1. Namaskar 你好 Indian Telecoms: Competitiveness & Globalisation By Dr T.H. CHOWDARY* * Director: Center for Telecom Management and Studies Chairman: Pragna Bharati (intellect India ) Former: Chairman & Managing Director Videsh Sanchar Nigam Limited & Information Technology Advisor, Government of Andhra Pradesh T: +91(40) 6667-1191/ 2784-6137(O) 2784-3121® F: +91 (40) 6667-1111, 2789-6103 hanuman.chowdary@tcs.comthc@satyam.com Presentation # II At BUPT, Beijing on Monday, the 16 th October, 2007 INDIA

2. THC-CTMSS 3602 Globalisation (1) Indian Telcos foray abroad (1) oVSNL acquired TYCO’ globe-girdling OF submarine cable system for just$ 130 mln (US Chapter II distress sale) Teleglobe of Canada A telephone Operating licence in South Africa providing every type of Telecom service INDIA

3. THC-CTMSS 3603 Globalisation (2) Indian Telcos foray abroad (2) oVSNL (Contd) Opened overseas offices in Sri Lanka, Singapore serving global-multi-nationals 2007 revenues $2.0 billion oReliance Infocom –Acquired FLAG (a US Chapter II company) –Is laying a large capacity submarine cable to West Asia and Europe –Bought US datacoms Company with 1000 enterprises customers INDIA

4. THC-CTMSS 3604 Globalisation (3) Indian Telcos foray abroad (3) Bharti Telecom laid an undersea cable across the Bay of Bengal to Singapore and connects to trans-pacific cable systems Bharti Telecom is second telecom service provided in seychelles MTNL/BSNL State-owned enterprises have public telephone service provider subsidiaries in Mauritius, Nepal and Sri Lanka INDIA

5. THC-CTMSS 3605 Globalisation (4) Foreign Telcos into India (1) Are two varieties a)Network & service operators/partners b)Equipment suppliers In the 1 st phase of entry of P-Telcos into services sector 1993-1996, the essential licence condition was foreign Telco Equity participation of a minimum of 10% and a maximum of 49% AT&T, US West, Nynex, Hutch, SingTel etc got in. NTP:99 removed this obligatory equity share-holding by foreign Telcos In 2006, WTO obligations hastened the process INDIA

6. THC-CTMSS 3606 Globalisation (5) Foreign Telcos into India (2) AT&T, BT, US Sprint, etc. foreign Telcos are competing with about a dozen Indian companies in all varieties of telecom services. WTO & Globalisation have exposed Indian Telcos to foreign competition. Foreign Telcos largely serve India-based foreign enterprises (banks, consultancy, insurance, BPO/KPO, construction, Internet i/c SKYpe etc. enterprises INDIA

7. THC-CTMSS 3607 Globalisation (6) Foreign Equipment Manufacturers Have a field day Foreign equity can be 100% They can go into SEZs Nokia, Motorola, Ericsson, LG, CISCO, IBM, Microsoft, Google, Intel, ZTE, HUAWI, have US $ 10 bln sales/annum Bharti Airtel alone placed contracts worth $ 2.0 bln with Ericsson and $ 900 mln with Nokia-Siemens Networks INDIA

8. THC-CTMSS 3608 Globalisation (7) Chief Consequences are (1) Global broadband connectivity and competition (local and foreign) Enables India as s/w, BPO, KPO services supplier to the world Killed local telecom network and devices manufacturing & R&D owned by Indians. Some Indian companies have become global companies (eg.VSNL, Bharti....) INDIA

9. THC-CTMSS 3609 Globalisation (8) Chief Consequences are (2) Foreign companies are buying & investing in Indian companies; selling their equity after appreciation; cashing the profit & quitting (eg.Hutch, AT&T-Nynex, US West...) Mergers & Acquisitions begun [Tata Tele +AT&T; Birla AT&T –Tata (BATATA) Vodafone acquired 67% equity from Hutch-Essar; now sells Vodafone brand Orange (France Telecom) bought the managed enterprise services division of India’s GTL INDIA

10. THC-CTMSS 36010 Competition (1) Skewed, imperfect because P-Telcos had to compete against the incumbent which was a government Department; which was also licensor & regulator Under foreign company/government pressure & WTO –Statutory regulator created in 1997 –Department’s telecoms were corporatised –Going through restructures to correct flaws & over a period of six years [2001-07] –Regulators have become powerful & competition is market-driven; full and fierce in every segment; it is global and beneficial to customers INDIA

11. THC-CTMSS 36011 Competition (2) Competition is technology neutral; national/foreign company neutral Indirect subsidies (from rival pts) to SOEs (BSNL & MTNL) wound down Domestic competition prior to 1992 followed by foreign competition completely killed the state- owned Hindustan Cables Co & debilitated the Indian Telephone Industries Corporation (ITI). ITI kept ‘alive’ by reserving one-third of procurement by BSNL/MTNL to ITI but at the (lowest) price paid to private company. INDIA

12. THC-CTMSS 36012 Competition (3) 2007 – Addl licences offered using spectrum released by Defence services 500 applications from about 50 companies [i/c Real Estate, Retail etc.) Entry Fee $375 mln An operator is allowed to acquire 10% (to be raised to 20%) in rival Telcos in the same licenced area. Telcos in the same licenced area GSM operators are given 15 MHZ/state Telcos pay 1% of their revenue to government for addl spectrum (2x5 MHZ) INDIA

13. THC-CTMSS 36013 Competition (4) Dual-SIM Handsets (GSM-CDMA) SPICE P-Telco (Brand Ambassador – Priyanka Chopra, a Miss World Beauty) Rs.9849 [$240] Tata Indicom [Samsung Duo Rs.11,999 ($300)] Cell talk is US 1cent/mnt ARPUs falling [$ 10.0 or less] even as minutes of usage increase Content creators emerge Cable TVs & ISPs & Telcos now offer VOIP & IPTV INDIA

14. THC-CTMSS 36014 Constraints and burdens on competition (1) India is divided into 23 separate service areas; each requiring a separate licence (ET 27.8.2007) A call from one P-Telco’s subscriber, to a subscriber on another Telco’s network is subject to –A port (point of inter-connection) charge Roaming is app.10% of an operators earning; Interconnect accounts for 30% of call charge Roaming +Interconnect revenues are taxed INDIA

15. THC-CTMSS 36015 Constraints and burdens on competition (2) Tax deducted at source (TDS) and is to be deposited within one week of the monthly inter-company billing Burdened with USF cess @5% service tax @ 10% in addition to revenue share as condition of licence The financial impositions amount to about 30% of the cost of service. if removed, demand will go up by (50 to 60)% INDIA

16. THC-CTMSS 36016 THANK YOU: DHANYAWAD INDIA