indian telecom market report

7/29/2019 indian telecom market report

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Zinnov Management Consulting

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Indian Telecom Market Overview October 2012

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2/26

Agenda

2

Key Technology Trends and Partnerships

Government Regulations

2

3

Telecom Market Overview1


3/26

Indian telecom industry is characterized by a large subscriber base, substantial tele-

density but low revenues per user (ARPU1)

3

287

427636

852 93439

38

36

34

31

5.9 3.82.6 2.1 1.9

32.0 31.7

33.837.4 38.7

2008 2009 2010 2011 2012

Wireless Subscribers (Million) Wireline Subscribers (Million)

GSM ARPU (USD) Revenue (USD Billion)

Telecom Industry Landscape (July 2012)

28.3% 39.9% 56.6% 73.9% 79.6%

Tele-density

Large SubscriberBase

More than 3-fold increase in subscribers since 2008

High tele-density of 79.6% in 2012

UrbanDominance

64.4% of the current subscribers are urban

46.5

32.0

8.3

1.9

US UK China India

Global Comparison of

ARPUs (USD)

Indian telecom ARPUs

are amongst the

lowest worldwide

Note: 1Average Revenue per User

Source: TRAI


4/26

Focus on Mobile Value Added Services (MVAS) opportunities is necessitated by

declining share of voice in telecom ARPUs

4

2.041.50

1.441.27

0.31

0.34 0.390.48

13.3%

18.6% 21.4%27.3%

86.7%81.4% 78.6%

72.7%

2009 2010 2011 2012

Spending on Voice Spending on MVAS MVAS as a %age of ARPU Voice as %age of ARPU

Average Per User Spending on MVAS (USD)

Declining voicerevenue straining

ARPUsHowever, per userspending on MVASincreasing both as apercentage of ARPUand as an absolute

In an effort tocompliment the

declining voicerevenues, carriers

increasingly focusingon adding value added

services to theirportfolio

Growing smartphoneadoption and

increasing mobileinternet penetration,

further pushingproliferation of value

added services

Declining voice

revenue strainingARPUs

However, per userspending on MVAS

increasing

Carriers increasinglyfocusing on adding

value added services totheir portfolio to

supplement revenues

Growing smartphoneadoption & increasing

mobile internetpenetration further

pushing MVAS

Note:

Source: IAMAI


5/26

Indian MVAS market expected to move from the traditional SMS based services to

internet based and app based services

5

1.9

3.1

4.3

5.1

60.4%

38.4%

19.9%

2009 2010 2011 2012

Indian MVAS Market Size (USD Bn)

Market Size (INR Bn) Y-o-Y Growth Rate

(E)

27%

14%

5%

17%

8%

7%

5%7%

10%

Revenue Share MVAS categories

CRBT News Reverse CRBTSMS Based Games EducationGovernance Health Mobile App

Current

MVAS (63%)

Emerging

MVAS (37%)

Note: 1Caller Ring Back Tone

Source: IAMAI

Growing at declining rate,Indian MVAS industry is

expected to value ~USD 6.6billion in 2013

Emerging MVAS categories aredependent primarily on

Telecom infrastructure

Type of handset

1


6/26

Many Indian states have initiated m-governance

practices primarily through SMS-based platform

Amidst visible traction for M-Governance in India, government pushed m-governance

framework to aid adoption

6

M-Health M-Governance M-Education M-Infotainment M-commerce M-Agriculture

Bihar

Web based monitoringsystem at general admindepartment using SMSupdates sent by relevantofficers

Kerala

M-governance used acrosshealth, education, law,agriculture, financefunctions

Goa

e-SMS Goa initiative aimed at easing the process ofinformation delivery to citizens through the use of mobile

Andhra Pradesh

Municipal Corp using GPSenabled phones toremotely monitor cleaningof garbage bins

Gujarat

Rajkot Municipal Corpusing SMS for sendingproperty tax alerts,payment reminders, andvaccination alerts

Government pushing directives to aid

governance across richer delivery platforms

M-Governance Framework for Public Services

One-Web approachto make websitesmobile compliant

Deployment ofmobile apps forpublic servicesacross depts.

Uniform pre-designated codesfor mobile-based

services

Adoption of openstandards for

platform agnosticapps

Creation of MSDG1, a shared technical e-governance infrastructure for delivering

public services

Note: 1Mobile Services Delivery Gateway

Source: Ministry of Communications & Information Technology, Department of Information Technology; Press articles, State government websites


7/26

Major telecom players are enabling mobile platform as a medium to impart

education

7

Educational firms partnering with telecom playersto deliver education and expand their presence

Telecom players partnering with NGOs as a CSR

initiative to deliver education

Delivering basic level of education using mobile as

a medium

Using mobile platform to expand the reach of

classroom education (e.g. in rural areas)

Educational firms

collaborating with

telecos

Telecos taking CSR

initiatives to impart

education

Expanding reach of

education through

mobile network

Telecos delivering

basic level education

Edserv & Tata DoCoMo to offer IIT and AIEEEprep material through Tutor on Mobile

service

Aircel and MTS partnering with NGOs, such

as Concern India and Smile Foundation for

underprivileged children educational

initiatives

Airtel imparts education through IVR which

includes

Sparsh- Education to adults

English speaking course & Children

stories

Reliance communication delivering

interactive, real time courses of XLRI1 across

105 cities

Note: 1An Indian Business School

Source: Company websites; Press Articles



8/26

Almost all leading telecom companies provide information and entertainment

related services

8

Key Information

Categories

Key Entertainment

Categories

Music and Video Radio services round the clock

Offers movies-on-demand service and Video-on-

demand portal

Ringtones Huge library of songs is available

Templatize & personalize caller tune

Content offering Indian mythological stories in different Indian

languages

Sports Live coverage & scores, results, analysis and reviews

of sporting tournaments like CL T20, CB series etc.

M-Infotainment is the largest contributor to overall MVAS revenue

Travel Information on flight, railways, taxis schedules and

fares

News and Finance International , national and regional news

Stock updates, foreign exchange rates alerts services

Note:




9/26

Telecom carriers increasingly taking interest in m-commerce services as the

government aids through reforms

9

Government initiatives in M-commerce

RBI increased mobile payment limit to INR 50,000 (~USD 1,000)

RBI granting Semi-Closed Wallet1 licenses to telecos

Creation of Interbank Mobile Payment Service (IMPS), by NPCI2 along with 6

Nationalized banks

Enables microfinance activities

through mobile phones

Use Case:

SBI with Ekoaspire & OxigenSahyog, is providing banking

& microfinance services in

rural areas

M- Microfinance

Pay for a wide range of services

and goods

Use Case:

Allows users to load cashon their mobile devices to

pay utility bills etc.

Mobile wallet service

Retail players developing

mobile compliant websites &

apps

Focus on expanding reachUse Case:

Flipkart and Naaptol

provide android Apps SMS alerts for DoCoMo

subscribers on wide range

of product & services along

with discount benefits on

snapdeal

M- Retailing


Note: 1A mobile payment mechanism allowing users to load cash into their mobile phones; 2 National Payments Corporation of India



10/26

M-agriculture services finding traction with Indian farmers

10

IVR based service available in 16 regional languages

Provides information related to weather, agriculture, mandi

rates, live stocks, health, rural finance, and education

Key services includes

commodity prices, local

info, weather updates etc.

Multiple language support

Accessible via voice

portals, SMS, USSD1 and

Data

Free SMS based platform offering real time price

information to Indian farmers about their crops

Huge adoption with more than 20,000 farmers being

added every week

GrameenVAS

FasalBahtar

Zindagi

M- agriculture services

bridge the information

gap between the

farmers and market

conditionsM-agriculture

initiatives


Note: 1Unstructured Supplementary Service Data



11/26

Telecom companies are also aggressively focusing on the fast growing data center

market in India (1/2)

11

1.72.6

4.0

3.1

4.2

5.7

CY10 CY12 CY14

Data Center Market (USD bn)

Data Center Capacity (mn Sq. Ft.)

Data Center Market &

Capacity in India

Distribution of Data Center Market in

India by Ownership, CY11

Captive

78%

Third Party

22%Key Verticals:

Manufacturing

IT-ITeS/ Telecom

Healthcare

Education

Key Verticals:

BFSI

Manufacturing

Government

Telecom

MNC with

datacenter in

India

50%My own

datacenter

28%

Domestic

company with

datacenter in

India

8%

MNC with

datacenter

outside India

7%

Can't Say

7%

CIO Preference for Data

Center (Survey Responses)

Based on the demand preferences, the 3rd party datacenter market is

expected to grow rapidly as opposed to captive data centers

Lack of in-house skills, high investments, and long gestation periods pose

challenges for captive datacenters in India

Competitor DC Tier

Tata Communications II/III

Ctrls IV

NetMagic III+

Reliance IDC III+

Airtel III/III+

Wipro III

Sify III

Cost Components Cost Share

Power 38%

Maintenance 21%

Bandwidth 12%

Equipment 12%

Facility 10%

Manpower 7%

Note:

Source: Gartner; IDC; Company websites; Cyber media; mit.gov.in; Zinnov CIO survey 2010; Zinnov Analysis


12/26

Key telecom players have also created an extensive portfolio for cloud based services

12

Airtel Reliance Comm. Tata Comm.

Applications

(SaaS/ Hosted)

ERP

F&A

CRM

HRM

Web Collaboration

Email

IaaS/ Virtualized Infra.

PaaS

Data Center ServicesCo-location

Managed Hosting

Other Key Offerings

Vertical Specific Soln.

ofor Media & Entertainment

Online Desktop (VDI)

On demand security

Hosted Contact Center

Enterprise Mobility

On demand security

Vertical Specific Soln.

ofor Media & Entertainment

oCore Banking Soln.

On demand security

Enterprise Mobility

Hosted Contact Center

Productivity Suites

Enterprise Content Management

Cloud/ Hosting Portfolio of Key Telecom Companies

Source: Company websites, Primary interviews with key industry stakeholders; Zinnov Analysis


13/26

Accordingly, the telecom companies have also established key partnerships to build

cloud expertise

13

Competitor Technology Partners (Software)

Airtel

Savvis Ramco VeriSign

Microsoft Tally VMware

Symantec Software developers for mobility apps

Reliance Comm. Ramco Microsoft BigRock

Tata Comm.

Zoho SugarCRM Cisco

SuccessFactors Microsoft Google

F-Secure

Besides software partnerships, all competitors have formed

technology partnerships with most of the key hardware OEMs

like HP, IBM, Cisco, Juniper, etc.

All data center service providers have strategic alliances with

key network carriers (like Airtel, Reliance, BSNL, etc.) to

provide connectivity options to their customers

Key Technology Partners of Key Telecom Companies

Hardware Partnerships Network Carrier Partnerships


14/26

Agenda

14



2

3



15/26

There is mature adoption of IT across the entire value chain of the telecom vertical

15

ICT Solutions Across Processes

Customer Portals/Customer Support (B2C/B2B)

Supply Chain Management

Enterprise Resource Planning

GTL -

Infrastructure

Indus Towers

Tata Quippo

Content

Portals

Telecom Value Chain

Telecom

Infrastructure

Network

Equipment

Network

Operator

Subscription

& Devices1

Resellers

Nokia-Siemens

Huawei

Ericsson

Alcatel Lucent

Bharti Airtel

Vodafone

Reliance Comm.

TTSL2

Sun Direct

Company Outlet

Dealers

Blackberry

Huawei

UTStarcom

Facebook

Rediff

App stores

Core IT

Requirements

Network

Management

Customer

Management

Partner

Management

Enterprise

Management

Fault Management

Config. Management

Account Management

Performance

Management

Security

Finance & Accounting

HR

Sales & Operation

Planning

Facility Management

DBMS3

Partner Network

Management

Supply Chain

Management

Revenue Fraud

Management

Service Activation

Revenue and Billing

Management

Customer Analytics

Contacts Centers/Call

Centers

Subscribers

OSS/BSS

VAS Management

Data Warehousing and Business IntelligenceNetwork Solutions

Note: 1Devices include mobile handsets, modems, routers, set top boxes, etc.; 2Tata Teleservices Ltd.; 3Database Management System

Source: Zinnov Analysis


16/26

However, Indian telecom firms face various challenges in the adoption of IT

16

Challengesin IT

AdoptionFalling ARPUs affecting

profit margins

Predictability of futureIT requirements is

difficult

Lack of clarity onconsumer preferences

Uncertain governmentregulations

Management issues inPSUs

High operation costs inremote areas

Note:

Source: Primary Interviews with the CIOs; Zinnov Analysis


17/26

IT spending of the Indian Telecom vertical has grown at a rate of 14.3 per cent in

FY12

17

IT Spending in Telecom, USD billion

Hardware

39.5%

BPO

24.8%

Services

29.7%Software

6.0%

IT Spend Distribution

FY07 FY12

IT Budget as a Per cent of Revenues Percentage Outsourcing

3% to 4%

5% to 6%

FY07 FY12

67%

70%

2.1

2.4

FY11 FY12

Note:

Source: Nielsen Domestic IT-BPO Study 2010; Primary Interviews with Stakeholders in the Indian IT ecosystem; Zinnovs Survey of100 Indian CIOs across Verticals (2010); Zinnov Analysis


18/26

Telecom companies are spending on upgrading their technologies and in better

management of business processes

18

IT AdoptionTrends in

Telecom

verticalImplementing Security Solutions

Upgrading Legacy Infrastructure

Managing Partner Network

New Infrastructure for Datacenter/Network

Expansion

Private Cloud Adoption

Platform Integration

Note:



19/26

Supply side companies are launching a host of initiatives to come up with better

solutions for the telecom vertical

19

Key Initiatives

Taken by the

Supply Side

Strategic partnerships todevelop customized solutions

Acquiring firms for capacity

expansion

Encouraging innovation and

training ecosystem

New business models

Establishing telecom specific

research centers

Quality outsourcing work is done out of

large city centers while voice-based call

centers are operated out of tier II and

tier III cities. E.g.. Aditya Birla Minacs

and Hinduja Global Solutions

Wipro and Nokia Siemens Networks

have established dedicated centers and

testing labs for 3G and other telecom

specific technologies

VerSe Innovation Pvt. Ltd.

partnered with OnMobile

OnMobile Global Ltd. acquired Dilithium

Networks Inc. to get access to Dilithiums

extensive patent portfolio and enrich its

offerings in 3G video mobile services

Tech Mahindra entered into an alliance with

Microsoft to offer customizable BI solutions

to telecom service providers

Note:



20/26

OSS/BSS Partnerships have evolved in Indian Telecom Industry

20

OSS Solution Tata Bharti Vodafone Reliance Idea Comments

PrepaidCharging

Market share of Ericsson

increased with acquisition of

Telcordia

CRM CRM solutions also being

provided by Elitecore

Fraud

Management Subex gained market share

with new fraud management

contracts Near universal uptake in both

the segmentsRevenue

AssuranceNA NA

Mediation NA Solutions from Amdocs and

CSG are also popular

OrderProvisioning

Solutions from Oracle and

Elitecore also being used byother carriers

Business

IntelligenceNA NA

Almost all carriers using

Cognos BI solution

Interconnect

Billing

Elitecore gained market share

with new projects

Note:

Source: Voice & Data


21/26

Telecom carriers in India have multiple partners who help them operate key aspects

of their business

21

Telecom Equipment & Network Infrastructure

Prominent infrastructure providers are currently active in 3G

and 4G rollouts Inter carrier partnerships for passive tower sharing

IT and Software Requirements

Partnerships with IT and software companies for technology

infrastructure, and solutions, such as billing, businessintelligence, cloud services, and others

Customer Support

Partnerships with Business Process Outsourcing (BPO)companies to run their customer care operations

Value Added Services

Partnerships with content generators, aggregators, andportals, for delivery of value added services

Note:


Telecom

Partnerships

in India

+ ++ +

+

++

+

+


22/26

Going forward IT demand in the telecom vertical will continue to grow at a CAGR of

14.2 per cent primarily due to the introduction of new services by telecom players

22

Sustainable

Growth

TheFutureofIndianTelecom

Increased adoption of smart phones and new age devices

Rising subscriber base creating demand

Introduction of 4G in India

Data based services is increasing

National Telecom Policy

Expected IT

Spending in

Telecom Vertical,

USD billion2.84.0

7.1

FY13E FY15E FY20E

Note:

Source: PwC Mobile Broadband Outlook Report 2015; Zinnov Analysis


23/26

Agenda

23



2

3



24/26

Indian telecom industry is regulated by an independent body called Telecom

Regulatory Authority of India (TRAI)

24

Established in 1997 as an independent body for regulation of telecom services in India, TRAI separated the

regulatory function from policy-making and operation, which continued to be under the purview of the DoT

Recommendingintroduction of new

service provider

Recommendinglicense terms and

ensuringcompliance

Ensuring technicalcompatibility and

effective inter-

connection

Facilitatingcompetition

and promotingefficiency Protecting interest

of telecom service

consumers

Monitor the qualityof service

Levying fees asmay be

determined byregulations

TelecomRegulatory

Authority of India(TRAI)

Note:

Source: TRAI


25/26

Evolution of Indian telecom regulatory framework

25

1984 Private Sectorallowed only in telecom

equipment manufacturing

1985: Department of

Telecommunication (DoT)

established

Pre-Liberalization Scenario

Private sector participation

in provision of value addedsystem(VAS) such as cellular

and paging services

Liberalization Policy

Facilitated the emergence ofInternet services in India

Specific targets announced to be

achieved by 1997

Paved way for the entry of the

private sector in telephone services

National Telecom Policy

(NTP-94)

Affordable communication for citizens

Provision of universal service to all uncovered areas,

including rural areas

Convergence of IT, media, telecom and consumer

electronics

Build manufacturing capabilities and strengthen R&D

Efficiency and transparency in spectrum management

New Telecom Policy (NTP-99)

Aimed at regulating telecomservices

Separated the regulatory

function from policy-making

and operation from DoT

Establishment of TRAI

Establishment of BSNL; privatization of VSNL 2002: Establishment of Universal Service

Obligation Fund to finance subsidies for rural

areas

2003: Introduction of Unified Access Licensing

(UASL) regime

2005: Increase in FDI limits from 49% to 74%

2006: Proposal for mobile number portability

Developments After 2000

19841991 1994

1997 19992000

Note:

Source: D&B


26/26

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indian telecom market report