Trends in the Performance of

telecom industry
 Profit after Tax
Profit after tax
200,000.00

100,000.00

0.00
3 4 5 6 7 8 9 0 1 2 3 4 5
-0 -0 -0 -0 -0 -0 -0 -1 -1 -1 -1 -1 -1
Rs .million

0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 1 0 1 1 1 2 1 3 1 4
20 20 20 20 20 20 20 20 20 20 20 20 20
-100,000.00

-200,000.00

-300,000.00

-400,000.00

Year

Source :Industry outlook

Profit after Tax as percentage of
net worth and capital employed
PAT as % of net worth and capital employed
15

10

0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

-5

-10

-15

-20

PAT as % of net worth PAT as % of capital employed

Source :Industry outlook

 Net margin
30

20

10
Net margin

0
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

-10

-20

-30

-40

Year

Bha rti Ai rtel Ltd. Bha rat Sanchar Ni ga m Ltd. Rel i ance Communi cations Ltd.
Idea Cel l ul ar Ltd. Vodafone Indi a Ltd.

Source :Industry outlook

Average revenue per User
Average revenue per user
600.00

500.00

400.00
Rupee

300.00

200.00

100.00

0.00
2002 2004 2006 2008 2010 2012 2014 2016 2018

Year

Source :Industry outlook

 Total Income and Sales
Total income and sales
3,500,000.00

3,000,000.00

2,500,000.00

2,000,000.00
Rs.miilion

1,500,000.00

1,000,000.00

500,000.00

0.00
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Year

Total i ncome Sal es

Source :Industry outlook

Percentage change in Total income
and sales
Percentage change in Total income and Sales
35

30

25

20
% change

15

10

0
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Year

Total i ncome Sa l es

Source :Industry outlook

 Price- earning ratio
Price-earning ratio
500

450

400

350

300
P-E Ratio

250

200

150

100

50

0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Year

Source :Industry outlook

Five Forces
 Threat of Entry : Declining ARPU
ARPU
600.00

500.00

400.00

300.00

200.00

100.00

0.00
2002 2004 2006 2008 2010 2012 2014 2016 2018
 Threat of Entry : Unattractive
profit margins
ROIC
10
9
8
7
6
5
4
3
2
1
0
2011 2012 2013 2014 2015
Return on Capital Employeed (%) Cost Of capital
Threat of Entry : Asset Turnover
Ratio
Asset Turnover Ratio
300
250
200
150
100
50
0

2016 2015 2014 2013 2012 2011

Threat of Entry : Optical Fiber
Access
 Threat of Entry : License Fees

License Fees (In crores)

14000.00
12000.00
10000.00
8000.00
6000.00
4000.00
2000.00
0.00 Bha rti Ai rtel Ltd. Idea Vodafone Rel i ance Tota l

2011-12 2012-13
2013-14 2014-15 (upto August 2014)
Threat of Entry : Spectrum cost
Results of the 2013 spectrum auction
Circle Price per block
Delhi 4,505 million (US$67 million)
Gujarat 1,462 million (US$22 million)
Karnataka 2,146 million (US$32 million)
Kerala 425 million (US$6.3 million)
Kolkata 739 million (US$11 million)
Maharashtra & Goa No bid
Mumbai No bid
Tamil Nadu 1,989.6 million (US$30 million)
Uttar Pradesh (East) No bid
Uttar Pradesh (West) 698 million (US$10 million)
West Bengal 168 million (US$2.5 million)
 Bargaining Power of Buyers: Subscriber Base
1200 60

Mobile subscribers 2006-2015 ( in millions)

1006.96 50
1000 47.40 951.34
45.28 933.04
44.58 898.02
42.59 43.01
846.32 40
800 36.22

30
621.28
600
20
429.72
400 12.41
300.49 10
7.92
206.83 3.90
200 140.32 0

-5.60
0 -10
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Mobile Subscriber Subscriber Growth Rate in %

 Bargaining Power of Buyers: Switching Costs

MNP Requests
250,000.00

200,000.00

150,000.00

100,000.00

50,000.00

0.00 Al l Indi a

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

 Threat of Substitutes :
Broadband
Broadband subscribers (millions)
18

16 16.15
15.05 15.26
14 13.81

12 11.89

10
8.77
8

6 6.22

4 3.87

2 2.34
1.35
0
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
Threat of Substitutes : Internet
Telephony
Mobile Telephony India
910
900
890
880
870
860
850
840
Dec'12 Mar'13 Jun'13 Sept'13 Dec'13 Mar'14
Wireless Subscriber Base (In Millions)
Bargaining Power of Suppliers :
Threat of Backward Integration
Tower Service companies
Sim Manufacturers
Telcoms owned
Imported
Independently owned Tower
Domestically sourced
Companies (ITTC)
Sim Card Sources
Ownership of Tower Companies
28

72
Domestic Imports
Telecom Owned ITTC
 Base of Competitive rivalry :
Price
Unlimited calling Unlimited calling Free data
Amount (Rs.) within network to all networks

Airtel 145 Y N 300MB

345 Y Y 1GB
Vodafone 144-149 Y Y 300MB
344-349 Y Y 1GB
Idea 148 Y N 300MB
350 Y Y 1GB
Reliance Commun 149 Y
Y
ications
 Base of Competitive rivalry :
Price
ARPU
250

200

150

100

50

-
Bharti Airtel Vodafone Idea Cellular
 Competitive rivalry :
Fragmented Market
HHI
2014-15
2013-14
2012-13
2011-12
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
0 200 400 600 800 1000 1200 1400 1600 1800
 Competitive rivalry :
Fragmented
CR4 Market
2014-15

2013-14

2012-13

2011-12

2010-11

2009-10

2008-09

2007-08

2006-07

2005-06

2004-05
0 10 20 30 40 50 60 70
 Summary: Structural
Attractiveness
Threat of New Entrants : High
Bargaining Power of Buyers : High
Threat of substitutes : Moderate
Bargaining power of Suppliers : Low
Intensity of Rivalry : Moderate
Base of Rivalry : Price
Key Success Factors
 Value Added services
revenue(INR Bn)
800

700

600

500

400

300

200

100

0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Analysis Mason,Industry Input

 Internet Subscriptions
Internet subscriptions (in million)
400

350

300

250

200

150

100

50

0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CAGR-52.1%
Source: Telecom Regulatory Authority of India, Business Monitor International,
TechSci Research
Notes: * - Till October 2015
Broadband Subscriptions
Wired broadband subscriptions (in milion)
18
16
14
12
10
8
6
4
2
0
FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16

CAGR -20.11%
Source: Telecom Regulatory Authority of India, TechSci Research
 Broadband Subscriptions

Source: Telecom Regulatory Authority of India, TechSci Research

Impact of Marketing expense
Regression for income V/s Marketing expense
3,500,000.00

3,000,000.00

2,500,000.00
f(x) = 17.51x + 125050.27
total income

R = 0.96
2,000,000.00

1,500,000.00

1,000,000.00

500,000.00

0.00
0 20000 40000 60000 80000 100000 120000 140000 160000

selling & distribution expense

Impact of cost of lease and rent
Tower Rent V/s Income
3,500,000.00
f(x) = 23.37x + 338631.97
3,000,000.00 R = 0.83
2,500,000.00
Total income

2,000,000.00

1,500,000.00

1,000,000.00

500,000.00

0.00
0 20000 40000 60000 80000 100000 120000 140000 160000

Rent & lease expense

 Network Usage

Source ICRA

TWO CAUSES

1. Increased Congestion

2. Efficient utilization of spectrum

 QOS

Source - Trai

QOS deteriorating from past some time

Competitive Analysis
 Total Revenue
300,000.00

250,000.00

200,000.00

aIRTEL
150,000.00 IDEA
vodafone
Reliance Communications
100,000.00

50,000.00

0.00
2006 2008 2010 2012 2014 2016 2018
 Market Cap
200,000.00
180,000.00
160,000.00
140,000.00
120,000.00
reliance communications
100,000.00 Idea cellular
80,000.00 Bharti airtel

60,000.00
40,000.00
20,000.00
0.00
2004 2006 2008 2010 2012 2014 2016 2018
 Gross Margin
40,000.00

35,000.00

30,000.00

25,000.00
Vodafone
20,000.00 Reliance
Airtel
15,000.00 Idea

10,000.00

5,000.00

0.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
 SG&A
40,000.00

35,000.00

30,000.00

25,000.00
Airtel
20,000.00 idea
vodafone
15,000.00 reliance communications

10,000.00

5,000.00

0.00
2006 2008 2010 2012 2014 2016 2018
 Current Assets
180,000.00

160,000.00

140,000.00

120,000.00

100,000.00 Airtel
idea
80,000.00 vodafone
reliance communications
60,000.00

40,000.00

20,000.00

0.00
2006 2008 2010 2012 2014 2016 2018
 Net Profit
20,000.00

10,000.00

0.00
2006 2008 2010 2012 2014 2016 2018
Airtel
idea
-10,000.00
vodafone
reliance communications
-20,000.00

-30,000.00

-40,000.00
 Total Assets
300,000.00

250,000.00

200,000.00
Vodafone
150,000.00 Reliance Com
Airtel
Idea
100,000.00

50,000.00

0.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
 Current Liabilities
45,000.00
40,000.00
35,000.00
30,000.00
25,000.00 Vodafone
Relaince
20,000.00 Airtel
Idea
15,000.00
10,000.00
5,000.00
0.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
 EPS
80

70

60

50
Vodafone
40 Relaince
Airtle
30 Idea

20

10

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
 PBIT
30000

25000

20000
Vodafone
15000 Reliance
Airtel
Idea
10000

5000

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
 Shareholders Equity
9,000.00
8,000.00
7,000.00
6,000.00
5,000.00 Vodafone
Relaince
4,000.00 Airtel
Idea
3,000.00
2,000.00
1,000.00
0.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Opportunities and
Threats
Opportunities 4G spectrum
acquisition
Potential growth of 4G business driven by
Increased demand - 3 million Idea customers are actively using its 4G (Sep 3016)
Economic 4G handsets expected to be as low as 1500rs by Q117
Idea now has spectrum to address the future requirement of capacity
FDD
acquired 2x64.6 MHz spectrum in frequency bands of 1800 MHz & 2100 MHz
expanded its 4G spectrum ownership from 11 service areas to 20
TDD
acquisition of 200 MHz (TDD) spectrum in frequency band of 2300 MHz and 2500 MHz,
The 4G spectrum profile of the company now covers(in 20 service areas)
~94% of its own revenue
~90% of industry revenue
Opportunities 3G spectrum
acquisition
Growth of business till year 2035 driven by growth of data users
One of the highest renewed spectrum among the incumbent operators
acquired 5 MHz spectrum in 2100MHz frequency band in high population service
areas of Bihar and Rajasthan to offer 3G services
now owns 17 carriers (15 on 2100 MHz and 2 on 900 MHz)

The 3G foot-print of Ideas own spectrum in these 15 service areas covers

~86% of its revenue
~84% of its subscribers
~70% of national mobile industry revenue
Opportunities Digital Services
To enter into Digital services space on high speed broadband services
Strong video demand expected to drive 60% of data traffic on Idea by 2020
Launching its Games, Movies & Music Services next week
To launch of Idea TV, Idea News & Magazines, and Idea Storage in a year

Model for digital services

Build or partner technology platform while sourcing directly (or in
partnership) the content from labels, aggregators and providers.
ErosNow one of the biggest Bollywood content provider for Idea
Opportunities Mobile Banking
Services
Prepaid Payment Instrument
Payment Bank
Threats
New big entrant Reliance Jio- stiffer competition
2.5 trillion rupees investment
Only player with pan India 4G spectrum before M&As
Infrastructure built specifically for data (4G,5G,VoLTE)
2nd attempt at disruption in telecom industry, after one successful attempt

Decreasing ARPU
Unlimited Voice Calls@145-149/month by different players
Consumption shift from voice to data
Decreased switching costs - MNP
Threats
Demand for 4G is on rise
4G phones already available @ 2999rs, expected to drop to 1500rs by Q117
Idea has infrastructure built for voice and 2G
Needs revamp in infrastructure/technology to deploy 4G Time & Investment

Profit Margins are decreasing

PAT as % of Capital deployed and net worth is negative
Spectrum renewal
New spectrum acquisition - 3G and 4G
Subscriber growth rate is decreasing
Threats
3G spectrum acquisition - a risky proposition
Voice users are moving directly to 4G skipping 3G - cheaper and faster
Incompatible with FDD LTE
retail customers to be on FDD & Enterprise on TDD
Telecom Circles of newly acquired 3G spectrum do not have large number of
enterprise customers

Expiring licenses in 6 circles, purchase would drag profits

Delhi, Rajasthan, UPE and HP in 4 years
Mumbai and Bihar in 8 years
Thank-You