Association of Basic Telecom Operators welcomes H.E. Ambassador David Gross, US Coordinator for International Communications & Information Policy; Mr Michael Gallagher, Assistant Secretary, Department of Commerce & accompanying US Delegation.

5 th February 2004 : New Delhi

India’s Telecom Success Story

NTP ’99 - new telecom policy

Focus on creating an environment which enables continued attraction of investment in the sector and allows creation of communication infrastructure by leveraging on technological development.

Targets revised: • Telephone on demand by 2002 – teledensity of 7% by 2005 and 15% by 2010.

• Encourage development of telecom in rural areas with suitable affordable tariff structure – to raise rural teledensity from 0.4% to 4% by 2010.

• Internet access in all District Headquarters (DHQs) by 2000.

• High speed data and multi-media capability using technology including ISDN to all towns with a population greater than 200,000 by 2002.

• Universal Service Obligation defined to provide voice and low speed data services to all uncovered villages.

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Role of private sector in the early years

45 40 15 10 5 0 35 30 25 20

23.57

22.79

21.59

30.19

28.39

26.51

36.02

35.35

32.44

40.23

37.29

34.73

17.44

14.88

14.54

20.51

18.68

17.8

3.58

1.88

1997

0.34

1998

Demand 0.88

1999

Total 1.2

2000

GSM Mobile

2001

Wireline

Dec-01

5.5

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2001: the turning point

• • • • • • Policy announced for additional licenses in Basic and Mobile Services (Jan 2001).

Entry fee: – Basic Services: US$ 0.2mn – US$ 25.5mn (+ Bank Guarantees = 4 times entry fee for rollout obligations) – GSM Mobile Services (4th Operator bid): US$ 0.2mn – US$ 45mn License fee (revenue share) reduced from provisional 15% to 12%, 10% & 8%.

Limited Mobility allowed to Basic Services (CDMA spectrum allotted to BSOs).

Rollout Obligations to cover Urban / Semi-Urban / Rural areas in equal proportion.

New licenses awarded in Jul - Sep 2001 : Basic (25), GSM Mobile (17).

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2001: Mobile revolution triggered

12 0.23

10 0.15

8 0.1

6 4 0.05

0.08

8.53

10.53

6.43

4.8

2 3.58

0 Mar '01 Sep '01 GSM Mobile Mar '02 Sep '02 Dec '02 WLL(M)

• CDMA WLL(M) launched in limited manner in few circles.

• Tariff for GSM cellular mobiles reduced.

• Existing Operators expand service coverage.

• 3 rd & 4 th GSM Operator networks rollout - further tariff reductions.

• Newly licensed BSOs roll out networks for WLL(M) on CDMA.

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Tariff & Interconnection Regulations

• Movement towards cost-based tariffing.

• Tariffs closely regulated by TRAI between 1999-2002.

• Interconnection Usage Charges established on the principles of “work done” – termination charges introduced.

• Calling Party Pays (CPP) for mobile tariffs – free incoming calls ushered in.

• Access Deficit Charges (ADC) for cost-minus fixed line services.

• Forbearance allowed recently on all tariffs (except rural fixed line).

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16 14 12 10 8 6 4 2 0 Increased competition leads to tariff reduction and affordable services Long Distance Peak rate tariffs (Rs / min) 90 80 70 60 50 40 30 20 10 0 NLD Pre 1999 1999-00 Oct-00 Jul-02 Mar-03 ILD Current Local Call Tariffs (Rs / min) Fixed Line GSM Mobile Pre 1999 1999-00 Oct-00 May-01 Jul-02 May-03

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2.5

2

2003: Mobile boom has begun

Total Additions 2002: 5.15 mn 2003: 17.49 mn 1.5

1 0.5

0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2002 2003

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Growth drivers

• Declining entry costs and falling tariffs have lowered the bar in terms of affordability coupled with branding and advertising.

• High percentage of population owning two-wheelers are prospective mobile telephone users.

• Upper middle class that spends 6% of its income on telecom services.

• India lags behind other Asian economies (approx. 10 years) therefore India is poised for growth.

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2003 : CDMA gains acceptance

5 4 7 6 3 2 1 0 6 mn CDMA mobile phones 22% of total mobile market share Service coverage in over 1100 towns Dec-02 Mar-03 Jun-03 CDMA Mobile Sep-03 CDMA % Dec-03 25 20 5 0 15 10

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Unified Licensing introduced

• • • • • • • • • Unified Access (Basic & Cellular) Service License (UASL) introduced (Nov 2003) as a first step towards Unified Licensing Regime.

Technology neutral and allows provisioning any kind of service. 4th Cellular GSM license used as benchmark.

BSOs offering WLL(M) allowed migration to UASL - additional entry fee equivalent to 4th Cellular bid.

Rollout obligations to cover 50% DHQs in 3 years.

License fee reduced w.e.f 1.4.2004 by 2% across the board for all access licensees.

Rural telephony to be covered under Universal Service Obligation.

Intra-circle Mergers & Acquisitions recommended by TRAI - competition not to be compromised, SMP to be checked.

Spectrum pricing and allocation guidelines to be reviewed, present allocations to continue.

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Future Investments

US$ bn 14 12 10 8 6 4 2 0 2003 Wireline 2004 Mobile 2005 Backbone

* Market Analysts' Estimates

Total Total

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Revenue Projections

US$ bn 16 14 12 10 8 6 4 2 0 2004

* Market Analysts' Estimates

Fixed 2005 Mobile NLD 2006 ILD Data 2007

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Projections : Fixed & Mobile

* Millions 90 80 30 20 10 0 70 60 50 40 2003 2004 Fixed 2005 GSM 2006 CDMA 2007

* Market Analysts' Estimates 15

Teledensity - Urban vs Rural

10 5 0 35 30 25 20 15 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Urban Rural Total

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References / Credits:

Indian Telecommunications Statistics, 2002 ICICI Securities Report, 2002 JM Morgan Stanley Report, 2003 TRAI Reports 17