Telecom 1

Global Leadership – India can do it. Telecom

Index • Telecom – Historical Development & Industry Overview • India’s connection to Global Telecom Leadership • Mobile leading Telecom growth in India • India Telecom poised for Global Leadership – Why India can do it • Reliance’s contribution to Indian Telecom’s Global leadership

Telecom – Historical Development & Industry Overview

Telecom Industry Overview • Telecom is considered a basic infrastructure industry, critical for and integral to a country’s growth • Various studies by World Bank & LBS suggest that increase in Teledensity leads to rapid growth in country’s GDP (US $1 investment in telecom leads to US$ 6 increase in GDP)

Important Developments in Telecommunications  1844 First telegraph message (between D.C. and Baltimore)  1876 Bell patents the telephone; first telephone message  1885 The Indian Telegraph Act  1895 Guglielmo Marconi sends first radio-telegraph message  1946 First Mobile Telephone Call  1982 First cellular telephone system  1994 National Telecom Policy (NTP 94) Announced by GoI  1995 Mobile/Cellular Telephony begins in India  1999 New National Telecom Policy Announced  2003 Unified License Regime. India 13th in global ranking by cellular base up from 18th rank during the previous year.  2005 Aug: India achieves 10% teledensity ahead of schedule. Target 250 Mn subs by 2007

India’s connection to Global Telecom Leadership

India’s connection to Global Telecom Leadership  JC Bose is credited with simultaneous invention of Telegraph, independent of Marconi of Italy

 World’s 1st sea cable for telegraph messages was between India & England (Calcutta to London)

 Among top-5 private Indian companies with over Rs. 1 Lakh Cr. Market Cap, two are telecom operators. Both are also among top-6 Asian Telecom operators

Mobile leading Telecom growth in India

Mobile leading Telecom growth in India Mobile v/s Fixed Line Subs Base (Mn) 100 89.6

80 60 40

42.8 33.7

52.2 49.5 46.2

20 0 Mar 04

Mar 05

Fixed Line

Mar 06

Mobile

Mobile exceeded Fixed Line base in FY 04-05.

Millions

India – The mobile juggernaut rolls 160 140

136

RCL – Soft launch on 28th Dec 02 and Commercial launch on May 1 2003

120 100

76

80 60

NetAds

40

28

20 0

48

CumSubs

0.03 1995

0.22 1996

0.8 1997

1.1 1998

1.6 1999

3.1 2000

5.5 2001

10.5 17.5

2002

2003

60 20

2004

•Indian Mobile growth on a J curve •Reliance’s entry stimulates mobile market growth. •Subscriber numbers grown over 12 times in last 4 years.

Indian mobile market at an inflection point

28

2005

2006

India Telecom – Elements of Global Leadership & Why India can do it

Why India Can achieve Global Leadership in Telecom • • • • • • • •

Size of New Subscriber Market Innovation in Service Offerings SMS Usage Leadership Well structured Regulatory environment Trained Technical & Managerial Manpower At Forefront in adopting new technology Operational efficiency to maintain profitablility Government’s effort to reduce Digital Divide

India – an Underserved Market & Potent Mix for explosive Telecom Growth • An underserved market. 1 995 Worl 1.6% d Indi a Chin a

0.3%

2 002 19%

2 003 20%

1.2%

2.9%

16%

20%

Current teledens ity at only 18%

• Half a billion consuming class by 2007. • A historical 5-6 year lag vs. China - Current base to grow to 250mn by 2008 • Expected to add 6-7 million subs per month consistently.

India – an Underserved Market & Potent Mix for explosive Telecom Growth • Population

: 1 billion (largest Democracy, 2nd

most populous country) • Urban pop

: 300 million in 5000+ towns

• Rural pop

: 700 million in 0.6 million villages

• GDP

: $3 trillion (4th largest economy

in PPP terms) • Telephony

: 190 million (top 5 in world)

Millions

Indian Telecom – Net Adds Leader; Poised for phenomenal growth 450 388

400 335

350 300

China

279

India

250

207

200 150

85

76

100 50

145

136

0.03 0.22 0.8 1.1

1.6 3.1 5.5 10.5

28

48 13.2

24

43

0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 Yr 16 Yr 17 Yr 18

• • • •

India’s Historical 5-6 year lag to China China, after peaking at 6 Mn, has come down to 5 Mn net adds pm India has already overtaken China and reached nearly 7 Mn net adds pm India destined to close the gap with China subs base

Emerging Customer Segments • Mobile as Utility Tool leading to Emergence of newer customer segments, contributing to phenomenal growth: – – – – –

Students Housewives Small Business Owners Skilled Labour (ABCD category) Quick connection for New Homes / Offices / Shops

Drivers of Growth Changing demographics

Government Policies

Low Entry Barrier

 44% population < 19 years; 75% literate  Working population to grow from 485 mn to 615 mn by 2010  21 mn professionals and 90 mn graduates/ post graduates by 2010  500 mn consuming class by 2007  Unified licence provides unprecedented flexibility to operators in optimising costs and services by leveraging technology and economies of scale  Introduction of calling party pays (CPP) regime  Drop in the handset prices … lowering the entry barrier… Lowering Tariffs… Increasing affordability

Innovation in Service Offerings • 1st Prepaid in GSM & CDMA was launched in India along with simultaneous launch in one more country • Innovative tariffs & service bundling – unparalleled in world • Innovative Value Added Services & Useful Applications LOW PER CAPITA INCOME & LIMITED CREDIT UNIVERSE LED TO SERVICE INNOVATIONS

SMS Usage Leadership • India is the leading SMS user, followed probably by Philippines • In North America, SMS is becoming popular only recently. • Many sms-based VAS offerings • Least intrusive, tele-voting, information, contests, etc.

TEXTING IS FIRST NON-VOICE APPLICATION PREPARING THE USERS FOR NEWER PPLICATIONS

Well structured Regulatory environment • India has one of the best structured Regulatory Environment – DoT, TRAI, TDSAT • India has moved from over-regulated to light-touch environment • Smooth migration from 2 operator to 4 operator to 6 operator scenario is Exemplary.

At Forefront in adopting new technology • India quickly adopted CDMA – 1X directly in 2003, while many countries moved up gradually from lower versions . • Earlier, India commenced cellular services with GSM Digital Service whereas other countries began with Analog Technologies

LATEST TECHNOLOGY ADOPTION HELPED AND CREATED A LARGE TECHNICAL MANPOWER BASE – ENVY OF WORLD

Technical & Managerial Knowhow – Uniquely Indian • Substantial talent pool of Technical & Managerial manpower. • Sales / Marketing Professionals needed to be innovative for economy – conscious segments. • Above two, created a cohesive & integrated Indian Telecom Management Philosophy. • Notwithstanding equity-structure, Indian Telcos run by Indians • By contrast, Indians are running 2 top global Telecom companies – Vodafone (UK); Orange (France)

THE BOTTOM OF PYRAMID – UNIQUE STRENGTH

Operational efficiency to maintain profitablility

• Inspite of running at lowest tarrifs per minute, Indian telecom cos continue to run profitable operations with increasing EBITDA margins • Using scale benefits to achieve cost & operational efficiency for higher profitability • Indian cost-structures & ingenuity has led to best-in-world efficiencies

INDIAN BUSINESS MODEL IS ADAPTABLE IN MOST COUNTRIES

Rural Communications • Govt. of India &Regulatory bodies are making efforts that Telephony does not remain an urban phenomenon • USO Scheme for offering Rural telephony, has helped to increase roll-out of rural telephony services by operators • Reliancce has simultaneously focussed on both Voice & Data services in rural/ semi-urban areas • Usage of modern communication by fisher-folk, farmers & small traders is catching up

NATION IS COMMITTED TO ELIMINATE DIGITAL DIVIDE

Individual Companies Can Catalyse Sectoral Growth – Reliance Story

Mobile Market Composition: (Pre – Reliance Entry)  Limited Coverage • 29 states • 4 licensees per state. Some operational since 10 years • No pan India integrated & convergent player • Mobile services limited to top 500 towns & high-income individuals

 Limited Features & High Cost • 2G networks. Only voice & SMS. Limited data & No video • High entry cost & call charges • Receiving party pays for incoming calls • Sub-standard Customer Service offered to subscribers

 Low Mobile Penetration: at 1.2% compared to China at 16% in 2002 Essentially under-served market

Mobile Market - Changing Scenario (Post – Reliance Entry) RCL’s launch did the following to transform the Indian Mobile Market:  Increased Network Coverage to even smaller towns & villages  Reduce Entry Costs: (The legendary Rs. 501 Monsoon Hungama Scheme)  Reduce Tariffs & affordability of mobile/telecom service (STD Call @ Post Card rate - 40p/min!)  Enhance Customer Service to subscribers

Taking mobility to the masses Parameter

1995

2002

2003

2006

ILD

Rs. 60 / min

Rs. 24 / min

Rs18/min

Rs 6/min

STD rates ( Mumbai – Delhi Call Cost)

Rs. 30 / min

Rs. 9.60 / min

Rs 3/ min Rs 0.40/min

Re 1/min Rs. 0.40/ min

SMS cost

Rs. 4/ msg

Rs. 2 / msg

50p/msg

1 p/ msg

Entry cost for going mobile

> Rs 20,000

> Rs 5000

Rs 501* / Rs 5000

Rs 1500

Min cost of Data services like news, games on mobile etc

Rs 16.8/ min

Rs 750/ month

Free

Free

* Balance over 36 months

ed a dramatic drop in tariffs making mobile phones an affordable mass

INDIA HAS DONE IT. IN TELECOM.

CAN DO EVERYWHERE!