TELECOM WIRELESS INDUSTRY

February 2012

CREDIT ANALYSIS & RESEARCH LTD. 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai 400 022

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TELECOM WIRELESS

Table of Contents
Executive Summary

SECTION- I CARE Researchs OUTLOOK

Outlook on Indian Telecom Wireless Industry Subscriber Forecast - Subscriber growth to dampen Average Revenue per User (ARPU) Uptrend expected Revenue Forecast Topline is expected to rise Outlook on Profitability 3G story to gather momentum over next 2-3 years Value Added Services (VAS) The bright spot Regulatory Overhang

SECTION- II INDUSTRY SECTION

History of Indian Telecom Phase I Pre-liberalization (1947-1989) Phase II Telecom Sector in the Post-liberalisation Era (1990-1999) Phase III Current scenario (2000-2011) Overview of the Global Telecom Wireless Industry Macro Environment and its Potential Impact on Telecom Industry Mobile Penetration in Various Geographies Mobile Signal Coverage Comparative Analysis Urban vs. Rural The Digital Divide
Teledensity Subscriber Growth Urban vs. Rural Subscribers - Player wise GSM vs. CDMA Subscriber Growth Composition of Revenue MOU and RPM Prepaid vs. Post-paid Subscriber Composition GSM and CDMA Subscribers Circle wise ARPU Rate per Minute (RPM) Active Subscribers

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Player wise Comparison Mobile Broadband Spread

Cost Analysis Regulatory charges

License fees Spectrum Charges Access charges Non Regulatory Charges Network operating cost Employee Cost Marketing and Brand Promotion Expenses

Investments and Credit Profile Credit Profile Foreign Direct Investment (FDI) Major M&A Deals in Indian Telecom Sector related to FDI Domestic Investment Capital Expenditure (CapEx) CapEx Guidance by Major Telecom Players 3G Overview 3G Adoption Worldwide 3G Auction in India 3G Adoption in India Financing of 3G License Fees Current state of 3G in India 3G Roaming Pacts VAS 1 Overview Market Size of MVAS Demand Drivers for MVAS Business Model of VAS Platforms for Delivering VAS Segmentation Entertainment VAS Information VAS Transactional VAS Enterprise VAS VAS 2 Utility MVAS

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Key categories of Utility MVAS Regulations in MVAS Revenue Sharing across the VAS value chain Key challenges for VAS VAS Player Profile OnMobile Comviva IMI Mobile Spice Digital Hungama MNP
Overview MNP around the World MNP in India MNP Requests Circle wise MNP Requests vs. Net Wireless Additions MNP Requests Player wise MNP Impact

Mobile Handsets Overview Factors Driving Mobile Handset Growth Mergers & Acquisitions Existing M&A Guidelines TRAI Recommendations New M&A Guidelines as issued in February 2012 Herfindahl-Hirschman Index (HHI) Global Scenario Need for Consolidation Technology FDMA vs. TDMA vs. CDMA Generations of Wireless Telecommunication Technology Evolution of GSM technology Evolution of CDMA technology GSM network Structure CDMA network Structure Telecom Regulatory bodies Department of Telecommunications (DoT) Telecom Regulatory Authority of India (TRAI) Telecom Disputes Settlement and Appellate Tribunal (TDSAT)

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Telecom Commission

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Expected Changes in the Regulatory Structure

Licensing Framework Cellular Mobile Telephone Service (CMTS) Scope of CMTS operators Migration to Unified Access Service (UAS) licensing regime Service Areas & License fees UAS Scope of UAS operators Cancellation of Licenses by the Supreme Court in Feb. 2012 Global Perspective License Renewal International Practices in License Renewal New Unified Licensing Regime Draft Guidelines for Unified License Draft Guidelines for Class License Implications of New Unified Licensing Regime Spectrum Allocation Spectrum Availability Spectrum Allocation in India Need for Spectrum Refarming Spectrum Allocated to Various Players Spectrum Availability in Various Circles Subscriber-Linked Criterion for Spectrum Allocation Charge for Excess Spectrum Spectrum Sharing Spectrum Trading NLD & ILD National Long Distance (NLD) Service
NLD License allocation NLD market size NLD outgoing MOU trend Decline in NLD tariffs NTP 2011 Perspective International Long Distance (ILD) Service ILD License allocation ILD market size ILD outgoing MOU trend Decline in ILD tariffs

Universal Service Obligation Fund (USOF)

Background

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Widening Urban Rural teledensity Gap Assistance offered to service providers Competitive Selection of Service Providers Accomplishment So Far USOF Fund Status USOF across Various Countries

SECTION- III COMPANY SECTION

Bharti Airtel Ltd Background Segment Operations Capex Plan Financial Performance Review Key Operating Parameters Share Price Movement, Shareholding Pattern & Credit Rating Reliance Communications Ltd Background Segment Operations Capex Plan Financial Performance Review Key Operating Parameters Share Price Movement, Shareholding Pattern & Credit Rating Idea Cellular Ltd Background Segment Operations Capex Plan Financial Performance Review Key Operating Parameters Share Price Movement, Shareholding Pattern & Credit Rating Tata Teleservices Maharashtra Ltd Background Segment Operations Financial Performance Review Key Operating Parameters Share Price Movement, Shareholding Pattern & Credit Rating Mahanagar Telephone Nigam Ltd Background Segment Operations Financial Performance Review

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Key Operating Parameters

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Share Price Movement, Shareholding Pattern & Credit Rating

Unlisted Telecom Companies Vodafone India Ltd Aircel Ltd Tata Teleservices Ltd Bharat Sanchar Nigam Ltd

SECTION- IV ANNEXURES

Annexure I Nomenclature of telecom circles Annexure II Circle wise subscribers (000's) Annexure III Operator wise subscribers (000's) Annexure IV - Circle wise spectrum allocation

List of Graphs and Tables

SECTION- I CARE Researchs OUTLOOK
Outlook on Indian Telecom Wireless Industry Wireless Subscriber Forecast - FY 2009- FY 2014E GSM and CDMA Subscriber Forecast - FY 2009- FY 2014E Urban and Rural Subscriber Forecast - FY 2009- FY 2014E ARPU Forecast - FY 2009- FY 2014E Revenue Forecast - FY 2009- FY 2014E EBITDA Margin Forecast - FY 2010- FY 2014E 3G Subscriber Forecast - Dec 2010- FY 2016E VAS Market Growth - Dec 2010- FY 2016E

SECTION- II INDUSTRY SECTION

History of Indian Telecom History of telecommunication in India - 1947 - 2012 "Mobile Subscribers base at critical developments of the Indian telecommunication Industry" Overview of the Global Telecom Wireless Industry Mobile Penetration in Key Geographies - 2011 Global Mobile Subscribers and Teledensity CY 2001 CY 2011 Teledensity (%) - Country Wise - CY 2005- CY 2010 Developed Vs. Developing Teledensity (%) - CY 2001 CY 2010 % of the Worlds Population Covered by Mobile Cellular Signal - 2003, 2010

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Mobile Broadband penetration - CY 2007 CY 2010 Comparative Analysis Teledensity Urban Vs. Rural - FY 2007 - Nov. 2011 Subscriber Growth Urban Vs. Rural - FY 2007 - Nov. 2011 % share of Urban Subscribers - FY 2009 - FY 2011 % share of Rural Subscribers - FY 2009 - FY 2011 Urban vs. Rural Subscriber Composition for various players (as of March-11) Playerwise Subscriber Growth Urban, Rural and Overall - FY 2009-FY 2011 Share of Subscribers - GSM & CDMA - Sep. 2006, Sep. 2011 Subscriber Growth GSM Vs. CDMA - FY 2004 - Nov. 2011 ARPU - GSm vs. CDMA - June 2006- Sep. 2011 (Quarterly) Revenue from Call Charges - GSM vs. CDMA - Dec. 2006 - Sep. 2011 Rental Revenue - GSM vs. CDMA - Dec. 2006 - Sep. 2011 Revenue from Roaming - GSM vs. CDMA - Dec. 2006 - Sep. 2011 Revenue from SMS - GSM vs. CDMA - Dec. 2006 - Sep. 2011 Other Revenue - GSM vs. CDMA - Dec. 2006 - Sep. 2011 Revenue Composition - Call Charges, Rental, Roaming, SMS, Others - GSM vs.
CDMA MOU per subscriber per month and RPM - Sep. 2006 - Sep. 2011 Prepaid Vs. Post-paid Composition - June 2006 - Sep. 2011 Prepaid as % of total GSM Vs. CDMA - June 2006 - Sep. 2011 % Prepaid Subscribers across circles for GSM and CDMA (as of Sep. 2011) Prepaid Vs. Postpaid ARPU - GSM - June 2006 - Sep. 2011 Prepaid Vs. Post-paid ARPU - CDMA - June 2006 - Sep. 2011 ARPU GSM (Circle wise) - Prepaid & Postpaid ARPU CDMA (Circle wise) - Prepaid & Postpaid Rate Per Minute - FY 1999 - FY 2011 Rate Per Minute - GSM - Sep. 2006 - Sep. 2011 Rate Per Minute - CDMA - Sep. 2006 - Sep. 2011 Active Subscribers as of December 2011 (Circle wise) Playerwise Comparison of Subscriber Market Share, 2G and 3G Licenses, Active Subscribers Circlewise Subscriber Share Ranking

Cost Analysis Telecom Cost Structure License Fee Structure over the Years Spectrum Charges Structure License Fees and Spectrum Charges - June 2008 - Sep. 2011 Regulatory Charges in Asian Countries Interconnection Charges Cost Cutting Strategies adopted by Indian Telecom Players Network Operating Costs for Bharti Airtel, Idea and Rcom - FY 2007-FY 2011 Employee Costs for Bharti Airtel, Idea and Rcom - FY 2007-FY 2011 Marketing and Brand Promotion Expenses of Bharti Airtel, Idea and Rcom - FY 2007-

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FY 2011

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Investments and Credit Profile Debt to Equity Ratio - FY 2009 - FY 2011 Interest Coverage Ratio - FY 2009 -FY 2011 Return on Capital Employed - FY 2009 -FY 2011 Capex - FY 2009 -FY 2011 Capex Composition - FY 2011 FDI Limits FDI in the Indian Telecom Sector (US$ Mn) - CY 2004 - CY 2011 Major M&A Deals in the Indian Telecom Sector - 2006 - 2011 Capital Employed - FY 2010 - FY 2011 Investments (Fixed Assets) - FY 2010 - FY 2011 Major Telecom Projects to be Completed by March 2014 Capex Guidelines by major players for FY 2012 3G Global 3G Subscriber Statistics 2G & 3G Population Coverage - CY 2009, CY 2010 3G Auction Fees Paid - Circle & Subscribe wise 3G Services Offered in India 3G vs. 2G - Operational Differences Circles covered pre and post 3G Roaming Pacts by Bharti, Vodafone and Idea VAS 1 VAS Market Size Forecast - CY 2006 - CY 2012 Wireless Subscriber Growth - FY 2004 - Oct. 2011 Growth in telecom revenue and wireless subscribers - FY 2005 - FY 2011 Reach of TV, PCs and Mobile phones in India - CY 2005 - CY 2010 Global comparison of non-voice revenue as % of total telecom revenue Decline in ARPU over the years - FY 2006 - FY 2011 Growth in VAS after launch of 3G service - China & S. Korea MVAS Value Chain and Its Stakeholders MVAS Stakeholders and their Share of Revenue Entertainment VAS - Segments Information VAS - Segments Transactional VAS / m-Commerce - Segments Enterprise VAS Segments VAS 2 Countrywise Banks per 1000 People Countrywise Doctors per 1000 People Countrywise Schools per 1000 People Categories of Utility MVAS Financial Exclusion Statistics Number of Doctors per 1000 people in India State of education in India Use of VAS in Government Initiatives

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Revenue Sharing Arrangement across MVAS Value Chain

VAS Player Profile OnMobile Revenue - Domestic vs. Global - in FY2011 OnMobile - Major Acquisitions - 2006-2011 OnMobile - Key Clients OnMobile- Products & Services OnMobile - Key Performance Indicators Comviva - Key M&As Comviva- Key clients and Technology Partners Comviva- Products and Services Comviva - Key Performance Indicators IMIMobile - Key M&As IMIMobile - Key Clients IMIMobile - Products and Services IMIMobile - Key Performance Indicators Spice - Key M&As Spice - Key Clients Spice - Key Partners Spice - Products and Services Hungama Mobile - Key Clients Hungama Mobile - Key Performance Indicators USP of leading 5 VAS Players MNP Worldwide MNP Adoption Porting Rates in Various countries Porting Transaction Charges in various countries Zone Wise Total MNP Requests (March 2011-November 2011) MNP Requests Circle wise (Until November 2011) New MNP Requests against Net Wireless Additions (March 2011-November2011) Operator Wise MNP Gainers and Losers (Net) Mobile Handsets Handset Volume Growth and Wireless Subscriber Growth - FY 2005-FY 2011 Smartphone Penetration in Various Countries (2010) Drivers for Handset Growth Market Share of Handset Manufacturers in India - FY 2011 Market Share of Handset Manufacturers Globally - 3QCY2011 Global Market Share of Smartphone Operating Systems Trends in Average Selling Price of Handsets in India Global Mobile Handset Demand - CY 2005 - CY 2011 Mobile Handset Demand in India - CY 2005 - CY 2011 Mergers & Acquisitions M&A Guidelines Issued by DoT on 22nd April 2008

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TRAI Recommendations on M&A (May 2010) New M&A Guidelines as issued in February 2012 HHI in Different Service Areas in India - 2001, 2004, 2007, 2009 Country wise Number of Operators Major M&A deals in Indian Telecom Sector Technology Basic differences among channel access methods - FDMA, TDMA and CDMA Generations of Wireless Telecommunication Technology Difference in Modulation & Coding schemes of GPRS and EDGE technologies Evolution of GSM technology Evolution of CDMA technology GSM Network Structure CDMA network structure Licensing Framework Entry of telecom operators under Various Policy Regimes Entry fee of UAS license - Circles wise License Allocation Status Cancelled Licenses Post Supreme Court Verdict Spectrum Allocation Spectrum Holdings in Various Countries Spectrum for Mobile Services as per National Frequency Allocation Plan Spectrum available for Telecom Service Providers in different frequency bands Circle-wise Spectrum Allocation to GSM Operators Circle-wise Spectrum Allocation to CDMA Operators Availability of GSM Spectrum in Various Circles Availability of CDMA Spectrum in Various Circles Minimum subscriber base (in thousands) required for allotment of different amounts
of spectrum

NLD & ILD List of NLD Service License Holders Revenue from NLD service (June 2008 -June 2011) NLD Service Provider wise Market Share FY2011 Circle wise % Share of NLD in outgoing MOU per subscriber per month - GSM (June
2006 - June 2011) Circle wise % Share of NLD in outgoing MOU per subscriber per month - CDMA (June 2006 - June 2011) % Share of NLD in outgoing MOU per subscriber per month - GSM (June 2007-June 2011) % Share of NLD in outgoing MOU per subscriber per month - CDMA (June 2007June 2011) Percentage decline in NLD tariffs during the period prior 1/5/99 to 31/3/11 List of ILD Service License Holders Revenue from ILD service (June 2008-March 2011) ILD Service Provider wise Market Share FY2011

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Percentage decline in ILD tariffs in India during the period prior 1/5/99 to 31/3/11 Universal Service Obligation Fund (USOF) Background Universal Service Levies Universal service levies across various countries Widening Gap between Urban & Rural teledensity (FY98-FY11) Participants in USOF scheme USOF Funds Status (FY03-FY11) Activity-wise total disbursement 2003-October 2011 Service provider wise total Disbursement 2003 - October 2011 Universal Service Funds across various countries

SECTION- III COMPANY SECTION

Bharti Airtel Ltd Segment Operations Consolidated Financial Performance (FY09-FY11) Segment wise Performance Revenue (FY09-FY11) Segment wise Performance EBIT margin (FY09-FY11) Key Operating Parameters (Q3FY11-Q3FY12) Share Price Movement (Jan 2011-Jan 2012) Share Holding Pattern as on December 2011 Credit Rating as on February 2012 Reliance Communications Ltd Segment Operations Consolidated Financial Performance (FY09-FY11) Segment wise Performance Revenue (FY09-FY11) Segment wise Performance EBIT margin (FY09-FY11) Key Operating Parameters (Q3FY11-Q3FY12) Share Price Movement (Jan 2011-Jan 2012) Share Holding Pattern as on December 2011 Credit Rating as on February 2012 Idea Cellular Ltd Segment Operations Consolidated Financial Performance (FY09-FY11) Segment wise Performance Revenue (FY09-FY11) Segment wise Performance EBIT margin (FY09-FY11) Key Operating Parameters (Q3FY11-Q3FY12) Share Price Movement (Jan 2011-Jan 2012) Share Holding Pattern as on December 2011 Credit Rating as on February 2012 Tata Teleservices Maharashtra Ltd Segment Operations Consolidated Financial Performance (FY09-FY11)

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Segment wise Performance Revenue (FY09-FY11) Segment wise Performance EBIT margin (FY09-FY11) Key Operating Parameters (Q1FY11-Q1FY12) Share Price Movement (Jan 2011-Jan 2012) Share Holding Pattern as on December 2011 Credit Rating as on February 2012 Mahanagar Telephone Nigam Ltd Segment Operations Consolidated Financial Performance (FY09-FY11) Segment wise Performance Revenue (FY09-FY11) Segment wise Performance EBIT margin (FY09-FY11) Key Operating Parameters (Q2FY11-Q2FY12) Share Price Movement (Jan 2011-Jan 2012) Share Holding Pattern as on December 2011

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The report elucidates facts on the Indian Telecom Wireless Industry, supplemented by the latest statistics. The report is divided into three sections. Section I mainly CARE Researchs outlook on the industry over next 2-3 years. Section II covers overview of various segments of the industry, performance of the industry in the last financial year and also analysis of past five years data. It also talks about various regulatory issues involved in the industry. Section III gives details of the various players in the industry. Following are few points which are emphasised to accomplish the report: Section I CAREs perspective of the telecom industry in terms of subscriber growth spread across various segments like urban-rural, GSM-CDMA. CAREs outlook on topline and profitability of the sector. Brief on future growth of various segments of the industry like 3G and Value Added Services (VAS). Expectations on various regulatory issues. Section II Comparative analysis of various industry parameters like subscriber growth across segments, Average Revenue per User, Rate per Minute, regulatory and nonregulatory costs, various components of revenue. Brief on new growth areas of 3G and VAS Details of regulatory policies related to licensing framework and spectrum allocation Section III Brief on key listed and unlisted telecom players For an in-depth analysis and CAREs view on the future of this sector, please refer to the exhaustive report on Indian Telecom Wireless Industry, February 2012 by CARE Research. The subscription to this report includes four quarterly updates on the industry for the period June 2012 - March 2013 Kindly click on the link below to subscribe a copy of the same http://www.careratings.com/content/ResourceCenter/IndustryReport.aspx For any queries regarding the content and scope of the report kindly reach us at careresearch@careratings.com

February 2012 Contact:Revati Kasture Head Industry Research (D): +91-22-6754 3465

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revati.kasture@careratings.com

Divyesh Shah AGM (D): +91-22-6754 3441 Anand Kulkarni Dy. Manager (D): +91-22-6754 3527

divyesh.shah@careratings.com

anand.kulkarni@careratings.com

CREDIT ANALYSIS & RESEARCH LTD.

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