India - A Potential 3G Market
A Feasibility Study
Arnab Sinha Sudipta Ray
Indian Institute of Technology, Kharagpur
3G SERVICES & INDIAN MARKET
Service Promotion
Market Trends
Cost Structure
Existing Market Competition
Technology Requirements
Evaluation of Policies
Business Base
3G SERVICES & INDIAN MARKET
Service Promotion
Market Trends
Cost Structure
Existing Market Competition
Technology Requirements
Evaluation of Policies
Business Base
Market Trends
PROJECTED SUBSCRIBER POPULATION
subscriber population in millions
440 400 360 320 280 240 200 160 120 80 40 0
Fe b05 M ay -0 5 Au g05 N ov -0 5 Fe b06 M ay -0 6 Au g06 N ov -0 6 Fe b07 M ay -0 7 Au g07 N ov -0 7 Fe b08 M ay -0 8
Expected Usage in 2007: 111 million (from CAGR of 94%)
subscriber population (millions)
Poly. (subscriber population (millions))
500 450
469 394 394 350 350
ARPU(Rs/month)
400 350 300 250 200 150 100 50 0
Cheaper Infrastructure Cost
De c0 M 4 ar -0 Ju 5 n0 Se 5 p0 De 5 c0 M 5 ar -0 Ju 6 n0 Se 6 p0 De 6 c0 M 6 ar -0 Ju 7 n0 Se 7 p0 De 7 c0 M 7 ar -0 8 Ju n08
3G SERVICES & INDIAN MARKET
Service Promotion
Market Trends
Cost Structure
Existing Market Competition
Technology Requirements
Evaluation of Policies
Business Base
Existing Market Competition
Stake in Existing Market : BHARTI (10%) Technology relied upon : GSM (Larger service range in India) Total Investment : 1.5 billion USD
Analyzing the predicted Market Revenue Trends, expected Break Even Period for Vodafone
February 2008 Our Target Break Even before
Vodafone Break Even
3G SERVICES & INDIAN MARKET
Service Promotion
Market Trends
Cost Structure
Existing Market Competition
Technology Requirements
Evaluation of Policies
Business Base
Business Base Current Position of Reliance in market - 20.3 % of the subscriber population - Largest CDMA provider in India Collaboration with Reliance! Customer Base
Population Count in 2006(millions)
4% 9% 20% 13% 11% 16% 10% 55-59 60&above 7% 10% 0-4 5to14 15-19 20-24 25-34 35-44 45-54
- 54% of the population is below the age of 241 - Estimated youths annual spending US$10.5 billion1
Targeting the Youth Section! Launching the service on Valentines Day!
3G SERVICES & INDIAN MARKET
Service Promotion
Market Trends
Cost Structure
Existing Market Competition
Technology Requirements
Evaluation of Policies
Business Base
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 Worlds 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 Hence CDMA choice for the 3rd generation!
3G SERVICES & INDIAN MARKET
Service Promotion
Market Trends
Cost Structure
Existing Market Competition
Technology Requirements
Evaluation of Policies
Business Base
Cost Structure
Total Reliance Revenue = Young Reliance Reliance Subscriber Normal Revenue +Avg Packet Estd. 3G Revenue Customers Accessing Internet Consumption Packet wise perCharge (C) month (APC)
Billing
Cost Structure
Total Reliance Revenue = Young Reliance Estd. Subscriber RelianceAvg Packet Customers Normal Revenue + 3GInternet Accessing Revenue Consumption
Charge (C) per month (APC)
Packet wise billing
Dec 07
ARPU (t ) pop(t ).dt C APC 0.36
COMPUTATION STEPS
Target Break even 50p for December 2007 Reliance Customer Following Target 54%1 Billing 5 Japans estimate each 128 Young Customerof Base 20.3% Structure APC=8192(1MB) = Dec 6packet 38.54.2207= 7.82 Mn Mn Bytesmillion
pop (t ).dt
Feb 06
Feb 06
Estimated Breakup of Expenses
Large Profit Margin
Estimated cost for infrastructure, planning services, site civil works (based on other countries statistics)14
106.4 billion INR
Licensing fees, sales and marketing cost (26%15 of the acquired revenue)
Feb, 2006
7.49 Dec, 2007
billion INR
Total Expense (Approx)
Estd. Revenue Earned 143 billion
115 billion INR
3G SERVICES & INDIAN MARKET
Service Promotion
Market Trends
Cost Structure
Existing Market Competition
Technology Requirements
Evaluation of Policies
Business Base
Service Promotion
Utilities as per demand
Communication Entertainment Information Services Agro-business Optional Commercial Services
Attractive Rate
Handset Cost
ARPU 1475 INR only
Advertisement
Average Handset Price 19, 448 INR
3G SERVICES & INDIAN MARKET
Service Promotion
Market Trends
Cost Structure
Existing Market Competition
Technology Requirements
Evaluation of Policies
Business Base
Evaluation of Policies
Largest CDMA Reliance Provider Wider Estd. Adaptive to Profit margin Market Forces
Survival of Competition
Early Start
Appeasement Beneficial of Utilities Government
Defeat Vodafone Target Break Lucrative Offers Even Dec07 after Dec07
Service Promotion
Market Trends
Cost Structure
Existing Market Competition
Thank You!
Technology Requirements
Evaluation of Policies
Business Base
References
1. Statistical Outline of India 2002-03 2. [Link] 7, 2005 Media Release 3. [Link] 4. [Link] 5. [Link] 6. [Link] 7, 2005 Media Release 7. [Link] 8. [Link] 9. [Link] 10. [Link] _saturation_2009 11. [Link] CDMA_Mobile_Technology-[Link] 13. [Link] 14. [Link] 15. [Link]/presentation/[Link]
Backup Slides
World-Market Share
178-570
others 27%
NOKIA 34%
siemens 8% Sony Motorola Ericsson 5%Samsung 15% 215-420 190-279 11%
$990
Source: Gartner, 2003
The Average International Market Price of 3G mobile Handsets =
i
S World market share x Avg. handset cost x conversion factor
= 19,448 INR
Back
Computation Steps under Packet-Wise Billing
Current Internet User Count=38.5million2 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:
revenue collected in millions
ARPU(t)[Link](t) = Area under the Revenue Curve
Plot Depicting [ARPU(t) x population(t)]
150000 140000 130000 120000 110000 100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0
Ju n05 Au g05 O ct -0 5 ec -0 5 Fe b06 Ap r06 Ju n06 Au g06 Ju n07 Au g07 O ct -0 7 Fe b05 Ap r05 ec -0 6 Fe b07 Ap r07 D O D D ec -0 7 ct -0 6
= 1485.76 billion INR
Revenue earned by internet usage: =Charge per packet ( C ) x [Link] (APC) x Ratio of Target Customers x [Link](t) = 0.5x8192x0.36x{Area under the Subscriber Poplulation Curve} =5558.501 billion INR
75572
38951.5 20574.68 22572.26
Plot Depicting
Subcriber Popluation(t)
440
subscriber population in millions
400 360 320 280 240 200 160 120 80 40 0
Fe b05 M ay -0 5 Au g05 N ov -0 5 Fe b06 M ay -0 6 Au g06 N ov -0 6 Fe b07 M ay -0 7 Au g07 N ov -0 7 Fe b08 M ay -0 8
215.92
111.29 57.29 52.22
Total Revenue =7044.26billionINR
Computation Steps cont.
Dec 07
Dec 07
ARPU (t ) pop(t ).dt C APC 0.36
pop(t ).dt
Feb 06
Feb 06
Total Revenue = 7044.26 billion Total Reliance Revenue = 20.3% of 7044.26 = 1429.99 billion If acquired a 10% stake, Returns to the company = 10% of 1429.99 143 billion >> 115 billion (investment cost)
Back
Vodafones Returns: Computation steps for the Breakeven
1800 1617.24
Based on the Plot Returns(t) = Area Under the Plot = 10667.93 +89.71 t2 +833.56 t (billions) Returns till Breakeven period = 1.5 billion USD = 63000 million INR*
Vodafone's returns (millions INR)
1600 1400 1200 1000 800 600 481.9 400 200 0
De c04 M ar -0 5 Ju n05 Se p05 De c05 M ar -0 6 Ju n06 Se p06 De c06 M ar -0 7 Ju n07
833.5
440.3 483.04
12/1/04
3/1/05
6/1/05
6/1/06
6/1/07
Vodafone's returns 481.85717 440.29815 483.04636 833.5621 1617.2408
Solving for t: t =19.95 months 20 months By February 2008.
*Exchange rate =Rs 42/Back
Aiming the technology
Source: CDG, AUSPI, TelecomWatch,COAI, TRAI
Wireless Technology trends
2005 2004 2003 2002 2001
Tariff fall and teledensity increase
5 4 3 2 1 0
Tariff(Rs/min)
44 34 25 14 5
84 79 71 64
3.5 2 1.5
6.5 6 4.6
1 4 2 0 Teledensity(percentage)
CDMA GSM
2.8 0.5
Tariff(Rs/min)
39
No. of networks.
2001 2002 2003 2004 2005
Wireless growth after introduction of CDMA4:
Subscriber growth in GSM: CAGR of 74%* Subscriber growth in CDMA: CAGR of 205%* Increase in Teledensity: 6%* Decrease in tariff: 75%*
Teledensity(%)
Indian Market Feasibility
Indian Marke t Fe asibility MOU per m onth ARPU($)
35 33 30 25
ARPU (US$)
350 32
Minutes of Usage (min/month)
287 236
300 250 200 150
239
20 15 10 5 0
Australia Singapore China India
93
12 8
100 50 0
TARGETED CUSTOMER : THE YOUTH?
Population Count in 2006(millions)
4% 9% 20% 13% 11% 16% 10% 55-59 60&above 7% 10% 0-4 5to14 15-19
Population(millions)
Trends in population
250 200
20-24 25-34 35-44 45-54
156.6
150 100 50 0
170.6 122.4 108.5 20-24 2005 25-34
190.8 120.8 117.4
105 90.2 15to19 2001
2010
54% of the population is below the age of 24 Estimated youths annual spending US$10.5bn with growth rate of 12%1 55% of young India opts for career in web related activities3 Demand for internet access (38.5 Mn currently) may shoot up to 100 Mn in 2 years.