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India NewsWatch: Telecom SectorIndia NewsWatch is a package of news articles compiled by the Canadian Trade Commissioner

Service (TCS) to help Canadian businesses stay on top of new developments.

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Disclaimer: India NewsWatch is a compilation of articles from various media, packaged for the convenience of TCS clients. As such, the opinions and information in the included articles do not reflect the views of the

Canadian Trade Commissioner Service (TCS) or the Government of Canada. Users should be aware that information from media and other sources may not be subject to the Official Languages Act and may be

available only in the language(s) in which it was originally written.

TELECOM

Analysts say telcos may see stable, volume-driven growthLivemint.com, April 12, 2012

After an eventful year, the Indian telecom sector is re-entering a period of stable volume-driven growth driven by stable pricing and some margin expansion from data and regulatory clarity, say analysts. Fiscal 2012 began with the launch of 3G-based telephony services and ended with 4G technology-based services set to launch. But it also saw the Supreme Court cancel 122 licences allocated to nine telcos, and the finalization of the National Telecom Policy (NTP) 2012 that is expected to overhaul the sector. A survey of six brokerages ahead of the telcos’ fourth-quarter results shows revenues for Bharti Airtel Ltd and Idea Cellular Ltd are expected to grow at an average of about 16% and 24%, respectively, over the preceding quarter.  As for Reliance Communications Ltd (RCom), Barclays predicts its quarterly revenue will fall as much as 35% sequentially, while Motilal Oswal sees a fall of only 4%.Net profits for the telcos show significant deviations. The brokerages predict Bharti’s net profit to fall by 7-18% over a year ago. For Idea, the forecast is for a fourth-quarter profit growth of 1% on an average, with Barclays predicting a fall by almost 18% and Motilal Oswal expecting a rise of over 25%. The biggest contributor to the relatively positive sentiment is the tariff hikes undertaken in the second quarter of 2011-12 by as much as 20%. “After two consecutive quarters of increase in wireless RPM (revenue per minute) since the tariff hikes undertaken in July/August 2011, we expect RPM to remain flat this quarter as compared to the previous one (q-o-q, or quarter on quarter) due to relatively higher

competitive activity from market leader Bharti (to protect declining volume/revenue market share) and new entrants like Uninor (to prevent subscriber migration post license cancellation order by the Supreme Court),” Shobhit Khare, telecom analyst with Motilal Oswal Securities Ltd, wrote in April report. “Within operators, we expect Idea to continue reporting the highest traffic growth (6% q-o-q), followed by Bharti (3% q-o-q),” Khare added. RCom, Khare estimated, will post a net loss of `10 crore for the fourth quarter on a revenue of `5,191 crore, down 4% over a year ago. Another contributor to the positive sentiment is the increase in incremental revenues from 3G and 4G data services. Bharti became the first operator to launch 4G-based Long Term Evolution (LTE) services on Tuesday, in Kolkata, and has already attracted some eight million 3G subscribers. The total number of 3G subscribers in the country is estimated at 15-20 million, with more being added every day. The year 2011-12 saw a significant drop in subscriber additions, from 15-20 million a month during most of 2010-11 to seven-nine million a month now. “We believe the decline in net adds is driven by market saturation in urban areas (market penetration is approximately 75% on pan-India basis), and lower aggression and high churn rate for many challengers. We believe lower net additions are unlikely to impact industry revenue and could also drive cost savings,” Khare wrote. “Though the pace of subscriber addition sported by each of these companies remains modest, additions made by Bharti and Idea are value additions, whereas those by RCom are more of volume additions,” Ankita Somani, analyst with Angel Broking, wrote in a quarterly preview report. But there is also some pessimism going around, because of the falling rupee as well as penalties and additional charges that the department of

May 2012 Contact: india.commerce@international.gc.ca

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telecommunications (DoT) is considering. “Players in the telecom sector (especially Bharti) continue to be haunted by rupee depreciation against the dollar due to huge forex debt in their books. Bharti has foreign currency-denominated loans worth approximately $11.5 billion in its books,” Somani wrote, adding, “Given the rupee depreciation, the company will suffer from higher interest outgo, which will negatively affect its profitability on a year-on-year basis.” Also, as part of NTP 2012, incumbent operators may be asked to pay significant sums of money for additional spectrum they hold above 6.2MHz. “The liability for Bharti due to the one-time fee could be approximately `2,750 crore, while for Idea the impact boils down to approximately `1,085 crore,” wrote Somani, adding that telecom licences will come up for renewal in a few years, which means a further outgo from the books of the older operators. The 2 February Supreme Court verdict cancelling 122 licences is also expected to affect the balance sheets of the operators in the short term. The coming spectrum auction, as mandated by the court and which the DoT says will be completed in a year, will likely lead to more debt in the balance sheets of telecom firms.   This is expected to have a bigger impact on Idea and RCom than on Bharti, as the latter may be unable to bid for spectrum above what it already has. The national budget has estimated a `40,000 crore windfall for the government from the auction of spectrum. The apex court verdict also had a positive impact on the telcos as with the reduced competition, pricing power is back with the older, stronger operators and the chances of another debilitating tariff war, as seen in 2009, is less likely to occur. However, not all analysts are pessimistic. “Stronger minutes growth and lower-than-expected forex losses could result in upside surprise,” Aditya Narain, analyst with Citi Investment Research and Analysis, wrote in an 11 April report. For Bharti, the Africa business still seems to be unpredictable. “We expect the fourth quarter relatively challenging for the Africa business, given seasonal weakness, disruptions in Nigeria during the early part of the quarter, and 1-1.5% depreciation in the African currency basket against the dollar,” Khare wrote.

TCS Insights: Good article that describes well the current status of the sector: volume-driven growth. With tariffs levelling out, telecom companies are struggling to find new revenue streams to enhance typical low Indian ARPUs. With possible increase in incremental revenues from 3G and 4G data services, and other data-content drivers, Telcos show relatively positive sentiment. This would open doors to content-driven mobile applications, including gaming where Canadian mobile developers have significant capabilities.

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LinkedIn: India becomes second largest marketThe Economic Times, April 24, 2012

Social networking site LinkedIn's Indian user base has grown 300% in the three years it has had a marketing presence in India. The firm, today, has about 14 million users from India, which has quickly become its second-largest market globally, bigger than China and only behind the United States, according to Jeff Weiner, LinkedIn's chief executive.

Those 14 million Indian users join another 135 million-odd who are tapping into some 2 million companies and many more individuals to seek out jobs (or be sought out for one), organise conferences and network with a broad spectrum of people. On a recent trip to India to keynote his firm's B2B conference in Mumbai, Weiner-the 42-year-old former executive-in-residence, with two venture capital firms in Silicon Valley-said the firm's mobile business accounts for a fifth of its user base today, compared to 8% in January 2011.

"Mobile is our fastest-growing business," says Weiner. "LinkedIn connects talent with opportunity at a massive scale. Ultimately, our vision is to create an economic opportunity for every professional," he adds. The stage may now be set for monetisation. In February, on an earnings call after announcing the company's fourth-quarter results of 2011, Weiner had said that now that LinkedIn had got the product and user experience right, the time was ripe to test ads in the mobile environment.

India's booming mobile user base-around 700-plus million and growing rapidly-is a clear opportunity for LinkedIn. More importantly, according to estimates of GSMA, a global mobile services lobby, India is expected to become the second-largest mobile broadband market globally, with 367 million connections in four years, compared to 20-30 million today.

"The Indian market has shown a real propensity for social connectivity," says Weiner. "So, in that regard, it is not surprising." He adds that LinkedIn has been able to reach critical mass with English - unlike other markets such as China, where local language is the key to building a successful Internet business.

That may explain why India is a larger market for LinkedIn than China, where it has barely a million members. LinkedIn has also been trying to promote its B2B business. Homegrown firms such as Wipro and the Indian arm of multinationals such as Cisco, SAP and Huawei use LinkedIn as a platform to connect with employees, vendors and business partners. Weiner will be keen to press home this advantage as he seeks a stronger foothold in this market.

Unlike many other software firms that hire in the hundreds, if not thousands, LinkedIn has been flying below the radar in India. It barely has a 100 people across its offices in Mumbai, Delhi and its R&D unit in Bangalore. This number will only rise incrementally, rather than in the dozens. The strategy is not to focus

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on R&D (like many of its larger rivals), but on India as a market.

For the moment, the US accounts for two-thirds of LinkedIn's business and "international", including fast-growing businesses in India, account for the rest. To drive its international business, LinkedIn wants to not just increase the number of users, but also deepen its relationships with them.For example, this February, it launched India-specific pricing for some of its recruitment products such as LinkedIn Recruiter, Jobs Network and Talent Direct. LinkedIn wants to mine the mountain of data it generates toimprove the quality of its recommendations (who to connect to on the site), as well as convert its recruiting business-the firm's mainstay in India-into a more dynamic one.

TCS Insights: The Indian market has contributed significantly in driving revenues of social media companies in the otherwise stagnant international market. India’s young population along with the country’s exponential growth of mobile phones (900 million connections and counting), has helped foster explosive adoption of all social media platforms. Canadian companies providing ancillary solutions to such platforms will find the Indian market a huge opportunity to tap.

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Rs 10,000-cr incentive package for electronics mfg. on the anvil

The Hindu Business Line, April 23, 2012  

New Delhi: The Government is formulating a special incentive package to encourage local manufacturing of electronic goods including mobile handsets, semiconductor wafer fab, consumer electronics and telecom network equipment.

The package includes reimbursement of indirect taxes and a subsidy of 20 per cent on capital expenditure made by high-tech manufacturers in SEZ units. Investments made in non-SEZ units could get a subsidy of 25 per cent. The Ministry of Finance has agreed to the proposal with a ceiling of Rs 10,000 crore during the 12th Plan.

The subsidy element may be linked to the project outcome in a bid to ensure that companies invest in cutting edge technologies that's marketable.

For example, in the case of semiconductor wafer fab, 75 per cent of the overall subsidy could be linked to production milestones.

The incentive package was discussed on Monday at a meeting between the Department of Electronics and IT (DEITy) and the Planning Commission. A senior official told Business Line, “The Planning Commission is in

favour of such a policy. It will take some more meetings to finalise the draft.”

According to top Government sources, the Department of Commerce has also concurred with the proposal, confirming compatibility to India's commitment to various international bodies including the WTO on subsidies.

In order to raise the initial corpus for the project, the DEITy has proposed to levy a cess on all electronic products sold in the country. The revenue earned from the cess will be put into the National Electronics Mission fund. According to estimates made by DEITy, the Government will end up being a net revenue earner by 2020.

The department has presented three scenarios with different production targets. If the production reaches $400 billion by 2020, then the Government subsidy will amount to $32.85 billion while the revenue accruals will be $58.52 billion according to the projections made by DEITy.

This is part of Government's efforts to boost manufacturing in the country. Over the past few months, the Government has taken a series of steps including formulating a National Policy on Electronics. The policy had made it mandatory for Government agencies to give preferential access to electronic products made in the country.

TCS Insights: Analysts have traditionally felt that India was losing out to China as the global manufacturing hub. India’s strength has historically been software and technology services and with China catching up to this niche segment, the Indian government is under pressure from the private sector to formulate a policy to promote local manufacturing. This policy will hopefully pave the path for this change and will thus help India with the impetus to maintain its edge on IT – both on software and hardware.

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India's first PPP telecom startup village inaugurated The Economic Times, April 15, 2012

As part of the process to support new product initiatives and turn them into successful ventures, the country's first Public Private Partnership telecom business incubator -- 'Start-up Village' -- was today inaugurated here by Infosys Co-founder Kris Gopalakrishnan.

Describing it as a "milestone" in Kerala, Gopalakrishnan, who is also chief mentor of the start-up village, said the concept was to create an ecosystem "to increase the confidence and probability of success."

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Technopark in Thiruvananthapuram is one of the most successful ventures of Kerala, but many are not aware of it and there is need to change this perception, he said.

Start-up Village, set in KINFRA Park at Kalamassery, will focus on student initiatives from college campuses and would be modelled on technology incubators in the Silicon Valley.

The National Science and Technology Entrepreneurship Development Board (NSTEDB), the Department of Science and Technology (DST), Government of India, Technopark and MobME Wireless have joined hands to set up the Start-up Village - Indian Telecom Innovation Hub. It will create a vibrant ecosystem for start-ups to create breakthrough technologies for the global telecommunications industry.

This would be made possible in association with leading companies in the Telecom Sector by setting up Telecom Innovation Zones that bring the latest technology platforms and products to the start-ups in the incubator

before it is released in the commercial markets, Sanjay Vijayakumar, CEO, MobME, said.

Two start-ups have started functioning in the village, the first phase of which was inaugurated today. Start-up village will give a slew of perks from three year service tax holiday to funding opportunities for Tech start-ups. TCS Insights: The private sector’s need (to desperately look for new saleable products and technologies) and the Kerala government’s ambition (to promote itself as an IT destination) has resulted in what is a unique PPP model for incubation. This is a unique concept since until now, incubation units were largely private fund or angel investor/Venture Capital driven whose primary objective was either strategic investment or the identification and procurement of innovative IP’s. This kind of incubation unit provides entrepreneurs with the genuine climate required to start and nurture their company without the odds that a traditional start up faces.

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For more information on Telecom Sector consult Telecom Sector Profile – India

(see http://www.tradecommissioner.gc.ca/India)

Want to know more? Contact the Information and Communication Technologies Sector Team in India at

india.commerce@international.gc.ca

Disclaimer

India NewsWatch is a compilation of articles from various media, packaged for the convenience of TCS clients.

As such, the opinions and information in the included articles do not reflect the views of the Canadian Trade Commissioner Service (TCS) or the Government of Canada.

Users should be aware that information from media and other sources may not be subject to the Official Languages Act and may be available only in the language(s) in which it was originally written.