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India - A Potential 3G Market A Feasibility Study

India - A Potential 3G Market A Feasibility Study. Arnab Sinha Sudipta Ray. Indian Institute of Technology, Kharagpur. 3G SERVICES & INDIAN MARKET. Market Trends. Service Promotion. Cost Structure. Existing Market Competition. Technology Requirements. Evaluation of Policies.

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India - A Potential 3G Market A Feasibility Study

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  1. India - A Potential 3G MarketA Feasibility Study Arnab Sinha Sudipta Ray Indian Institute of Technology, Kharagpur

  2. 3G SERVICES & INDIAN MARKET Market Trends Service Promotion Cost Structure Existing Market Competition Technology Requirements Evaluation of Policies Business Base

  3. 3G SERVICES & INDIAN MARKET Market Trends Service Promotion Cost Structure Existing Market Competition Technology Requirements Evaluation of Policies Business Base

  4. Market Trends Expected Usage in 2007: 111 million (from CAGR of 94%) Cheaper Infrastructure Cost

  5. 3G SERVICES & INDIAN MARKET Market Trends Service Promotion Cost Structure Existing Market Competition Technology Requirements Evaluation of Policies Business Base

  6. Stake in Existing Market : Technology relied upon : Total Investment : Analyzing the predicted Market Revenue Trends, expected Break Even Period for Vodafone BHARTI (10%) GSM(Larger service range in India) 1.5 billion USD Existing Market Competition February 2008 Our Target Break Even before Vodafone Break Even

  7. 3G SERVICES & INDIAN MARKET Market Trends Service Promotion Cost Structure Existing Market Competition Technology Requirements Evaluation of Policies Business Base

  8. Business Base Current Position of Reliance in market - 20.3 % of the subscriber population - Largest CDMA provider in India Collaboration with Reliance! Customer Base • -54%of the population is below the age of 241 • - Estimated youth’s annual spending  US$10.5 billion1 Targeting the Youth Section! Launching the service on Valentine’s Day!

  9. 3G SERVICES & INDIAN MARKET Market Trends Service Promotion Cost Structure Existing Market Competition Technology Requirements Evaluation of Policies Business Base

  10. 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 World’s 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!

  11. 3G SERVICES & INDIAN MARKET Market Trends Service Promotion Cost Structure Existing Market Competition Technology Requirements Evaluation of Policies Business Base

  12. Cost Structure Total Reliance Revenue = Normal Revenue + 3G Revenue Young Reliance Customers Reliance Subscriber Accessing Internet Estd. Avg Packet Consumption per month (APC) Charge (C) Packet wise Billing

  13. Cost Structure Total Reliance Revenue = Normal Revenue + 3G Revenue Young Reliance Customers Reliance Subscriber Accessing Internet Estd. Avg Packet Consumption per month (APC) Charge (C) Packet wise billing Target Break even  December 2007 Following Japan’s estimate5 APC=8192(1MB) Billing Structure 50p for each 128 Bytes packet Reliance Customer Base 20.3% of 38.5 Mn6= 7.82 Mn Target 54%1 Young Customer = 4.22 million COMPUTATION STEPS

  14. Dec, 2007 Feb, 2006 Estd. Revenue Earned 143 billion 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) 7.49 billion INR Total Expense (Approx) 115 billion INR

  15. 3G SERVICES & INDIAN MARKET Market Trends Service Promotion Cost Structure Existing Market Competition Technology Requirements Evaluation of Policies Business Base

  16. Service Promotion Utilities as per demand Attractive Rate Handset Cost Communication Entertainment Information Services Agro-business Optional Commercial Services ARPU 1475 INR only Average Handset Price 19, 448 INR Advertisement

  17. 3G SERVICES & INDIAN MARKET Market Trends Service Promotion Cost Structure Existing Market Competition Technology Requirements Evaluation of Policies Business Base

  18. Evaluation of Policies Largest CDMA Provider Reliance Survival of Competition Adaptive to Market Forces Early Start Wider Estd. Profit margin Defeat Vodafone Lucrative Offers after Dec’07 Appeasement of Government Target Break Even – Dec’07 Beneficial Utilities

  19. Thank You! Market Trends Service Promotion Cost Structure Existing Market Competition Technology Requirements Evaluation of Policies Business Base

  20. References 1. Statistical Outline of India 2002-03 2. http://www.indiadaily.com/editorial/5826.asp,Dec 7, 2005 Media Release 3. http://www.stylusinc.com/internet_potential_india.htm 4. http://www.hardwaresecrets.com/article/151 5. http://ojr.org/japan/wireless/1084495929.php 6. http://www.indiadaily.com/editorial/5826.asp,Dec 7, 2005 Media Release 7. http://shopping.yahoo.com.au/ 8. http://www.umtsworld.com/umts/faq.htm#f3 9. 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.html 13. http://www.businessworldindia.com/sep2004/news08.asp 14. http://www.umtsworld.com/umts/faq.htm#f36 15. www.auspi.org/presentation/AUSPI-press-conference.ppt

  21. Backup Slides

  22. Source: Gartner, 2003 The Average International Market Price of 3G mobile Handsets = SWorld market sharei x Avg. handset cost x conversion factori = 19,448 INR Back

  23. 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

  24. Computation Steps cont.. • Revenue earned by telephony: ∫ ARPU(t)xsub.population(t) = Area under the Revenue Curve = 1485.76 billion INR • Revenue earned by internet usage: =Charge per packet ( C ) x Avg.Packetconsumption (APC) x Ratio of Target Customers x ∫Sub.population(t) = 0.5x8192x0.36x{Area under the Subscriber Poplulation Curve} =5558.501 billion INR • Total Revenue =7044.26billionINR

  25. Computation Steps cont. • 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

  26. Vodafone’s Returns: Computation steps for the Breakeven • 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* • Solving for t: t =19.95 months ≈ 20 months By February 2008. *Exchange rate =Rs 42/- Back

  27. Aiming the technologySource: CDG, AUSPI, TelecomWatch,COAI, TRAI 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%*

  28. Indian MarketFeasibility

  29. TARGETED CUSTOMER : THE YOUTH? • 54% of the population is below the age of 24 • Estimated youth’s 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.

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