India - A Potential 3G Market A Feasibility Study Arnab Sinha Sudipta Ray Indian Institute of Technology, Kharagpur

Service Promotion 3G SERVICES & INDIAN MARKET Market Trends Existing Market Competition Business Base Evaluation of Policies Cost Structure Technology Requirements

Service Promotion 3G SERVICES & INDIAN MARKET Market Trends Existing Market Competition Business Base Evaluation of Policies Cost Structure Technology Requirements

Expected Usage in 2007: 111 million (from CAGR of 94%) Market Trends Cheaper Infrastructure Cost

Service Promotion 3G SERVICES & INDIAN MARKET Market Trends Existing Market Competition Business Base Evaluation of Policies Cost Structure Technology Requirements

Existing Market Competition Stake in Existing Market : Technology relied upon : Total Investment : Analyzing the predicted Market Revenue Trends, expected Break Even Period for Vodafone BHARTI (10%) GSM (Larger service range in India) 1.5 billion USD Our Target Break Even before February 2008 Vodafone Break Even

Service Promotion 3G SERVICES & INDIAN MARKET Market Trends Existing Market Competition Business Base Evaluation of Policies Cost Structure Technology Requirements

Business Base Current Position of Reliance in market % of the subscriber population - Largest CDMA provider in India - 54% of the population is below the age of Estimated youth’s annual spending  US$10.5 billion 1 1 Collaboration with Reliance! Targeting the Youth Section! Launching the service on Valentine’s Day! Customer Base

Service Promotion 3G SERVICES & INDIAN MARKET Market Trends Existing Market Competition Business Base Evaluation of Policies Cost Structure Technology Requirements

Increased talk time Superior Power Control Lowest radiation level Hi-Speed Internet Access –India has less than 0.4% penetration CDMA1x handsets (140 kbps) Most successful 3G Tech –CDMA2000 controls 85% of the World’s 3G market –Adds 15 million new users per quarter Worldwide Better Voice & Consistent Quality Advanced platform supporting innovative applications GSM 3G evolution relies on CDMA Technology Requirements Hence CDMA – choice for the 3 rd generation!

Service Promotion 3G SERVICES & INDIAN MARKET Market Trends Existing Market Competition Business Base Evaluation of Policies Cost Structure Technology Requirements

Cost Structure Total Reliance Revenue = Normal Revenue + 3G Revenue Young Reliance Customers Reliance Subscriber Accessing Internet Estd. Avg Packet Consumption per month (APC) Charge (C) Packet wise Billing

Cost Structure 50p for each 128 Bytes packet Billing Structure Following Japan’s estimate 5 5 APC=8192(1MB) Reliance Customer Base  20.3% of 38.5 Mn 6 = 7.82 Mn 6 Target 54% 1 1 Young Customer = 4.22 million Total Reliance Revenue = Normal Revenue + 3G Revenue Young Reliance Customers Reliance Subscriber Accessing Internet Estd. Avg Packet Consumption per month (APC) Charge (C) Packet wise billing Target Break even  December 2007 COMPUTATION STEPS

Estimated Breakup of Expenses Estimated cost for infrastructure, planning services, site civil works (based on other countries’ statistics) billion INR Licensing fees, sales and marketing cost (26% 15 of the acquired revenue) billion INR Total Expense (Approx) 115 billion INR Feb, 2006 Dec, 2007 Estd. Revenue Earned 143 billion Large Profit Margin

Service Promotion 3G SERVICES & INDIAN MARKET Market Trends Existing Market Competition Business Base Evaluation of Policies Cost Structure Technology Requirements

Service Promotion Attractive Rate Utilities as per demand Handset Cost Communication Entertainment Information Services Agro-business Optional Commercial Services Communication Entertainment Information Services Agro-business Optional Commercial Services Average Handset Price 19, 448 INR Average Handset Price 19, 448 INR ARPU 1475 INR only ARPU 1475 INR only Advertisement

Service Promotion 3G SERVICES & INDIAN MARKET Market Trends Existing Market Competition Business Base Evaluation of Policies Cost Structure Technology Requirements

Largest CDMA Provider Defeat Vodafone Lucrative Offers after Dec’07 Appeasement of Government Adaptive to Market Forces Evaluation of Policies Reliance Target Break Even – Dec’07 Survival of Competition Early Start Beneficial Utilities Wider Estd. Profit margin

Thank You! Service Promotion Market Trends Existing Market Competition Business Base Evaluation of Policies Cost Structure Technology Requirements

References 1. Statistical Outline of India , 2005 Media Release , 2005 Media Release _saturation_ CDMA_Mobile_Technology html

Backup Slides

The Average International Market Price of 3G mobile Handsets =  World market share i x Avg. handset cost x conversion factor i = 19,448 INR Source: Gartner, 2003 Back

Computation Steps under Packet-Wise Billing Current Internet User Count=38.5million 2 Reliance Subscriber Count=20.3%of 38.5=7.82million Targeted Youth Population=54%of 7.82=4.22million Customer Base for Reliance=11.65million(data provided) Ratio for Target Customer for 3G= 4.22/11.65 = 0.36 Considering this ratio remaining constant, Revenue earned within the breakeven period limits::  Revenue earned by telephony  Revenue earned by internet usage

Computation Steps cont.. Revenue earned by telephony: ∫ ARPU(t)xsub.population(t) = Area under the Revenue Curve  = billion INR Revenue earned by internet usage: =Charge per packet ( C ) x Avg.Packetconsumption (APC) x Ratio of Target Customers x ∫Sub.population(t) = 0.5x8192x0.36x{Area under the Subscriber Poplulation Curve}  = billion INR Total Revenue = billionINR

Computation Steps cont. Total Revenue = billion Total Reliance Revenue = 20.3% of = billion If acquired a 10% stake, Returns to the company = 10% of ≈ 143 billion >> 115 billion (investment cost) Back

Vodafone’s Returns: Computation steps for the Breakeven Based on the Plot  Returns(t) = Area Under the Plot = t t (billions ) Returns till Breakeven period = 1.5 billion USD = million INR * Solving for t: t =19.95 months ≈ 20 months  By February *Exchange rate =Rs 42/- Back

Aiming the technology Aiming the technology Source: CDG, AUSPI, TelecomWatch,COAI, TRAI Wireless growth after introduction of CDMA 4 : 4 Subscriber growth in GSM: CAGR of 74% * Subscriber growth in CDMA: CAGR of 205% * Increase in Teledensity: 6% * Decrease in tariff: 75% *

Indian Market Feasibility

TARGETED CUSTOMER : THE YOUTH? 54% of the population is below the age of 24 Estimated youth’s annual spending  US$10.5bn with growth rate of 12% % of young India opts for career in web related activities 3 3 Demand for internet access (38.5 Mn currently) may shoot up to 100 Mn in 2 years.