Experience of Innovative Business Building in India: Key Lessons

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Experience of Innovative Business Building in
IndiaKey Lessons Prospects

• III Russian-Indian Forum on Trade and Investments

• Vsevolod ROZANOV
• President and CEO
• SISTEMA Shyam Teleservices Ltd.

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Perspectives of Indias Economy

• In FY10 Indias government expect a 6.25 to
  7.75 GDP growth. It declined from average 8-9
  to average 7.2 due to worldwide recession
• In next few years India will pip China in GDP
  growth with 9 vs 8 (By Oxus survey) )

Indias real GDP growth rate
Growth
Source Economic Survey, E-Government
estimate FY11E-FY12E Global Insight update, June
2009
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Recession Effect to Worldwide Economies
India and China are only countries to show
positive GDP growth among both BRIC and mature
economies in 2009Y
Forecasted, Source the Economist
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Trends in Consumption
Consumption is growing in India both in Urban and
rural areas. Approximately 60 of consumption are
made in urban areas
Monthly per-capita consumption expenditures (Rs)
Source Deutsche Bank, NSSO
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Indian Telecom Market

• India is the only emerging market in the world
  attractive for investments in telecom and
  especially in wireless
• Among BRIC countries only Indian telecom market
  both demonstrates unbelievable growth rate and is
  open for foreign investors
• SIMs level of penetration is about 30,1, real
  penetration is about 15-20 by experts
• Teledensity in India increases faster than per
  capita GDP. It is expected to grow at
  approximately 1.4 times of the growth rate of per
  capita GDP. That means that telecom industry
  became one of the main pushers of Indian GDP
  growth (By Partial Adjustment Model in
  Telecommunication Sector)

India subscribers base growth trends (in mlns)
Source TRAI
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Market of low ARPU?

• While Indian tariffs are low, its ARPU is high
  relative to GDP per capita

Per capita GDP vs ARPU (US)
UK
Rep of Korea
Saudi Arabia
ARPU (US)
Sweden
South Africa
Columbia
Peru
Egypt
Thailand
Philippines
Sri Lanka
Source ITU, World Bank, Deutsche Bank, data
pertains to 2007
Nominal GDP/Capita (US, log scale)
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Indian Telecom Market Trends

• Indian telecom market is centered around metros
  and urban areas
• 72 of mobile subscribers are living in urban
  areas
• SIMs penetration level for urban population
  (appr. 390M) is 72,3, real penetration is appr.
  45-50
• Current Indian GSM operators encounter serious
  problems with quality
• High growth rate of subscribers base brought to
  GSM operators serious challenge concerning
  capacity of their infrastructures what causes
  significant loss of quality (poor voice quality
  and non-availability and drop calls)
• Indian subscribers are not tied up to mobile
  standard
• Average subscribers base growth rate (M-to-M)
  for GSM operators is 10,39 for last year, the
  same figure for CDMA operators is 8,44
• Even with ARPU declining trend both in CDMA and
  GSM market volume are attractive
• CDMA market volume is appr. 750M annually
• India is a country of mobile Internet
• 117,82M wireless data Internet subscribers (by
  the end of March09) vs 13,54M of fixed ones
• Broadband growth rate just for Q109 was 12,68
  and the broadband penetration level is below 0,5

Based on TRAI figures for QE Mar09
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MTS India Sistema Shyam TeleServices Ltd
SSTL A JV between Sistema (LSESSA) and Shyam
Group

• Sistema (LSE SSA) is the largest public
  diversified corporation in Russia and the
• CIS, which manages fast growing companies
  operating in the consumer services sector
• and has over 100 million customers.
• Shyam Group has diversified interests in
  telecom, manufacturing, services and fertilizer.
  Essel Shyam Communications Ltd, a joint venture
  between Essel and Shyam group, is a leading
  pan-India VSAT Service Company .

Jammu Kashmir
UP(W)
Assam
UP(E)
WB
Gujarat
Madhya Pradesh
Kolkata
Orissa
Mumbai
Maharashtra
Mumbai
Andhra Pradesh
Equity Structure Sistema (LSE SSA)
73.71 Shyam Group 23.79 Other 2.5
Karnataka
Karnataka
Kerala
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________________________________________________ S
ource Company Data
________________________________________________ S
ource Company Data
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Subscribers Base Dynamic of SSTL

Actual on September 24, 2009
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Key Lessons of the First Year

• Indian market demonstrates immense capacity and
  booming growth
• Its relevant not just to telecom market, but to
  developers business, FMCG, retail etc.
• India is a country looking into future
• Half of Indians are under 25 years old what is
  nearly 20 of this segment worldwide
• There are reasons to go in fast, there is no
  reason to go in haste
• Indian market is highly competitive and a strong
  business model should be developed before going
  in it
• Due to high capacity business is valuable for
  new comers
• Even with one digit market share the value of
  business is of high interest
• There is a room for mistakes
• High growth rate and capacity allows to gain
  experience and make necessary changes in strategy
• Always there are CAPEX effective models even at
  start-up
• Indian market is of highest interest to vendors
  what are ready to support new entrants
• The market is not strongly segmented
• There are a lot of segments to be occupied for
  new comers
• Local partnership is needed to support the
  business
• Predictable regulations, vendor cooperation