07 October 2008

Cumulative Subscriber Base (million)

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

India has become second largest wireless network in the world after China by overtaking USA.
Total number of subscriber reaches 325.78 million by June 2008.
The overall tele-density stood at 28.33% in June 2008.
Total no of broadband connection in the country reaches 4.38 millions at the end June 2008.
The cumulative all India GSM subscriber base has grown to 218.9 million in July 2008.
Telecom industry is the 4th largest recipient of FDI in India.
MTNL has cut broadband charges by 50% to increase user base in New Delhi.
Idea Cellular has announced the launch of its GSM mobile services in the service area of Mumbai.
Vodafone Essar and Bharti Airtel have launched the latest version of Apple's smart phone in India.
Bharti Airtel has crossed the 75 million customer mark to become the 4th largest in-country mobile operator in the world.

With more than 300 million connections, Indias telecommunication industry is the third largest in the world and the second largest among the emerging
economies of Asia. Telecom sector continued to register significant growth and has emerged as one of the key sectors responsible for Indias resurgent
economic growth. This has been possible due to the supportive Government policies coupled with the private sector initiative. In March03, less than 55
million of Indias 1.1 billion people, or 5%, had access to telephones, fixed lines or wireless. According to figures released by TRAI for month June08, the
number of telephone users in India had reached to 325.78 million, with more than one person in five possessing a connection.
India being the fastest-growing telecom market in the world is widely expected that by 2015, half the population of India will own cell phones. India has
the lowest call rates in the world, and special low-cost cell phone models are being developed for its discerning customers. Not surprisingly,
telecommunications is the fourth highest recipient of foreign direct investment in India since April 2000 to May 2008, attracting Rs 17,687 crore, or 6.37%,
of total FDI inflows.
The telecom growth story cannot but continue. Cell phones are the first choice of consumer durable purchase for 30-40 million people joining the middleclass income level each year. By 2020, the workforce will have expanded to close to 900 million people. Moreover, while urban teledensity has crossed
60%, rural teledensity is as less as 7.9% Boosted by facilitative government policies and its commitment to use mobile phone technology for ever-newer
applications in governance, education and health, vendors are devising innovative solutions for expanding coverage and accessing rural customers.
Now manufacturers are also hopping onto the bandwagon. The top five cell phone manufacturers have announced production facilities in India and Nokia
is already off the block, producing 5 million handsets a month at its new Special Economic Zone facility to meet the demands of its second-fastest
growing market. The next Indian revolution will surely be in telecommunications and connectivity, transforming lives, expanding incomes and
reconfiguring business, education & health.

Indian telecom total market, including wireline and wireless, has over 300 million subscribers and in terms of growth, worldwide, India ranks amongst the
top five, in spite of that the teledensity is just 28.33%, which only points to the immense growth prospect available to industry. The consolidated growth
rate of telecom subscribers in India is around 45% in 2008. Mobile telephony has achieved growth rate of 57.24% where fixed-line telephony has
achieved negative growth rate of 3.33%, in 2008. For the period of 3 months (April08 to June08) there is 8.41% consolidated growth in the telecom
subscribers. Fixed line segment experienced negative growth of 1.27% and mobile segment achieved 9.87% growth rate.

Trend in Growth Rate of Subscribers

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Teledensity
The total (Rural and Urban) teledensity in India has increased from 18.31% in 2007 to 26% in 2008. As on June08, it has reached to 28.33%. However,
till December07, Urban teledensity was 60.4% where as the rural teledensity stood at 7.9%.

Change in Teledensity

Tariffs
As a result of the rapid growth in telecom services, the telecom tariffs, which were among the highest in the world 5 years ago, have now dipped to being
among the lowest. The National Long Distance (NLD) tariffs that ranged between Rs 1.20 and Rs 4.80 per minute in 2003 for different distances are now
are as low as Re 1 per minute under One India Plan from March 1, 2006.
Similarly, tariff rates for International Long Distance (ILD) have shown a significant decline. For instance, tariff rates for an ILD call were Rs 7.20 per
minute for U.K.; Rs 9.60 per minute for Europe (other than U.K.), U.S. and Canada and Rs 24 per minute for some of the Middle East countries in 2003.
From November 1, 2006, the tariffs have declined to Rs 6 per minute for U.K., U.S. & Canada and Rs 8 per minute for Europe (other than U.K.) and
Middle East countries like Kuwait, Bahrain, UAE, Oman & Qatar.

Average Revenue per Unit (ARPU) & Minutes of Usage (MOU)

GSM
All India blended ARPU (per month) for quarter December07 is Rs 261 as against Rs 316 for December06, depicting decrease of 17%. Average MoU per
subscriber per month for quarter December07 is 464 minutes as against 454 minutes for December06, depicting increase of more than 2%.

Change in ARPU & MOU

Maximum percentage of revenue, in GSM segment, arrive form call charges that accounts for 56.1% of the total revenue where as rental revenue
contribute 21.3% of the total revenue.

Composition of Revenue
Particulars
Rental Revenue
Revenue from Call charges (usage)
Revenue from Roaming
Revenue from SMS
Other Revenues

March07

December07

23.4%
52.9%
9.7%
5.6%
8.4%

21.3%
56.1%
9.8%
4.6%
8.2%

(Other revenue includes revenue from other value added services, installation etc.)
CDMA
All India blended ARPU (per month) for quarter December07 is Rs 176 as against Rs 196 for quarter December06, depicting decrease of 10%. Average
MoU per subscriber per month for quarter December07 is 375 minutes as against 424 minutes for quarter December06, depicting decrease of 12%.

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Change in ARPU & MOU

Maximum percentage of revenue, in CDMA segment, arrive form call charges that accounts for 58.6% of the total revenue where as rental revenue
contribute 27.6% of the total revenue.

Composition of Revenue
Particulars
Rental Revenue
Revenue from Call Charges (usage)
Revenue from SMS
Roaming Revenue
Other Revenues

March-07
22.3%
65.7%
1.8%
7.6%
10.2%

December07
27.6%
58.6%
1.8%
4.5%
7.5%

(Other revenue includes revenue from other value added services, installation etc.)
Internet & Broadband
All India blended ARPU (per month) for quarter December07 is Rs 210 as against Rs 205 for quarter December06, depicting increase of more than 2%.
Average MoU per subscriber per month for quarter December07 is 210 minutes as against 190 minutes for quarter December06, depicting increase of
11%.

Change in ARPU & MOU

Mobile Market
The market for mobile handsets, accessories and services in India is growing fast from Rs 13000 crore in 2004 to Rs 18700 crore at the end of 2006. And
every player in the business wants a slice of the pie from handset makers such as Nokia and Motorola to big retailers such as Pantaloon and Subhiksha.
Then there are ITCs eChoupal and DCM Shrirams Hariyali Kissan Bazaar that are aggressively targeting the rural Indian consumer. The target
consumers for most of these stores are typically in the 20-35 age groups who believe it is wasteful to pay more money for the same phones.
The concept of experience stores is a success across the worlds mature markets like US where the handsets are bundled with operator products. These
stores have done exceedingly well in markets where GSM technology rules, typically in Europe. In countries such as Indonesia and Malaysia, there are
entire malls dedicated to telecom products. Considering the pace at which the telecom sector in the country is growing, such malls can be a reality in
India soon. The addition of 6-7 million mobile users every month coupled with the retail boom in India is taking the sector to new heights.

Mergers & Acquisitions (M&As)

On 22nd April 2008, the Government issued revised guidelines for mergers & acquisitions in the telecom sector. It has made it mandatory for companies
to obtain prior approval of the Department of telecommunications before going in for mergers. Telecom operators, however, feel that prior approval for
any deal cannot be obtained as talks between companies are not in the public domain. As a legal requirement, if the DoT is informed of any likely deal,
then the same information has to be relayed to the markets through the SEBI. Consequently, the nondisclosure agreements that merging entities enter
into would be violated.

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The Government further said that any permission for merger would be accorded only after completion of three years from the effective date of the
licences. Telecom operators wanted the DoT to clarify if the minimum period of three years applied only to new entrants, or also to existing operators in
circles where they got new licences recently. If this rule covered all operators, then existing telecom operators like Aircel, Idea, Spice and Vodafone
among others who were recently granted licences in various circles would not be able to embark upon mergers in these zones. Likewise, existing
licensees would not be able to acquire new entities that had recently bagged licences in the same zone.
The Government added that at-least four service providers needed to be present in a circle after an M&A deal. Also, telecom companies would be
allowed to merge only if their combined market share was less than 40%. Consequently, industry majors such as Airtel and Vodafone would not be able
to merge. They could, however, merge with other smaller operators. The Government also noted that the merged entity would be allowed to retain all the
wireless spectrum of the merging firms, however, the new merged entity would have to meet the subscriber numbers required for that quantum of
spectrum within three months from the date of approval of the merger. If this stipulation were not adhered to, then the postmerger entity would be
compelled to surrender the excess spectrum. Telecom operators feel that surrendering additional spectrum within three months was not technically
feasible.

RCom buys eWaveWorld

Reliance Communications acquired UKbased eWave World through its subsidiary for global operations, Reliance Globalcom for an undisclosed amount.
The deal will be financed through internal accruals. eWave World has WiMAX licences and has received spectrum to begin services in different countries
like China. This acquisition will enable RCom to operate WiMAX services in which eWave World is present. This acquisition falls in line with Reliance
Globalcoms strategy to invest around Rs 2,000 crore to build and acquire WiMAX networks in various countries of the world. The commercial launch of
RComs WiMAX operations in the country is expected to begin by the end of 2008. WiMAX, commonly known fourth generation (4G) technology refers to
highspeed internet access over a wireless connection.

Idea Cellular acquires 40.8% in Spice

Idea Cellular has acquired 40.8% of B.K. Modis share in Spice Communication. Idea paid Rs 77.3 per share for 28.2 crore shares aggregating to Rs
2,179.86 crore. It also paid an additional Rs 544 crore towards non-compete fees to the Modi Group. Telecom Malaysia holds around 39.2% in Spice.
Idea Cellular jointly with Telecom Malaysia will make an open offer for 20% of the total current outstanding shares. Offer price for the open offer is same
at which Idea acquired B K Modis shares. The balance shares after the open offer will be swapped in the ratio of 49 shares of Idea for every 100 shares
of Spice. Telecom Malaysia (TM) holds around 39.2% in Spice Communication. After applying the swap ratio, TM will have a 5% holding in Idea Cellular.
Further, through preferential allotment TM will be issued 46.47 crore equity shares for Rs 157 crore accounting for around 15% of Ideas post allotment
capital. Idea will receive around Rs 7,300 crore from the preferential allotment. After the said allotment, TMs share in Idea is expected to be in the range
of 1820%.Idea will benefit from this merger as it will have an early presence in the two states of Karnataka and Punjab. It will also have access to the
900 MHz frequency in the two states. Since frequency allocation in Punjab is delayed due to defense concerns, acquisition of Spices spectrum will help
in early roll out of Idea after the merger of the two companies. Acquisition will add around 4.5 million subscribers to Ideas subscribers taking the total
subscriber base to 30.6 million making it the fifth largest company by subscribers base.

AT&T to buy 74%stake in Aircel

AT&T is planning to buy 74% stake held by the Malaysian operator Maxis Communication in Aircel. AT&T has valued Aircel in the range of USD 56
billion. According to the reports, the valuation will include premium of around 30% for taking the management control of the company. AT&T had exited
the India market in 2004 by selling of its stake in Idea Cellular, it is planning to re-enter the Indian Telecom market through Aircel acquisition. Aircel has
operations in nine circles and has received spectrum for 14 more circles, and by the end of the year, it will be a pan India operator. It has a strong
presence in Chennai, Tamil Nadu, Assam and North East circles.

Tata Teleservices launches Virgin mobiles

Tata Teleservices (TTSL) entered into an equal joint venture with Virgin Mobile to bring the Virgin brand in India. Virgin will exclusively license the Virgin
Mobile brand and its technology expertise in the area of value-added services (VAS) and handsets to TTSL. TTSL will benefit by using Virgins expertise
in marketing and service innovation. The service will mainly be targeted at the youth segment while Tata Indicom will be positioned as a mass-market
brand. Virgin Mobile operates as a mobile virtual network operator (MVNO), meaning it does not maintain its own network, rather enters into contracts
with existing network operators on which it offers services under the Virgin brand. In India, however, MVNOs are not yet permitted. Virgin will be an agent
of TTSL, and its services will be available over TTSLs network.

Foreign Direct Investment (FDI)

Foreign direct investment (FDI) is an important source to meet the demand for funds that are required for rapid network expansion. The FDI policy
provides an investor-friendly environment for the growth of the telecom sector. The total FDI equity inflows in the telecom sector from August 2000 up to
May 2008 have been Rs. 17,687 crore which is 6.37% of the total FDI equity inflows into India during the period. Top five recipient of FDI are given in the
table below:

Sectors Attracting Highest FDI Equity Inflows (Amount Rs. crore)

Ranks
I
II
III
IV
V

Sectors
Services Sector
(financial & non-financial)
Computer Software & Hardware
Construction Activities
Telecommunications
Housing & Real Estate

2005-06
(AprilMarch)

2006-07
2007-08
(April-March) (April-March)

2008-09
(April May08)

Cumulative
Inflows
(April00-May08)

% with
total
Inflows

2,399

21,047

26,589

4,955

60,652

21.85

6,172
667
2,776
171

11,786
4,424
2,155
2,121

5,623
6,989
5,103
8,749

817
4,846
939
4,277

32,984
18,313
17,687
15,439

11.88
6.57
6.37
5.56

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Regulations
Guidelines for 3G Spectrum
The much awaited guidelines for auction and allotment of 3G spectrum (third generation) were announced by the government. The guidelines opened the
3G space even to persons who are not having telecom operating licence. As a result, apart from persons having unified access service licence (UASL)
licence, any person who fulfills the eligibility criteria for obtaining the UASL licence will be allowed to participate in the bidding process. The only criteria is
that such person should have prior experience of running 3G services and will have to subscriber for the UASL license if successful in the bidding
process. State owned operators viz. BSNL and MTNL have been allotted 3G Spectrum with immediate effect but will have to match the highest bid when
auction takes place. Reserved price for pan India 3G licence is fixed at Rs 2,020 crore. Some of the features of the guidelines are as follows:

3G spectrum will be permitted in the 2.1 GHz band

Reserve price for the various service areas has been fixed. Reserve price for Mumbai, Delhi and Category A service area is fixed at Rs 160 crore.
Reserve price for Kolkata and Category B is fixed at Rs 80 crore and for Category C at Rs 30 crore.
Minimum of 5 blocks and maximum of 10 blocks will be auctioned in different service area.
M&A will be as per the DOT guidelines dated 22 April 2008.
No trading or selling of spectrum will be allowed
3G spectrum will be alloted for a period of 20 years.
Minimum roll out, including the rural areas, is required to be achieved. In the first five years metros should have penetration of 90% while A, B and
C circle should have 50% penetration including 15% in rural areas.
No annual spectrum charges will be applicable in the first year from the date of allotment. In the subsequent years, the licensee shall pay annual
spectrum charge of 1% of AGR.

Unbundling of Local Loop

State-owned telecom firms BSNL and MTNL possibly challenge TRAI's order in the telecom dispute settlement tribunal (TDSAT) for TRAI's counsel on
opening up Domestic Leased Circuit (DLC) as it would lead to hoarding of connections by the private sector, rendering the two PSUs uncompetitive.
TRAI's regulation on DLC is a reversal of the government's stated policy of not unbundling the local loop (last mile of copper wires that connect individual
homes/offices with local exchanges). BSNL and MTNL are the only operators who have laid maximum cable between the exchange and the subscribers'
premises.

Universal Service Obligation Fund (USO)

DoT is working out a graded scheme which may allow operators to contribute only 2% of their annual revenues to the USO fund if they complete (100%)
their roll-out obligation. At present, they contribute 5% of their annual revenues to the USO fund. A 3% reduction in charges would mean savings of
nearly Rs.2000 crore for the entire industry. As per the scheme being worked by DoT, operators who cover below 50% of the district will continue to pay
5% of their revenues. Those who complete 70% will get 1% rebate, while those who cover 90% of the district blocks will have to pay 3% of their revenues
to the USO fund. As per the license condition, mobile operators are required to provide network coverage in each block of a district in a circle.

Guidelines for Mobile Number Portability

Mobile number portability (MNP) allows subscribers to retain their existing telephone number even when they switch from one service provider to
another. Following are the broad guidelines for the grant of MNP service license:

Grant of MNP licence will be based on bidding

Bidder should be a company registered under the Companies Act, 1956 or gets itself registered under the Companies Act, 1956 within three
months from the last date for submission of bids.
For the purpose of grant of licence the 22 service areas will be divided into two zones i.e. 11 licenced service area and each will include two metro
circles.
Initially, MNP will be implemented in all Metros and category A service area within six months of award of licence.
Total MNP implementation in each zone to be completed within one year of award of the licence.
Only one licence will be issued for each MNP zone. Duration of licence shall be for a period of 10 years which will be extendable by another 10
years.
Applicant shall have a minimum paid up capital of Rs 10 crore on the date of the application
Applicant Company and its equity holders shall have a combined net-worth of at least Rs 100 crore.
FDI shall be subject to extant guidelines and regulations. However, equity of the foreign partner in the company should not be less than 26%.
Licensee shall also pay annually 1% of Adjusted Gross Revenue (AGR) as licence fees.
One time, non-refundable, entry fee of Rs 1 crore is required to be paid for grant of MNP services licence.

Internet & Broadband Service

Internet Subscribers
Total 10.36 million internet subscribers were reported in December07 as compared to 8.58 million in December06, registering an increase of 21%.
Further, there were 57.83 million wireless data subscribers at the end of December07 (capable of accessing data services including internet through
mobile handsets (GSM/ CDMA)).

Growth Trend in Internet Subscribers

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Bharat Sanchar Nigam Ltd (BSNL) has retained its top position and reported a subscriber base of nearly 4.99 million internet subscribers for the quarter
ended December07. Mahanagar Telephone Nigam Ltd. (MTNL) has retained second position with a subscribers base of nearly 1.85 million. Bharti Airtel
Ltd. is third with subscriber base of 0.75 million. During the quarter December07, private ISPs had only 33.96% market share as against 35.35% market
share in September07 quarter. For the same period, PSU owned ISPs market share had increased from 64.65% to 66.04%.

Market Share of Top 5 ISPs as on December 07

The growth trend of internet subscribers indicate a slight increase in the market share of PSU owned ISPs vis--vis private operators. In the last one year
(i.e. from December06 to December07), public sector ISP witnessed growth of 25% where as private sector ISP witnessed growth of 13% only.

Growth Trend of Public sector and Private sector ISPs (Q-o-Q)

Broadband Subscribers
The number of Broadband subscribers (with a download speed of 256 Kbps or more) was 3.13 millions for the quarter ending December07 where as in
December06 it was 2.05 million, thus restring growth of 53%. Out of these 25,90,773 are DSL based; 3,42,348 Cable Modem; 1,00,705 Ethernet LAN;
22,473 Fibre; 28,697 Radio customers; Leased Line 14,632 and 28,621 Others.

Growth Trend in Broadband Subscribers

Total number of the Internet Service Providers providing broadband service was 72 in quarter ending December07. Out of 72 Internet Service Providers
providing broadband service only 6 Service Providers are having subscriber base more than 1,00,000 subscribers and has 91% of total subscriber base.
BSNL is the market leader with 1.45 million subscriber followed by MTNL and Bharti with 5.14 million and 4.15 million of subscribers respectively.

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Market Share of Broadband Service Providers as on December07

Wireline Service
Total wireline services subscriber base stood at 39.25 million in quarter December07 as compared to 39.58 million in quarter September07. Rural
Wireline Subscriber base stood at 11.75 million in quarter December07 as compared to 11.99 million in quarter September07. Number of Village Public
Telephones (VPTs) was 5.30 lakhs in quarter ending December 2007. Number of Public Call Offices (PCOs) has increased from 5.78 million in quarter
September07 to 5.96 million in quarter December07.
The incumbents BSNL and MTNL have 81% and 9% market share respectively while all the six private operators together have 11% share. During the
quarter ending 31st December 2007, some service providers have increased their respective wireline subscriber base such as Bharti. from 20,75,037 to
21,78,175(+103,138), Tata Teleservices (including TT(M)L) from 6,29,168 to 6,72,425 (+43,257), Shyam Telelink from 1,58,081 to 1,58,782 (+701) and
Reliance Communications from 7,00,051 to 7,80,974 (+80,923). The reduction in the subscriber base of Wireline during the quarter ending December07
reported by BSNL from 3,22,26,262 to 3,17,11,219 (-5,15,043), MTNL from 36,27,092 to 35,97,029 (-30,063) and HFCL Infotel Ltd. from 1,61,439 to
1,53,767 (-7,672).

Market Share of Wireline Service Providers

Wireless Service
The Wireless Market has reached 233.62 million subscribers as on 31 December07 as against 209.07 million subscribers in the previous quarter. There
are 172.23 million GSM subscribers (74%) and 61.39 million CDMA subscribers (26%) at the end of December 2007. Bharti with 55.16 million subscriber
base remains the largest GSM mobile operator followed by Vodafone, BSNL and Idea with subscribers base of 39.86 million, 32.72 million and 21.05
million respectively. However, Reliance remains the largest CDMA mobile operator followed by Tata Teleservices and BSNL with subscribers base of
34.96 million, 21.74 million and 4.09 million respectively.
Taking wireless market as a whole, Bharti has maintained its 1st position with subscriber base of 55.16 million. It has market share of 23.61% wireless
subscriber base. Reliance is on 2nd position & Vodafone is at 3rd position with wireless subscribers base of 40.96 million & 39.86 million respectively
with market share of 17.53% & 17.06% at the end of quarter December07. The top Six Wireless operators on the basis of market share are given below:
-

S.No.

Wireless Group (with number of Circle)

Subscribers Base as on December 2007(millions)

Market Share

1
2

Bharti (23)

55.16

23.61%

Reliance (23)

40.96

17.53%

Vodafone (16)

39.86

17.06%

BSNL(21)

36.81

15.75%

Tata (20)

21.74

9.31%

Idea (11)

21.05

9.01%

Others

18.02

7.72%

Total

233.62

100%

Value Added Services

Public Mobile Radio Trunk Service (PMRTS)
The subscriber base of PMRTS increased to 34,825 in December07. Delhi, Bangalore, Mumbai and Chennai together account for 70.64% of market
share of the total subscribers. Delhi leads with the market share of 9,793 subscribers followed by Bangalore, Mumbai and Chennai with the market share
of 6,585, 4,542 and 3,682 subscribers respectively. On the basis of service providers, Arvind Mills Ltd. leads with a subscriber base of 10,833 followed by
Procall and Quick Calls India Pvt. Ltd. with a subscriber base of 9,141 and 4,578 respectively.

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Growth Rate of PMRTS Subscribers

VSAT Services
VSAT services are being provided by 8 VSAT Service Providers. The total number of subscribers was 67,409 in December07. Hughes communications
Ltd. and HCL Ltd. were market leaders with subscribers base of 22,416 each followed by Bharti Airtel with 15,174 VSAT subscribers.

Growth Rate of VSAT Subscriber

(Rs. Crore)

Particulars
Sales

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

45,623.00

55,035.22

64,018.16

74,460.88

98,807.05

109,891.50

Other income

553.72

629.38

1,389.69

364.45

589.75

663.02

Total Income

46,176.72

55,664.60

65,407.85

74,825.33

99,396.80

110,554.52

Operating Expense

22,562.29

23,942.03

28,363.61

30,190.71

38,635.97

42,647.39

EBDIT

23,060.71

31,093.19

35,654.55

44,270.17

60,171.08

67,244.11

Financial Charges

2,494.75

2,029.96

1,969.25

2,947.98

3,439.75

4,276.21

EBDT

20,565.96

29,063.23

33,685.30

41,322.19

56,731.33

62,967.90

Depreciation

13,117.50

13,650.12

14,578.08

15,491.74

19,618.60

20,758.48

PBT

8,002.18

16,042.49

20,496.91

26,194.90

37,702.48

42,872.44

Tax

2,099.03

3,915.65

286.95

220.03

2,072.01

2,187.92

PAT

5,903

12,127

20,210

25,975

35,630

40,685

OPM (%)

50.55

56.50

55.69

59.45

60.90

61.19

NPM (%)

12.78

21.79

30.90

34.71

35.85

36.80

Current ratio (Times)

0.94

1.22

1.43

1.39

1.18

1.10

Debt equity ratio (Times)

0.37

0.37

0.34

0.24

0.34

0.36

(1.01)

1.46

6.38

6.52

7.28

8.35

ROCE (%)

Total Revenue of telecom service industry has gone up from Rs 45,623 crore in FY 2003 to Rs 1,09,891.50 crore in FY 2008 thereby grown at CAGR of
19.22% in the last 5 years. The revenue contribution by public sector telecom companies was 33% and that from private sector companies it was 67% in
FY 2008. Operating Expenditure of industry has increased at the CAGR of 13.58% to Rs 42,647 in the last 5 years. Earning before depreciation, interest
and taxes (EBDIT) for FY 2003 was Rs 23,061 crore where as in FY 2008 it was Rs 67,244 crore, increased at CAGR of 23.87%. Profit after Tax (PAT)
of the industry has increased at CAGR of 47.12% in the last 5 years.
The Operating Profit Margin (OPM) of the industry has increased from 50.55% to 61.19% in the last 5 years. Net Profit Margin (NPM) has augmented
tremendously from 12.78% to 36.80%.

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Return of capital employed of the industry has increased in the last 5 years from negative value of 1.01% to 8.35%. This increase is due to achievement
of economies of scale.

Targets
The targets to achieve 250 million subscribers and teledensity 20% by 2010 have already been accomplished. Now the targets are revised and are as
follows:

Year

Target Subscribers (million)

Target Revenue (Rs. Crore)

Additional Investment Required (USD

billion)

2010

500

210000

25

2015

800

336000

30

In addition to the above it is assumed that India will be positioned as a Regional Hub for telecom manufacturing, creating additional 0.5 million jobs by
2010 and 1.5 million jobs by 2015.

India among worlds fastest growing markets

Indias telecom market is among the fastest growing in the world. Subscriber additions have remained strong. Recently, wider coverage has emerged as
the new theme driving market expansion. While infrastructure sharing would facilitate rapid rollouts and thus wider coverage, it is seen lower regulatory
costs driving affordability. For the governments targets to be met, the teledensity in the A, B and C circles would have to reach 50%, 45% and 30%
respectively by 2010.

Penetration = coverage + affordability

Tariff reductions, introduction of lower denomination prepaid coupons, launch of lifetime prepaid, etc (in other words, value propositions) have been the
major drivers of growth until FY06. However, accelerated subscriber additions even in the absence of tariff cuts and new product schemes in the past one
year indicate that teledensity is now not only a factor of affordability, but also of coverage.
The incremental subscriber addition over FY07-15E would come mainly from rural areas. Thus, coverage and affordability would be the key factors.
While infrastructure sharing would enable wider coverage, lower tariffs, cheaper handsets and low ticket prepaid recharge would address the affordability
issue. Nokia, LG, Samsung, Ericsson and other OEMs have set up manufacturing base in India with each planning to manufacture 20 million plus
handsets every year. This would enable introduction of cheaper handsets.

Infrastructure sharing partnerships among competition

It is expected that infrastructure sharing would be the key driver for the expected improvement in coverage. While the industry has set up 90,000 towers,
only 25% of these are being shared currently with most of them in rural areas. A large part of the expected subscribers would be added from rural areas.
Thus, coverage of villages and towns would be imperative. With Bharti, RCOM, Tata Teleservices and Idea considering or announced creation of a
separate company for providing infrastructure, it is believed that infrastructure sharing would receive a boost. This would facilitate operators to rollout
their services in a faster and more cost-effective manner.

Spectrum unavailability a dark lining in a silver cloud

While the government is encouraging operators to share infrastructure and expand coverage rapidly, unavailability of GSM spectrum is hampering the
growth of the mobile segment. And existing players, in the absence of additional spectrum, will have to incur higher capex to service the increasing
number of subscribers with available spectrum.

The cash registers are ringing

While tariffs have been cut significantly, coverage into smaller towns and villages has improved. Though this has driven ARPU down in its wake,
profitability of cellular operators has been on the rise owing to higher minutes of usage (MoU). While the foray into rural India would fetch low overall
ARPU, it is believed that increased connectivity will drive up MoU of existing customers. Also, further lowering of regulatory costs is expected to bring
tariffs down, which in turn would drive higher outgoing usage. That, along with cost savings arising from infrastructure sharing, is expected to increase
profitability for the segment in the next few years before profits stabilize.

Tower business valuations jumping the gun

The cash flows of the infrastructure company would depend on the number of towers shared on a barter basis and the imputed rate of return for
determining the rental income.

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Bharti Airtel Limited

Share Price as on October 7, 2008 (Rs.)

748.25

Market Cap. as on October 7, 2008 (Rs. Crore)

1,42,025.45

Sensex

11,695.24

Nifty

3,606.60

Bharti Airtel Ltd. (Bharti) is one of Indias leading private sector providers of telecommunications services with an aggregate of 55.16 million customers as
of end of December07. Bharti is structured into three strategic business units - Mobile services, Broadband & Telephone (B&T) services and Enterprise
services. The mobile business provides mobile & fixed wireless services using GSM technology across 23 telecom circles. The B&T business provides
broadband & telephone services in 94 cities. The Enterprise services provide end-to-end telecom solutions to corporate customers and national &
international long distance services to carriers. All these services are provided under the Airtel brand. Bhartis high-speed optic fiber network currently
spans over 43500 route kms covering all the major cities in the country. The company operates two international landing stations in Chennai that connect
two submarine cable systems - i2i to Singapore and SEA-ME-WE-4 to Europe.

Financials
(Rs. Crore)

Particulars

Mar-05

Mar-06

Mar-07

Mar-08

Q1 FY09

Mar-09E

Sales

8,142.44

11,259.12

17,851.61

25,761.11

7,893.01

38,298.53

Other Income

18.93

40.75

101.70

266.91

59.31

475.26

Total income

8,161.37

11,299.87

17,953.31

26,028.02

7,952.32

38,773.79

Operating Expense

5,144.77

7,221.40

10,593.96

15,101.78

4,915.17

23,128.02

Operating Profit

3,016.60

4,078.47

7,359.35

10,926.24

2,977.84

15,170.51

Financial Expenses

317.00

236.81

282.07

393.43

(58.44)

668.51

EBDT

2,699.60

3,841.66

7,077.28

10,532.81

3,036.28

14,502.00

Depreciation

1,180.70

1,559.73

2,491.10

1,264.86

725.10

4,949.64

PBT

1,537.83

2,322.68

4,687.88

9,534.86

2,370.49

10,027.62

Tax

707.20

547.36

1,133.58

1,264.86

323.73

1,137.21

PAT

830.63

1,775.32

3,554.30

8,270.00

2,046.76

8,890.41

OPM (%)

37.05

36.22

41.23

42.41

37.72

39.61

NPM (%)

10.18

15.71

19.80

31.77

25.73

22.93

EPS (Rs.)

6.29

10.60

21.02

34.08

10.78

46.84

Particulars
Net Sales (Rs. crore)
No. of Shares (in crore) on June08
Face value of shares (Rs.)

Trailing 4 Quarters till June08

27,984.90
189.80
10

Sales per share (Rs.)

147.44

Current Price (Rs.) on 30th June08

757.80

Price/Sales per Share

5.14

Net Profit (Rs. Crore)

6,878.08

EPS

36.24

P/E

20.91

Valuation
At market price of Rs 757.80, PE Multiple stands at 20.19 and EPS is Rs 36.24. There will be, however, pressure on OPM and NPM viz. 39.61% and
22.93% in the coming fiscal. This is due to intense competition in the industry especially with the introduction of Reliance in the segment of GSM. But the
tower business will give support to the top-line of the Bharti.

Investment Argument- Aiming to create long term sustainable value.

1. Bhartis aggressiveness to retain its market dominance is clearly evident from its operational performance in the June quarter. Not only has
the company maintained its market share at around 24%, it has taken a bigger pie of around 29% from the all-India net additions. It is well
positioned to continue on a high-growth trajectory with monthly net additions of more than 2.5 million subscribers.
2. Bharti is planning to launch operations in Lakshadweep in order to expand its mobile opportunities.
3. Airtel has signed a deal with Apple Inc. to bring the iPhone to India. iPhone 3G combines all the revolutionary features of iPhone with 3G
networking, which is twice as fast as the first generation iPhone.
4. Bharti Airtel has launched Managed MPLS Service in partnership with Cisco. This launch includes a Tier 1 MSCP certification from Cisco for
Airtels network and service capabilities, to provide Managed MPLS VPN services.
5. Bharti Airtel has entered into a Network to Network Interface (NNI) agreement with Pacnet to interconnect their respective networks,
expanding connections to and from India.
6. Bharti, along with 15 other telecom majors, has signed a formal construction and maintenance agreement to build the EIG, the first direct
high-bandwidth optical-fibre submarine cable system.
7. Increased competition due to the entry of new players coupled with the introduction of mobile number portability from current year will lead to
erosion of customers.
8. Continual tariff cuts will lead to a drop in margins in the coming time.
9. Huge out-payments to obtain the 3G spectrum will hamper the financial position of the company.

Mahanagar Telephone Nigam Limited

Share Price as on October 7, 2008 (Rs.)

76.95

Market Cap. as on October 7, 2008 (Rs. Crore)

4,847.85

Sensex

11,695.24

Nifty

3,606.60

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Mahanagar Telephone Nigam Limited (MTNL) is telecom service provider in Delhi and Mumbai. It provides services into all areas of telecom like mobile,
landline, internet (dial up & broadband), leased line, WLL etc. The company provides GSM Cellular Mobile service under the brand name Dolphin, WLL
Mobile services under the brand name Garuda, CLI based Internet express services & pre-paid GSM Mobile services under the brand name Trump,
Email on PSTN lines introduced under the brand name MTNL mail.
Company has a joint venture with United Telecom Ltd. in Nepal for providing WLL based services in Nepal. MTNL subsidiary Mahanagar Telecom
Mauritius Limited obtained license to provide fixed, mobile & ILD services in Mauritius.

Financials
Particulars
Sales
Other Income
Total income
Operating Expense
Operating Profit
Financial Expenses
EBDT
Depreciation
PBT
Tax
PAT
OPM (%)
NPM (%)
EPS (Rs.)

Mar-05
5,565.42
436.48
6,001.90
4,156.01
1,409.41
36.68
1,372.73
589.29
1,219.92
273.86
946.06
25.32
15.76
15.02

Mar-06
5,560.98
530.01
6,090.99
4,748.51
812.47
24.44
788.03
646.69
671.35
93.69
577.66
14.61
9.48
9.17

Mar-07
4,923.40
607.29
5,530.69
4,039.85
883.55
2.08
881.47
680.26
808.50
281.11
527.39
17.95
9.54
8.37

Particulars
Net Sales (Rs. crore)
No. Of Shares (in crore) on June08
Face value of shares (Rs.)
Sales per share (Rs.)
Current Price (Rs.) on 30th June08
Price/Sales per Share
Net Profit (Rs. crore)
EPS
P/E

Mar-08
4,728.75
679.09
5,407.84
3,903.02
825.73
2.96
822.77
707.18
794.68
287.36
507.32
17.46
9.38
8.05

Q1 FY09
1,121.65
166.31
1,287.96
953.91
167.74
0.96
166.78
177.01
156.08
40.89
115.19
14.95
8.94
1.83

(Rs. Crore)
Mar-09E
4,444.95
775.72
5,220.67
3,680.26
764.69
4.98
759.71
624.86
910.57
294.50
616.07
17.20
11.80
9.78

Trailing 4 Quarters till June08

20,778.56
63.00
10
329.82
90.30
0.27
2,558.4
40.61
2.22

Valuation
At market price of Rs 90.30, PE Multiple stands at 2.22 and EPS is Rs 40.16. There will be, however, slight pressure on OPM viz. 17.20 % in FY09. This
is primarily a result of poor performance in the wireline segment and bottlenecks in the policy implementation being a PSU as operations are restricted to
only two metropolises and an inability to scale outside the country.

Investment Argument- Core business decline continues; other income boosts bottom-line.
1. The Company stands on a weak footing as its core fixed-line business has continued to slide since aggressive tarrif cuts in mobile services.
Although the Company has employed bundled services approach, it is unable to stop the decline in fixed-line subscribers. Moreover, cellular
operation of the company has not even achieved the average industry subscriber growth of around 10% due to its limited operations, which
are restricted to Mumbai and Delhi circles.
2. With presence in only two circles Delhi & Mumbai and with pan India players like Bharti Airtel and Reliance Communications growing
aggressively, the company will face difficulties in retaining its market share.
3. Merger plan of MTNL and BSNL was put on hold.
4. The Department of Telecom (DoT) has approved one block of 3G spectrum to MTNL in Delhi and Mumbai metro services areas.
5. The abolishment of license fees on fixed-line telephony would result in to move up the margins by 910%.
6. Due to limited opportunities in the domestic market, the Company looks forward acquiring licenses for overseas operations through
acquisitions.
7. Broadband and IPTV services may result in a higher ARPU from the wireline subscribers.
8. The Company is having surplus land and is planning to lease it out by way of long term lease or revenue sharing arrangements. Unlocking
of land value can provide an upside to the rating of the company.

Note: The data for the report has been taken from TRAI, DoT, COAI and CMIE.

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The content of this document is prepared on the basis of publicly available information, internal data and other reliable sources and every effort has been
taken to ensure that the information is correct. However, Indiabulls and its analysts do not warrant the totality and absolute accuracy, adequacy or
completeness of this information and materials. Recipients of this information should rely on their own investigations and take their own professional
advice. Neither Indiabulls nor any of its analysts shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages,
including lost profits arising in any way from the information contained in this material. The Company does not accept any legal liability what so ever
based on any information contained herein.

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