Case a Franc A

8/8/2019 Case a Franc A

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India - A Potential 3G MarketA Feasibility Study

Arnab Sinha

Sudipta Ray

Indian Institute of Technology, Kharagpur


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Service

Promotion

3G SERVICES & INDIAN MARKET

Market

Trends

Existing Market

Competition

Business BaseEvaluation

of Policies

Cost

Structure

Technology

Requirements


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Service

Promotion


Market

Trends

Existing Market

Competition


of Policies

Cost

Structure

Technology

Requirements


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PROJECTED SUBSCRIBER POPULATION

040

80

120

160

200

240

280

320

360

400

440

Feb-05

May

-05

Aug-05

Nov

-05

Feb-06

May

-06

Aug-06

Nov

-06

Feb-07

May

-07

Aug-07

Nov

-07

Feb-08

May

-08

subscriberpopulationinmil

subscriber population (millions) Poly. (subscriber population (millions))

394350 350

394

469

0

50

100

150

200

250

300

350

400

450

500

Dec-04Mar-05Jun-05Sep-05De

c-05Mar-06Jun-06Sep-06De

c-06Mar-07Jun-07Sep-07De

c-07Mar-08Jun-08

ARPU(Rs/month)

Expected Usage in 2007:

111 million

(from CAGR of 94%)

Market Trends

Cheaper

InfrastructureCost


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Service

Promotion


Market

Trends

Existing Market

Competition


of Policies

Cost

Structure

Technology

Requirements


6/29

Existing Market Competition

Stake in Existing Market :

Technology relied upon :

Total Investment :

Analyzing the predicted Market Revenue Trends,expected Break Even Periodfor Vodafone

BHARTI (10%)

GSM (Larger service range inIndia)

1.5 billion USD

Our Target Break Even before

February

2008

Vodafone Break Even


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Service

Promotion


Market

Trends

Existing Market

Competition


of Policies

Cost

Structure

Technology

Requirements


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Business Base

Current Position ofReliance in market- 20.3 % ofthe subscriber population

- Largest CDMAprovider in India

- 54% of the population isbelow the age of 241

- Estimated youths annual

spending

US$10.5 billion1

Population Count in 2006(millions)

10%

20%

11%

10%16%

13%

9%

4%7%

0-4

5to14

15-19

20-24

25-34

35-44

45-54

55-59

Collaboration with Reliance!

Targeting the Youth Section!

Launching the service on Valentines Day!

Customer Base


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Service

Promotion


Market

Trends

Existing Market

Competition


of Policies

Cost

Structure

Technology

Requirements


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Increased talk time Superior Power Control Lowest radiation level Hi-Speed Internet Access

India has less than 0.4% penetration CDMA1x handsets (140kbps)

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

Technology Requirements

Hence CDMA choice for the 3rdgeneration!


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Service

Promotion


Market

Trends

Existing Market

Competition


of Policies

Cost

Structure

Technology

Requirements


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Cost Structure

Total Reliance

Revenue =Normal Revenue + 3G Revenue

Young Reliance

CustomersReliance Subscriber

Accessing InternetEstd. Avg Packet

Consumption

per month (APC)Charge (C)Packet wise

Billing


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Cost Structure

50p for

each 128

Bytes packet

Billing

Structure

Following

Japans estimate5

APC=8192(1MB)

Reliance Customer

Base 20.3% of

38.5 Mn6= 7.82 Mn

Target 54%1

Young Customer

= 4.22 million

Total Reliance

Revenue =

Normal Revenue + 3G Revenue

Young Reliance

CustomersReliance Subscriber

Accessing Internet

Estd. Avg Packet

Consumption

per month (APC)Charge (C)Packet wise

billing

0 7 0 7

0 6 0 6

( ) ( ) . 0 .3 6 ( ) . D e c D e c

F e b F e b

A R P U t p o p t d t C A P C p o p t d t v v v v

Target Break even

December 2007

COMPUTATION STEPS


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Estimated Breakup of Expenses

Estimated cost for infrastructure, planning services, site civil works

(based on other countries statistics)14

106.4 billion INRLicensing fees, sales and marketing cost

(26%15 of the acquired revenue)

7.49 billion INR

Total Expense (Approx)

115 billion INR

Feb, 2006 Dec, 2007

Estd. Revenue Earned

143 billion

Large Profit Margin


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Service

Promotion


Market

Trends

Existing Market

Competition


of Policies

Cost

Structure

Technology

Requirements


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Service Promotion

Attractive RateUtilities as

per demand Handset Cost

Communication

Entertainment

Information Services

Agro-business

Optional Commercial

Services

Communication

Entertainment

Information Services

Agro-business

Optional Commercial

Services

Average Handset

Price

19, 448 INR

Average Handset

Price

19, 448 INR

ARPU1475 INR only

ARPU1475 INR only

Advertisement


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Service

Promotion


Market

Trends

Existing Market

Competition


of Policies

Cost

Structure

Technology

Requirements


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Largest CDMA

Provider

Defeat Vodafone

Lucrative Offers

after Dec07

Appeasement

of

Government

Adaptive to

Market Forces

Evaluation of Policies

Reliance

Target Break

Even Dec07

Survival of

CompetitionEarly Start

Beneficial

Utilities

Wider Estd.

Profit margin


19/29

Thank You!

Service

Promotion

Market

Trends

Existing

Market

Competition

Business

Base

Evaluation

of Policies

Cost

Structure

Technology

Requirements


20/29

References

1. Statistical Outline of India 2002-032. http://www.indiadaily.com/editorial/5826.asp,Dec 7, 2005 Media Release3. http://www.stylusinc.com/internet_potential_india.htm

4. http://www.hardwaresecrets.com/article/1515. http://ojr.org/japan/wireless/1084495929.php

6. http://www.indiadaily.com/editorial/5826.asp,D

ec 7, 2005 Media Release7. http://shopping.yahoo.com.au/

8. http://www.umtsworld.com/umts/faq.htm#f39. http://blogs.zdnet.com/ITFacts/?p=9065

10. http://www.w2forum.com/item/us_wireless_market_reach_neartotal_saturation_2009

11. http://www.mouthshut.com/review/GSM_Mobile_Technology_Vs_

CDMA_Mobile_Technology-34613-1.html13. http://www.businessworldindia.com/sep2004/news08.asp14. http://www.umtsworld.com/umts/faq.htm#f36

15. www.auspi.org/presentation/AUSPI-press-conference.ppt


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Backup Slides


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World-Market Share

Samsun

11%

Motorola

15%

Sony

Ericsson

5%

NOKIA

34 %

others

27%

siemens

8%

178-570

$990190-279

215-420

The Average International Market Price of 3G mobile Handsets =

7 World market shareix Avg. handset cost x conversion factori

= 19,448 INR

Source: Gartner, 2003

Back


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Computation Steps under Packet-Wise Billing

Current Internet User Count=38.5million2

Reliance Subscriber Count=20.3%of38.5=7.82million

Targeted Youth Population=54%of7.82=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 earnedwithin the breakeven period limits::

Revenue earned by telephony

Revenue earned by internet usage


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Computation Steps cont..

Revenue earned by telephony:ARPU(t)xsub.population(t)

= Area under the RevenueCurve

= 1485.76 billion INR

Revenue earned by internet usage:=Charge per packet (C)

x Avg.Packetconsumption (APC)

x Ratio ofTarget Customers

xSub.population(t)

= 0.5x8192x0.36x{Area under theSubscriber Poplulation Curve}

=5558.501 billion INR

Total Revenue =7044.26billionINR

Plot Depicting

[ARPU(t) x population(t)]

22572.2620574.68

38951.5

75572

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

110000

120000

130000

140000

150000

Feb-05

Apr-0

5

Jun-0

5

Aug-05

Oct-0

5

Dec-0

5

Feb-06

Apr-0

6

Jun-0

6

Aug-06

Oct-0

6

Dec-0

6

Feb-07

Apr-0

7

Jun-0

7

Aug-07

Oct-0

7

Dec-0

7

reve

nuecollectedinmillions

Plot Depicting

Subcriber Poplua tion(t)

57.2952.22

111.29

215.92

0

40

80

120

160

200

240

280

320

360

400

440

Feb-05

May

-05

Aug-05

Nov-05

Feb-06

May

-06

Aug-06

Nov-06

Feb-07

May

-07

Aug-07

Nov-07

Feb-08

May

-08

subscriberpopulation

in

m

ill


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Computation Steps cont.

Total Revenue = 7044.26 billion

Total Reliance Revenue =

20.3% of7044.26 = 1429.99 billion

If acquired a 10% stake,

Returns to the company = 10% of

1429.99 143 billion >> 115 billion

(investment cost)

07 07

06 06

( ) ( ). 0.36 ( ).Dec Dec

eb

eb

t pop t dt pop t dt v v v v

Back


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Vodafones Returns: Computation steps for the Breakeven

833.5

1617.24

483.04

440.3481.9

0

200

400

600

800

1000

1200

1400

1600

1800

Dec-0

4

Mar-05

Jun-05

Sep-05

Dec-05

Mar-0

6

Jun-0

6

Sep-0

6

Dec-0

6

Mar-07

Jun-07

Vodafo

ne'sreturns(millionsINR)

Vodafone's returns 481.85717 440.29815 483.04636 833.5621 1617.2408

12/1/04 3/1/05 6/1/05 6/1/06 6/1/07

Based on the PlotReturns(t) =Area Underthe Plot= 10667.93 +89.71 t2 +833.56 t

(billions)

Returns till Breakeven period= 1.5 billion USD= 63000 million INR*

Solvingfor t:t =19.95 months 20 months By February 2008.

*Exchange rate =Rs 42/- Back


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Aiming the technologyAiming the technologySource: CDG, AUSPI, TelecomWatch,COAI, TRAI

Wireless Technology trends

39

64

71

79

84

5

14

25

34

44

2001

2002

2003

2004

2005

No. of networks.

CDMA

GSM

Tariff fall and teledensity increase

43.5

21.5

1

0.5 12.8

4.6

6.5

0

1

2

3

4

5

2001 2002 2003 2004 2005

TariffR

s/min

0

2

4

6

8

Teleden

sit

%

Tariff(Rs/min) Teledensity(percentage)

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%*


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Indian MarketIndian Market FeasibilityFeasibilityIndian Market Feasibility

239 236

287

93

33 32

12

8

0

5

10

15

20

25

30

35

Aus tr alia Singapor e China India

ARPU(US$

0

50

100

150

200

250

300

350

Minuteso

fUsage

(min/month)

MOU per month ARPU($)


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TARGETED CUSTOMER : THE YOUTH?TARGETED CUSTOMER : THE YOUTH?

Population Count in 2006(millions)10%

20%

11%

10%16%

13%

9%

4%7%

0-4

5to14

15-19

20-24

25-34

35-44

45-54

55-59

54% of the population is below the age of 24

Estimated youths annual spending US$10.5bn with growthrate of12%1

55% of young India opts for career in web related activities3

Demand for internet access (38.5 Mn currently) may shoot upto 100 Mn in 2 years.

Trends in population

190.8

120.8122.4105

108.5 117.490.2

156.6170.6

0

50

100

150

200

250

2001 2005 2010

Po

pulation(millions)

15to19 20-24 25-34

Case a Franc A

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