SEGMENT ANALYSIS: Extrapower Mobile

It was harvest time for the Indian communications industry, and in FY 2003—04
they reaped a good harvest. The industry grew by around 20 percent unlike the
previous year when the growth was about five percent. Cellular services remained
the star attraction and will continue to remain so in the years to come. It
contributed more than a quarter of the overall revenues.

In terms of tele-density, India moved to 7.12 on 31 March 2004, in comparison
to 5.35 on 31 March 2003, an increase of 1.77. The key for such an excellent
growth was low pricing and the calling-party pays (CPP) regime. If low tariffs
continue, India will overtake other giants on the numbers front, but it still
has a long way to go on quality of service (QoS), which is still far below TRAI´s
benchmark. It seems that the service providers should focus more on quality than
just on quantity in FY 2004—05.

V&D estimates CyberMedia Research

India´s communications industry was pegged at Rs 56,367 crore ($12.25
billion) in comparison to Rs 47,121 crore ($10.24) in FY 2002—03. The cellular
segment grew by around 72 percent in revenue terms and 135 percent in terms of
subscribers. The cellular services segment netted revenues of Rs 14,748 crore
($3.2 billion) in FY 2003—04. This fast growing segment will give a good fight
to basic services and will overtake fixed services in the next 2—3 years. On
the mobile front, Reliance Infocomm made history by getting a subscriber base of
6.9 million subscribers and taking the overall tally of its cellular subscribers
to 7.2 million.

However, though the Reliance Group led in the numbers game, Bharti group
retained its position as the No. 1 player in revenue terms with a total of Rs
3,261 crore. It will be interesting to see how Bharti and Reliance fight for
supremacy in FY 2004—05. In the meanwhile, Hutch is also fighting hard for a
bigger share of the pie. It has already increased its service areas. With
operators moving to new untapped geographies, good growth is likely in 'B´
and 'C´ circles. Meanwhile, 'A´ category and metro circles are moving to
2.5 G and more feature-rich technologies.

With costs reducing on the mobile front, service providers are looking at
avenues of sharing infrastructure. One such development was the VSNL deal with
Bharti for sharing of NLD infrastructure. The deal, worth Rs 500 crore, is for
15 years. We might see an increase in infrastructure sharing in days to come.
All this will help in boosting profit margins of service providers.

V&D estimates CyberMedia Research

The fixed-access services were badly affected as all the major operators like
BSNL and Tata Teleservices have been focusing more on mobile services than on
fixed services. BSNL and MTNL, the incumbent operators, were trying hard to
retain their existing base.

With competition creeping in, both BSNL and MTNL became more customer
friendly and there was a sea change in their service quality. On the private
front, both Tata Teleservices and Bharti increased their revenues significantly
and also increased their coverage in respective circles. The fixed-access
service market was estimated to be around Rs 30,164 crore, registering a growth
of 16 percent. This year, the focus on fixed was more on selling FWTs
(fixed-wireless terminals), by private operators like Tata Teleservices and
Reliance Infocomm and it was helpful in increasing their ARPUs to a sizable
extent. Tata Teleservices was the numero uno player on the FWT front and is
doing quite well.

Long distance continued its southward journey in FY 2003—04 too. From a
negative growth of about 20 percent in FY 2002—03, it has come down to about
14 percent. It is very possible that long distance will grow positively in FY
2004—05 and this should be fueled by enterprises. Broadband will also act as a
catalyst for this growth. The long distance market was put at around Rs 9,487
crore ($2.06 billion) in FY 2003—04, of which NLD contributed 54 percent.

V&D estimates CyberMedia Research

Both on NLD front as well as ILD, the focus was on setting up more MPLS
networks. BSNL plans to go for an expansion while Bharti and Reliance have
already launched their MPLS services. Even on the international front, all the
international connectivity service providers have tied up with ILD service
providers for providing MPLS-based services in India. It seems all service
providers-AT&T, Sprint, Cable & Wireless, SingTel, MCI, Equant, PCCW,
Orient, and BT-are in the process or have already set up MPLS networks in
India.

On the NLD side, India has a large infrastructure to the tune of 572,675 Rkm.
To leverage on it, service providers have to promote broadband services
(triple-play). All large integrated service providers have mega plans for this
front. On the international front, there is a good growth on the data front
where growth is estimated at around 65 percent. There was also good growth on
the on the international voice minutes, by around 22 percent, but a drop in
prices led to a downward fall in revenues, which finally stabilized at Rs 4,346
crore in FY 2003—04.

There was a price drop of around 20 percent both on the domestic and
international bandwidth. In the years to come, one might see a good drop in
international bandwidth prices with the deployment of three new undersea cables-Tata
Indicom, Sea-Me-We-4, and Falcon. All this will result in a bandwidth glut
thereby driving prices down.

V&D estimates CyberMedia Research

FY 2003—04 was a good year for the ISP industry as it registered a 24
percent growth in terms of subscribers reversing last year´s negative growth
of —2 percent. Revenues have grown by around 22 percent to reach Rs 1,573
crore ($341 million). There was a shuffling of positions at the top with BSNL
replacing VSNL both in terms of revenue as well as subscribers. Internet density
in India was estimated to be around 0.38 and broadband was at around 0.018,
whereas TRAI has set an ambitious target of 0.6 for Internet and 0.3 for
broadband by 2005.

VSAT and radio trunking services together account for 0.7 percent of the
total services industry. In terms of numbers, VSAT had a cumulative base of
27,870 as on 31 March 2004 and had added around 8,769 VSATs in FY 2003—04. The
radio-trunking base has, meanwhile, come down and is officially around the
30,000 mark. But there is a twist to the tale. Stiff competition from mobile
operators, high royalty, and unclear government policies have led to under
reporting of units in use, which are estimated to be above 50,000.

Introduction of the unified license, albeit, in a limited way, has helped but
one has to see how TRAI works out the broader picture so that the country
realizes the targets of NTP ´99. If FY 2003—04 was the year of mobile, there
is no doubt that FY 2004—05 will be the year of 'creating broadband
infrastructure.´ TRAI has taken some good steps on the broadband front and now
it is up to the government to implement the TRAI recommendations so that India
can move up the Digital Access Index (DAI) set up by ITU.

Pravin Prashant and Anurag
Prasad