the same. Investments will grow not only in the OEM sector but also in the software sector supporting this new technology.

VOIP ( Voice Over Internet Protocol) Enterprises will migrate from TDM to VOIP fueling the growth of IP-based control, management and billing software. The softphone market, though young, will continue to grow along with VoIP.

SDR ( Software Defined Radio) Global telecommunication industry will be taking SDR as a new field to go for. The companies already

investing in it consist of Nokia, Hutchison 3G, Nortel, Fujitsu & NEC. SDR mobiles are also in the pipeline. SDR's compund market will see a high growth rate in the year 2006-07 along with the shipment of equipment.

OS and Security Issues (Operating System) As the market is expected to see a significant growth in the smart phones, the Mobile OS which will offer the most versatility will emerge as a winner. The fight is tough between Symbian and Microsoft. Linux based mobile OS are in the nascent stage. But this sector will also give a new target for the virus and hacker community. As mobile data is considered to be more precise and personal, security measures are also likely to be developed to handle the same. McAfee and F-secure are ready with their mobile antivirus software. We forecast more players to emerge in this market. Conclusion Overall, the telecom software market will be busy in coping up with the new technologies coming up and the increasing subscriber base. We will see large operators migrating from legacy-based systems to a next generation framework to support the complex networks being deployed. More and more convergence will be witnessed. A lot of Indian Software giants will also start catering to the Indian market along with the rest of the world in the telecom domain.

29 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

Communication Infrastructure Scope

Service Provider OPEX Distribution

The telecom Infrastructure segment includes the Infrastructure across various segments of network including access, transmission and core. The overall forecast is based on the understanding from the operators' investments and capacity and coverage expansions. We have also considered the technology migration level integration.

30% Technical Operations

43%

Customer Care Costs of Goods Sale Marketing Sales and Admin

7%

Analysis 20% Figure 9.1 Service Provider CAPEX / OPEX Distribution

Base Station Average Price 80

US$(000s)

The telecom industry comprising services and equipment will increase to $24.29 billion by 2006. India's rapidly expanding telecommunications will procure equipment worth $22 to $28 billion in the period ending 2007 to meet rising demand for new telephone services. The above investment includes innovative business models and sharing risk between Vendors and Operators. The selection of investment will focus on the Total Cost of Ownership (TCO). Mobile Infrastructure and broadband access technology will drive the investments in the communications segment.

60 40 20

20 2002

2003

2004

2005

Capex Distribution

2007

Figure 9.2 Base Station Average Price Projection for 2007

We are seeing that the base station price will continue to come down. There will be slight increase in the managed capacity based pricing calculated per Erlang as operators will continue to invest in rural areas. Though the prices will be high for base station in this region as the ROI expected is low; driving the per Erlang Price higher. But in the case of urban areas the same will remain lower

India 2G and 3G CAPEX by Technology 3000

Annual Radio Network CAPEX($mn)

The mobile infrastructure investment will primarily be around the GSM networks, as in line with the global trend, of declining market share of CDMA networks. Bharti, Idea, Hutch and Aircel in GSM and TTSL in CDMA will drive the investments. Reliance will divert its investments from CDMA to GSM network. In line with their migration to ALL-IP IMS based network operators will adopt the R4 based Call Server and Media Gateway based architecture, signifying the beginning of the next generation networks. W-CDMA/HSDPA will increase as mobile operators upgrade their networks with BSNL and MTNL leading in the investments. Operators will start with limited indoor trials of W-CDMA network; however the actual investment will be after the clarity of 3G commercial licensing of services. In Wi-MAX 16e technology will see new development but the unavailability of 2.3GHz and 2.5GHz will limit the Wi-MAX mobility broadband opportunity. 3.3 GHz and 3.5GHz will be the new investment avenues for operators with VSNL and Reliance in the lead. The graphs below depict how the service providers would direct their investments.

2006

CDMA 1X/ CDMA 2000

GSM/GPRS/EDGE

Mobile Infrastructure

4%

36

800

2000

750

400 300 1000

1250

300

1000 800

800

2004

2005

500

3% New BTS Transreceivers

5% 34%

2003

New Base Stations

GSM/GPRS/EDGE

Professional Services

5%

Micro Wave Backhaul

7%

2006

2007

CDMA 2000/CDMA 1X

Figure 9.3 2G & 3G CAPEX Projection for 2007

BSC, RNC Equipment HLR and IN Other Infrastructure

16% 26%

Switching

We expect that GSM and CDMA will expand equally which will be more in the rural areas by investing in the network coverage and operators like Tata and

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Reliance will be leading. In 2006 we expected the GSM and CDMA operators will invest aggressively in rural for expanding coverage and in urban for improving the quality of service. However we have seen in 2006, the CDMA investment was not on line of our prediction, but the GSM investment was in line. It's largely because of Reliance holding its investment with possible option to migrate to GSM. Even we have not seen a large investment from TTSL in terms of Wireless Infrastructure. In 2007 the GSM investment will be more than CDMA to cover more villages. We expect the technology changes of migration to 3G network will also drive the Wireless Equipment Investment in 2007. The CDMA operators are in advantage position with the 3G spectrum in the 800 MHz. They need to upgrade their BTS with CDMA EVDO Rev-0 or Rev-A optimizing their Investment to 3G. However in case of GSM migration to 3G, WCDMA investment needed for complete migration of the Access Network in terms of hardware and software (Node B and RNC). We also believe that Call Server and Media gate way based architecture will be adapted by both GSM and CDMA operators with a long term support to IMS.

VSAT Despite alternate technologies like MPLS, substituting VSATS on the wireline side and CDMA or GPRS-EDGE on the wireless. We predict the number of VSAT terminals to reach around 67000-70,000 from existing 58,000 by the end of 2007, a growth of 19.5%. The investments in the sector will grow between 20-25% to be in the region of 330-3400 million. The major sectors driving the growth will be in DTH and Broadcasting, Digital Cinema, Distance Education, Retail Chains, Hospitality Sector. Equipment prices would drive the competition as the bandwidth prices, regulated by ISRO are unlikely to come down with no signs of an Open Sky Policy. VSAT terminal and hub prices will further nosedive, as operators adopt this strategy to remain competitive.

Fiber Optic Cable Fiber revenue in 2006 will significantly grow, as we predict fresh investments by large operators, scaling from deployments in the range of 5000-10000 km of fiber optic cable within the country. Bharti will be the major investors, driving the investments, with other operators following suit. Fiber optic cable, vendors revenues will increase and cross $ 445 million. There will be fresh investments in Submarine cables, with Incumbents and new players investing in international capacity. The structured cabling industry will continue to grow in the range of 20-25%.

With revenues of $ 105 million in 2006, the revenues will touch $ 123 – 127 million by the end of 2007. Fiber-optic adapters will see a moderate increase in demand.

VOIP and PBX End of 2007, will see 25% of the PBX lines shipped to be IP based compared to the 15 percent today. Medium businesses will increasingly use IP-PBX and this will grow by 18% from the current 6%.

Routers/Switches The Demand for routers and switches will continue to grow steadily. Switch market, will have a steep growth both by value and unit shipment, with the preference being towards Layer 3 switches. 1G Switches would primarily drive this growth. Year 2007 is targeted as the year of heavy-duty soft switch deployment, which is in the trial phase right now.

DTH/FM Radio The DTH broadcasting segment is set to see major growth. The total investments will be $ 56 - 66 million in the next year. The number of households with DTH will be 0.75 - 1.25 million by 2007. FM radio will see its coverage expanding to nearly 90 cities, 280 frequencies and 400 million people in the coming year. The entry of new players in this segment will increase the investments to $ 18 – 23 million. The advertising revenue generated by radio will be 800-900 million by 2006-2007.

Wi-Fi The Wi-Fi penetration will be an increase by 73%. WiFi phone units grew 151% in 2006 and will grow 182% by 2007. There will be an increase in access points, switches and routers, as a direct result of this increase.

Conclusion To sum up, India's rapidly expanding telecom market is expected to show upsurge in the equipment procurement to meet rising demand for new telephone services where in Mobile Infrastructure and broadband access technology will drive the investments. VSAT will show escalation due to drivers like DTH Broadcasting, Digital Cinema, Distance Education, etc. Fresh investments in Submarine cables, with Incumbents and new players investing in international capacity would increase fiber optic cable demand by 20-25%. VOIP and PBX will see 25% of the PBX lines shipped to be IP based. Overall, the DTH broadcasting segment is set to see major growth and the entry of new players in the FM radio segment will increase the investments to $18-20 million.

31 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

Consumer Electronics The Consumer Electronics vertical is being introduced for the first time in Prévision.

Scope Consumer electronics refer to a broad range of electronic equipment intended for everyday domestic use by people. This segment delves into the global and Indian Consumer Electronics space. Some categories of consumer electronics include mobile phones, audio equipment, televisions, PCs and laptops. The primary focus of this vertical is on the following consumer electronics categories : l Mobile handsets l Personal computers and laptops l Other Consumer Electronics (Portable music/ video players, Plasma TV)

Analysis The consumer electronics industry both globally as well as within India has witnessed a phenomenal growth over the past few years. The global sales of consumer electronics will touch an all time high of $135.4 billion by the end of 2006, an 8% increase from 2005. We predict a steady rise in the uptake of the electronics starting 2006-07 The Indian consumer electronics market was worth $3.4 billion in 2005, a 14% growth from the previous year. By 2007, sales are forecasted in the range of $3.89 billion, given the CAGR projection of 11 per cent. If grey market sales are included, the Indian consumer electronics market would be far higher than the recorded numbers. The following are some of the major factors attributed to the growth of the consumer electronics market in India: l Increasing disposable income available to the middle class l Greater acceptance of newer technologies and products l Large scale promotional offers during festivals, sporting events l Domestic manufacturing of products/ drop in the hardware export duties However rural uptake of products however is slow.

Mobile Handsets With rapid consumerism sweeping the country, India has emerged as the second largest mobile handset market, worldwide, and is poised for explosive growth. The Indian market is seen best for the low-end phones, but simultaneously there is a huge rise in the demand for costlier phones, particularly in segments migrating to GSM based

advanced technologies like GPRS/ EDGE/W-CDMA. In India we believe the mid range and high-end handset growth will be with replacement of the lowend handsets. Features like Slimmer Size, Camera, audio capabilities and high resolution screens will drive the market. With the introduction of W-CDMA networks towards the last quarter of next year we expect a lot of handset bundling with call features in the market. However we don't expect the actual growth of handsets within the next year though there will be a larger network adoption of W-CDMA by operators.

Market Drivers India is a very price sensitive market. However, we do find there is a large supply side push for the handset bundling by operators particularly in the CDMA segment. Inflexion points are expected at certain points of the standard prevailing handset price. It is expected that handsets will be available in the market for as low as Rs. 800 ($17.7) which would see the penetration increase substantially. Some of the factors affecting the rise in the number of mobile phone users include bundling offers, intensified competition, rise in the level of disposable income, technology substitution, government policies etc. However the high end handset will have demand side interest with focus on value added features.

Future Trends We predict the total number of handsets (including refurbished) to be close to 200 million in 2007. Emphasis will be towards multi media content. Hence it is expected that Integrated Digital Camera, FM Radio and Speaker Phones will continue to remain the features which will drive up-gradation of mobile handsets this year. Features like quad-band, Bluetooth, infrared etc. have also observed growing demand, but have yet to develop any mass appeal to drive the market. The handset players will move towards development of handsets to cater to the low and middle segment, to maintain market share. With the purported exit of Reliance from the CDMA space, there will emerge clear strategies for companies to target and market their handsets. However the general trend will be in the multi-media segment. Introduction of WCDMA by the end of next year would witness emergence of White Label handset manufacturers similar to European countries; like Vodafone has introduced in collaboration with Huawei.

32 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

PC Market

Key trends in 2007

The term PC Market comprises both the Desktops as well as Laptops. Presently only 10 percent of the population has access to a Personal Computer and the market will continue to grow with a CGAR (2000-05) of 21.28%.India will continue to add approximately 2 million PC's per annum. This figure will increase to around 2.65 million units with aggressive pricing of sub 200 units in the market, which will be the prime factor for the increase. As a result assembled PCs will loose market share to branded PC's.

l Organized

The growth drivers for the Indian PC market are shown in the figure below. Growing Internet and Broad Band Connections

Bundling with Software and Networking Vendors

Going toward Better Supply Chain Management

Innovations in Processor field for Low cost Systems

Growing Internet Increasing and Demand from Broad Band Various Sectors Connections

PC Market

Opening up R&D and Manufacturing Units in India

Government Policies

Figure 10.1 PC Market Determinants

Growth of Desktop, Laptop & PC Market 55,21,633

23.07% 50,00,000 32.47%

30,00,000

46,14,724

23.43% 36,32,619 32% -10.4%

Other Consumer Electronic Equipments The Indian TV market will have an exponential growth in the LCD TV category driven by consumers who already have large screen flat or conventional TV's. Plasma TVs will grow at the rate of over 100%. The projection TV category however will be shadowed by the above mentioned technology and the growth rate will be negligible. It is expected that the LCD TV market in 2007 would be close to 0.15 million units with the Plasma TV market not far behind at 0.05 million units In the portable media segment the iPod will see further competition in the form of multimedia enabled mobile handsets.

Conclusion

Aggresive Advertising Policies

40,00,000

selling of branded PC's by vendors moving towards smaller cities l Mobile computing (notebooks) growing at an increasing rate l E-governance will spur growth in rural areas l Large enterprises will increasingly sub-contract or fully outsource their IT needs l Wireless technology will boost the PC segment

30,35,591

Overall consumer electronics industry both globally as well as within India would show steady rise in the uptake of the electronics. Increase in disposable income, acceptance of newer technologies, domestic manufacturing and products promotional offers are major factors driving consumer electronics. Large supply side push for the handset bundling by CDMA and multi-media segment would show upsurge. Further selling of branded PC's towards smaller cities, growing mobile computing, large enterprises fully outsourcing IT needs and wireless technology will boost the PC segment.

35.7% 22,93,643

20,00,000 18,81,640 16,70,880 10,00,000

6,89,311 41,670

2000-01

52,375

2001-02

Desktop

44,745

2002-03

50,974

2003-04

1,77,105

2004-05

Laptop and Notebook

4,31,834

2005-06

2006-07

Growth of PC Market

Figure 10.2 Desktop, Laptop & PC Market Projection for 2007

33 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

References Articles From Following News Services

www.globalissues.org

Times News Network

www.google.news.com

Press Trust of India

www.humanlinks.com

Reuters

www.ibef.org

Business Standard

www.ieg.org www.igigroup.com

Websites http://canadianeconomy.gc.ca http://inflationdata.com http://unstats.un.org www.abnamro.com www.airtelenterprise.com www.auspi.org www.bankofengland.co.uk/ www.bea.gov www.Bloomburg.com www.bsnl.co.in www.bsnl.in www.business-standard.com www.business-standard.com www.census.gov www.censusindia.net www.ciionline.org www.cmie.com www.coai.com www.computerworld.com www.consensuseconomics.com www.csmonitor.com www.datamationindia.com www.economictimes.com www.economist.com www.economist.com www.eda.gov/ www.education.nic.in www.ey.com www.federalreserve.gov www.fedstats.gov www.finmin.nic.in www.garamchai.com

www.imf.org www.indiainfoline.com www.indianchild.com www.infoworld.com www.inseadinnovasia.com www.latin-focus.com www.marketwire.com www.mindbranch.com www.mospi.nic.in www.nationmaster.com www.nationmaster.com www.networkworld.com www.oecd.org www.outlookindia.com www.rbi.org.in www.rediff.com/mobile www.relianceinfo.com www.ril.com www.sebi.gov.in www.siliconindia.com www.sior.com www.statcan.ca www.statistics.gov.uk www.stat-usa.gov www.library.telecommagazine.com/ www.teledata.com www.thehindubusinessline.com www.trai.gov.in www.un.org www.unece.org www.voicendata.com www.worldbank.org www.wirelessweek.com

34 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

About SITM our students and faculty work closely together for various committees. Every student has an active exposure to committee activities. Hence we have ample opportunity to refine crucial managerial and organizational skills like accountability, teamwork, work breakdown / allocation, business communication, contingency planning, and change and crisis management. This ability is put to test and refined to the utmost in all SITM events. We regularly participate in many regional and national level Business School competitions with a very good track record of emerging as winners. SITM students are also taught the value of their social obligations and actively participate in social work activities.

We are a techno-management business school that has remarkably evolved into a centre for learning excellence in the Information and Communication Technology (ICT) domain. We have a short history of no less than ten evolving years which had made our presence felt in the ICT industry. Over nine hundred of our alumni are tirelessly contributing to the growth of organizations throughout the ICT value chain in India and abroad. The intensive course framework designed to equip future managers with the knowledge of General Management, Telecom Technologies, Finance, Software, Marketing, Branding and a deeper understanding of Market Dynamics so that we evolve in perfect managers with ability to handle the work effectively.

Our motto is “Be the Best” and it is our constant endeavour to improve upon our past performances, which is the reason for our quick progress, and so shall it remain.

The learned and eminent members of our Board of Studies keep our curriculum contemporary through biannual revisions. The gurus of SITM are a potent mix of academicians, domain experts and practicing professionals. The future managers are endowed with experiences beyond knowledge by being exposed to workshops, moral rearmament camp, industry exhibitions and various national level events. Apart from academics,

35 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

Team Prévision Faculty in Charge

Verticles

Mr. Giri Hallur, (Faculty, Telecom)

a

Members

Global Economy

Sanjeev Nawani Samarth Pandey Ajay Sharma Pankaj Chawla Nitin Khanna

Industry Mentors Kundan Das (Huawei Technologies) Rahul Sharma (TechMahindra) Aniruddha Harne (TechMahindra)

a

Indian Economy

Shwetank Tamer Ankur Gupta Gareth Mascarenhas

Student in Charge Manish Juneja

a

Global Telecom

Aditya Arora Sudhir Jain Amitesh Kumar Tanuj Arora Chandan Pandey Bhavneesh Mahajan

Student Editor Gareth Mascarenhas

a

Indian Telecom

Saurabh Mishra Ashish Bajaj Vaibhav Narang Divya Tuteja Shumita Kakkar George Ninnan

a

Mobility

Soumya Mishra Krati Laad Maulik Trivedi Triyanka Nayak Neha Agarwal Madhur Deshpande

a

Broadband

Ashish Chandrashekhar Somil Mittal Deepshikha Garg C. Shailaja Umang Garg

a

Telecom Software

Akash Pethiya Vishal Sethi Parikshit Parashar

a

Telecom Technologies

Vikas Sharma Shashwat Virmani Ashwini Shrimali Bhaskar Maheshwari

a

Communication Infrastructure

Gaurav Khera Sanjay Aggarwal Kanika Jain Aniket Joshi Nahush Vaidya Prashant Kumar Nitin Hedau

a

Consumer Electronics

36 © Copyright 2006, Symbiosis Institute of Telecom Management, Pune.

Deepak John Vaibhav Aggarwal Ankur Sharma Girish Dixit

Symbiosis Institute of Telecom Management Atur Centre, Gokhale Cross Road, Model Colony, Pune - 411016 Phone: 020-25674150, 25671911 Fax: 020-25675953 Email: [email protected] www.sitm.ac.in

Prévision - SITM Annual Telecom Forecast, provides a holistic and equitable view of the forthcoming telecom sector developments taking into account all the macro and micro economic factors. The essence of this forecast report lies in the fact that it keeps us in sync with the changing dynamics of the telecom domain which is transforming itself and now stepping into the third generation technologies.