telecom_Customer Landscape by Sutherland Global Services

Customer Landscape Customer Landscape

www.sutherlandglobal.com January 10, 2013

market in India VASVAS market in India Client • The client is a leading technology services provider rendering services for the telecom sector

Client Ask • Assessing the mobile VAS (Value Added Services) market to identify market opportunities in India and to suggest marketing strategy for the same. • The research involved insights on the following the mobile telecom market in India, vas market in India, opportunities and constraints as well as strategy formulation

Sutherland’s Solution • SGS incorporated a comprehensive study approach for the client • For the market scanning, SGS conducted market and consumer analysis, competitive landscape study as well as studied the regulatory and technology trends • For identifying opportunity, SGS identified and shortlisted key segments and did a segment evaluation and prioritizing exercise • For strategy formulation, SGS identified and prioritized potential partners in each short-listed segment, evaluated the partnership structure and formulated marketing strategies by mapping market landscape and alliance capabilities in the segment

Benefits to the Client • • • •

Details on potential segments across the mobile VAS value chain based on market needs and service constraints Evaluation of key players catering to potential segments Recommendation of partnership or alliance Designing of marketing strategy with respect to the service, geography, price, promotion

www.sutherlandglobal.com January 10, 2013

India’s mobile penetration is rising swiftly

High Growth in Mobile Subscribers and Revenues

200 150

CAGR: Subscriber Base – 89% Revenue – 48%

14 12 10 8 6 4 2 0

100 50 0 2003

2004

2005

Subscribers (in millions) LHS

Source: COAI, AUSPI

Swift Increase in Mobile Penetration

2006

2007

20% 15%

14.7%

10%

8.1%

5% 1.2%

2003

3.1% 2004

4.8% 2005

2006

2007

Mobile Teledensity

Revenue (in $ bn)

Source: COAI, AUSPI

• In 2007, India ranked fifth across the globe in terms of subscriber base; behind China, US, Japan and Russia • According to TRAI, the subscriber base in India is expected to grow to 500 million by the end of 2010, which would make India the second largest country in terms of subscriber base after China • India’s cellular market penetration stood at 14.7% in 2007 and is expected to increase to 38.6% by 2011. Consequently, revenues from mobile connections are expected to grow at CAGR of 23.4% over the same period

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Growing per capita income and declining tariffs are the primary drivers High Income Levels Drive Mobile Penetration

Mobile Teledensity

Australia

80% 60% 40%

Italy

100% Brazil China

20%

France

Bhutan

0% 0

Circle C

CAGR -11.85 %

20000 40000 60000 Per Capita GDP (in $ PPP)

Source: TRAI, RBI, Adventity Research

Circle B

Mexico India

Rural Demand to Drive Mobile Services Growth in Future

Affordability Rises as Tariffs Fall

11%

Circle A

22%

Metros

0 2003

2004

2005

2006

2007

20%

40%

60%

80%

Mobile penetration

Per Minute Call Tariff (in US cents) Source: TRAI, COAI, Adventity Research

74%

Source: TRAI, Adventity Research

• Faster growth in per capita income and continuously falling tariff have enabled growth in mobile penetration. • Given that penetration is driven by income levels, there is still significant scope for further increase in mobile penetration in India. • India has the one of the lowest call tariff rates in the world at 2.3 US cents/minute • With the increased penetration in metros and urban areas, future growth for mobile services would be driven by semiurban and rural areas in different circles* * Indicates group of states depending on size of markets. A represents larger and affluent markets, B medium sized, C smallest size markets as recognized by the government

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Steady rise in competitive intensity in an oligopoly market Rising Competitive Intensity as Indicated by HHI

0.60

Top Five Players Account for 80%+ Market 100%

0.56

80%

0.50 0.40

60%

0.32 0.26

0.30

0.21

0.20

0.19

40% 20%

0.10

8% 2% 16%

13% 10% 2% 19%

9% 8% 5% 20%

8% 8% 10%

15%

17%

16%

17% 4%

22%

20%

19%

17%

24%

19%

21%

22%

2003

2004

2005

2006

2007

27% 10% 1% 18%

17%

19%

0.00 2003

2004

2005 HHI

Source: TRAI, Adventity Research

2006

2007 Bharti BSNL Others

Reliance Tata Teleservices

Vodafone Idea

Source: COAI, TRAI, Adventity Research

• The market shares of CDMA players like Reliance and Tata Teleservices have increased from 4% and 1% respectively in 2003 to 17% and 10% respectively in 2007, primarily driven by their competitive service offerings • In cellular GSM space, Bharti with 37.1 million subscribers leads the market. In CDMA, Reliance with 24.6 million subscribers leads the market. Airtel, Vodafone and Reliance added the highest number of new subscribers in 2007; 2.0 million, 1.6 million and 1.5 million respectively • As indicated by the HHI index, the increased competition has resulted in operators providing tailor-made services to the subscribers at affordable rates. Regulatory changes like removal of cap on number of operators per circle has added to competitive intensity

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Indian mobile VAS market is expected to grow at a CAGR of 44% Contribution of VAS in Total Revenues to Rise Steadily Actual CAGR: 57.3%

Forecasted CAGR: 44.0%

3,000

14% 12.0%

2,500 2,000 1,500 1,000

8.0% 5.0%

6.0%

7.0%

2004 2005 2006 Revenues (in $ mn) LHS

8.0%

9.0%

12% 10% 8% 6% 4%

500 0

Operators Focus on Enhancing VAS Revenues with Falling Voice Revenues

2% 0% 2007 2008E 2009E 2010E V.A.S. as proportion of Revenue

Source: TRAI, BDA Connect, Adventity Research

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0

16 14 12 10 8 6 4 2 0 2003

2004

2005

VAS ARPU*(in $) LHS Source: TRAI, Adventity Research

2006

2007

Voice ARPU (in $) * ARPU: Average Revenue Per User

• Mobile VAS contributed around 7% of the total telecom revenue for Indian operators in 2007. VAS revenue is likely to grow at a CAGR of 44% during 2007 to 2010 resulting in increased contribution of VAS revenues to 12% of total mobile services revenues by 2010 • Due to highly competitive environment, operators have constantly offered cheaper schemes and reduced call rates. The voice ARPU’s have thus dropped considerably, increasing the operators’ focus on VAS revenues • Investment required in offering VAS is marginal compared the revenues generated. Hence, VAS is an attractive solution for mobile operators to counter the problem of falling Voice ARPU’s and increase operating margins

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SMS, ring-tones, voice VAS and data services to remain the most preferred VAS segments among consumers Revenue Contribution of VAS Segments to Become Broad-based Going Forward

100% 80%

2.5% 3.6% 13.2% 9.6%

3.5% 5.0%

8.0% 5.0% 9.0%

35.0%

60% 40%

15.0% 13.0%

70.0%

20%

40.0%

30.0%

0% 2005 SMS (P2P)

Source: TRAI, BDA Connect, Adventity Research

2006 SMS(A2P P2A)

Ringtones

Voice

2007 Data & E-Mail

12.9% 22.8% 17.8% 18.8% 7.9% 19.8% 2010E Games & Others

* P2P: Person-to-Person; A2P: Application-to-Person; P2A: Person-to-Application

• The revenue growth in non-voice segment was driven by SMS (including P2P, A2P, P2A), contributing over 43% of the total revenues in 2007. Growth in SMS was direct result of lower SMS cost compared with call tariffs in the past • Call tariffs having declined significantly, share of SMS has come down from 70% in 2005 to 43% in 2007. Overall SMS volumes will continue to grow with P2P volumes growing on account of discounted SMS bundles offered by operators in the mid term. Revenues from SMS are expected to grow relatively slower than other VAS segments at a CAGR of 26%, resulting in decline in its contribution to 27% of total VAS revenue by 2010 • Mobile Music in the form of ringtones and CRBT followed by voice-based VAS services are identified to be the major revenue generators with likely contribution of over 26% of VAS revenues by 2010. Data and E-Mail services are estimated to form around 23% of VAS revenue in 2010 compared to 5% in 2007

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Mobile operators retain major chunk of the total VAS revenues pie Players: On Mobile, Bharti Telesoft, Webaroo USP: Provide technological platforms for enabling services e.g. short code services Role: Provide Technology platforms for MVAS Interface

Technology Enablers*

Customized Content Creators

Content Copyright Owners Receive 10-15%

Role

USP Players

Receive 10-15%

Develops or owns copyright content and applications

Generate customized content for users through their own portals

Content Aggregators Receive 15-25%

Mobile Network Operators Retain 60-70%

Aggregates content and applications for owners. Manages IVR, accounting of aggregated content

Provide transport and Support mechanism for mobile content delivery

Exclusive ownership of content

Content catering to different languages and forms

Content sourcing and aggregation

Have access to end users for providing VAS services

Saregama, Yash Raj, Sony, Zee

Mauj, One 97, Hungama Mobile

Indiatimes, Hungama Mobile

Airtel, Reliance Hutch, Idea, Vodafone

Content flow

End User Pay subscription charges for VAS to Operators

Revenue Sharing in Developed MVAS Markets

Revenue flow

MVAS Players

Revenue Share

Content providers and aggregators

70%

Network Operators

30%

* Technology enablers are paid a fixed amount by telecom operators for offering technology platforms, these players do not feature in the content flow or revenue sharing model

The revenue share of mobile content VAS players in India is to rise gradually

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Mobile VAS market outlook looks promising as demand-supply forces align Future Market State Users’ Modernize—Suppliers’ Innovate Increase in awareness of Mobile VAS amongst mobile users Content owners and creators work on developing exclusive content

Current Market State

Mobile User’s Aware ness o f

Adv er

rs cture nufa

ser’s T Mobile U

VAS

tise rs

ure y Expos echnolog

ants Entr ign e r o F

Soc User’s Mobile

Technology enablers develop new products/services for smoother/faster processing Increasing importance of time and convenience amongst consumers Handset manufacturers develop technologically advanced products

Advertisers and Operators Look for Alternates Advertisers continuing to look for new avenues to target niche audiences

Regulator y Bodies Mobil e Use rs’ Ne ed fo r Div

Supply Side Forces

a set M Hand

ors

Demand Side Forces

h Tec

ers abl En y og nol

Demand for variety of applications/ services from mobile users

ion Condit ancial r’s Fin e s U Mobile

Demand Side Forces

Regu lation Con s tent Pr o vide rs a nd C reat

ersity

ent ironm ial Env

Operators continue to look at alternate revenue streams

Users Demand Transparency—Regulators Oblige Users demand uniformity and clarity in VAS transactions Established rules and regulations shape industry mechanics

Outlook for Mobile VAS looks promising as supply and demand forces align themselves, offering range of growth opportunities for players well positioned in the market © 2011 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.