OVERALL ANALYSIS: Fixed is Old, Mobile  is Crown Prince

The telecom industry in India has achieved its first NTP '99 milestone. But
it still has a long way to go before it crosses the other achievements.

The day of 31 March 2004 is a landmark in Indian telecom as the country
achieved the first NTP '99 milestone by crossing a tele-density of seven. This
achievement will help in reaching a tele-density figure of 15 before the target
year of 2010.

In the last fiscal, India added around 22 million lines, i.e., around 1.8
million lines per month. A remarkable achievement considering the fact that in
FY 2002—03, the industry added around 10.25 million lines only. In FY 2002—03,
the industry almost doubled its additions thanks to cellular services, which
contributed around 90 percent of the additions.

The Groups

DoT is still the biggest group with revenues of Rs 39,317 crore and is followed
by the Tatas at Rs 6,763 crore. Reliance was the fastest growing group with a
growth of around 433 percent and Reliance Infocomm, the dream project of Mukesh
Ambani, outgrew all the Top 10 players by achieving a growth of over 750
percent.

Bharti group was not to be left behind, and did well to keep its number one
position intact in the cellular services space. The group scored a steady 60
percent growth to join the billionaire club with revenues of Rs 5,262 crore. On
the other hand, Tata is consolidating and will have a bigger role to play in FY
2004—05. The groups have aggressive plans both on cellular as well as
broadband.

Hutch is the only MNC in the services sector who has been in India for a long
time and is presently, consolidating its operations in the country. The group
plans to encash on the mobile boom, as it is the only pure-play cellular player.
On the revenue front, the company grew by around 56 percent and 138 percent in
terms of subscriber base.

The Services Industry

India's communications (services) industry was pegged at Rs 56,367 crore
($12.25 billion), in comparison to 47,121 crore ($10.24) in FY 2002—03. The
main attraction in the services industry was the cellular services segment. The
cellular segment grew by around 72 percent in revenue terms and 135 percent in
subscriber terms. The cellular services segment netted a revenue of Rs 14,748
crore ($3.2 billion) in FY 2003—04. This fast growing segment will give a good
fight to the fixed services and will overtake it in about two—three years'
time.

The Top 10 club is made up of two incumbent players, four from the Tata
stable, and four other private operators. Reliance Infocomm has made a surprise
entry into the club, and firmly positioned itself at the number five slot.
Bharti Tele-Ventures has moved a step forward and is placed at number three and
is likely to replace MTNL. The fixed services wing of Tata Teleservices has made
a surprise entry in the Top 10 club with a growth of 191 percent from Tata
Teleservices and 77 percent from Tata Teleservices (Maharashtra). Data Access,
the pure play ILD player has been able to retain its seventh position despite
the entry of Reliance Infocomm in ILD services. Hutch Max Telecom (Orange) has
slipped two positions as the company could grow only by 20 percent (in revenue
terms), which is well below the industry average of around 23 percent. Despite a
negative growth of around 30 percent, VSNL has been able to retain its position
in the Top 5 club and is at number four. On the incumbent front, BSNL has
outstripped MTNL and has grown by around 20 percent. MTNL recovered ground and
registered a positive growth in FY 2003—04.

V&D estimates CyberMedia Research

The Equipment Industry

The Indian communications (equipment) industry was estimated at Rs 30,348
crore ($6.6 billion) in FY 2003—04. The carrier equipment contributed 32
percent, enterprise equipment around 18 percent, mobile phones around 27
percent, and others (fixed phones and telecom software) contributed 23 percent.
The mobile phone segment was the star performer with an astounding growth of
around 568 percent. Carrier equipment faced a negative growth whereas enterprise
equipment grew marginally and registered a growth of around 19 percent.

The Top 10 equipment vendors had new entrants; Nokia and LG from the wireless
sector, and Wipro and Infosys from the telecom software front. Ericsson,
Motorola, and Cisco have been able to retain their position at number three,
four, and five respectively. Nokia and LG have replaced Lucent and ITI,
occupying the first two slots. Both companies have shown splendid growth in the
mobile handsets business.

Last years' star performer Lucent has slipped to number six with a 27 percent
drop in revenues in FY 2003—04. Despite negative growth, ITI has been able to
retain its position among the Top 10 companies. The three telecom software
companies share the last three slots and they have grown by over 24 percent. TCS,
Wipro, and Infosys have been the big names in the IT sector and are replicating
their success story in the telecom sector too.

The Outlook

FY 2004—05 is expected to be a good year for both services as well as the
equipment industry. The catalyst for this growth will be mobile and broadband
services. Service providers are expanding their mobile networks by leaps and
bounds, which is good news for the equipment industry.

BSNL, Tata, Reliance, and Hutch are rolling out their expansion plans. Bharti,
darling of the bourses, also has big plans and is looking at the expansions from
a different perspective, giving it an edge over other players. The company does
not believe in numbers, and has opted for network outsourcing deals with
Ericsson and Nokia on a per Erlang basis. This approach frees the company from
managing and maintaining large networks that are growing exponentially, so it
may concentrate on service delivery and marketing.

The large expansion plans of service providers cannot be implemented without
huge investments. The FDI cap currently limits investment opportunities, and
companies are now exploring the IPO route to raise funds. The probables include
Reliance Infocomm, Hutch, Idea, and TCS.

With complete unified licensing expected to come into force this year we
might see some movement in the industry, which will give a big push to the
growth of the Indian communications industry. The mantra for service providers
this year will be cost optimization and aggressive marketing. And the winner
will be the one who can manage both efficiently.

Pravin Prashant Deepak Kumar
Balaka Baruah Aggarwal Ravi Shekhar Pandey and Anurag Prasad

About V&D 100

Change is a way of life and this year also we have changed a bit. The mobile
services segment constitutes both GSM services as well as CDMA (mobile) services
unlike last year where cellular services included only GSM. This was done only
because the Department of Telecommunications (DoT) introduced unified access
service license regime from November 2003

onwards for both basic and cellular services. Basic services have been named as
fixed access service and include fixed line as well as fixed wireless terminals
(FWT).

All this has been done so as to move with the telecom industry and avoid any
mismatch between what we report and what the industry says.

V&D 100, the survey of Indian communications Industry is made up of two
parts. Part I focuses on equipment and includes both carrier as well as
enterprise equipment, while Part II focuses on services. In terms of segment
analysis, Part I covers 22 segments whereas Part II has 7 segments. So, in total
we have covered about 29 segments.

The V&D 100 survey was based on a questionnaire sent to all the companies
associated with the communications industry. Simultaneously, the V&D 100
team had one-to-one discussions with senior executives to get an insight about
companies as well as the trends prevailing across the industry. The data was
collated and analysed before putting it in the V&D 100.