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INVESTMENT PLANS

The planned $2 bn capex in the next two years announced by Vodafone, following the acquisition, may not bring in good results if they want to gain significant market share as its rivals-Bharti and Reliance have decided to increase their capex during the fiscal 2007 itself. Reliance may plough in $2.5 bn in fiscal 2007-08, while around $2.5 bn could be the investment from Bharti Airtel.

Vodafone's target to achieve 20-25% market share by 2010-11 and market penetration of more than 40% may be realistic. The operational plan focuses on the following objectives: Expanding distribution and network coverage, lowering the total cost of network ownership, growing market share, driving a customer focused approach, etc.

TELECOM CAPEX PLANS
Operator	Circles	Users# (in mn)	Revenue (in Rs Cr)		Investment till date (in Rs Cr)	Investment in FY '07-08
Bharti Airtel	23	32.46	13,126	(till Dec '06)	22,067	11,250
BSNL	23	61.17	32,588	(till Dec '06)**	NA	16,000
Hutchison Essar	23*	23.3	6,228	(till Sept '06)***	NA	4,500+
Reliance Comm	23	31.02	10,531	(till Dec '06)	31,074	11,250
Tata Group	23	15.50	8,471	(FY '05-06)	36,000	NA
* 6 circles under expansion and 1 circle (MP) is awaiting licence ** BSNL FY 2005-06 revenue was at Rs 39,500 cr a growth of 10% is expected this year *** HTIL's revenue 9 months as on 30-09-06 is HK$ 24,028 and India contributes around 45% # wireline + wireless                                                             Source: VOICE&DATA

Besides, Vodafone, a new player in a new market, will face competition from established telecom companies, when it expands its network. When the established players like Reliance Communications, Tata Teleservices and Bharti entered their circles, the markets were not enough matured and customers welcomed their strategy.

RURAL STRATEGY
Contradictory to Hutchison Essar's plans, Vodafone will have a rural thrust and a part of the $2 bn in two years will be used to tap the rural market, according to Arun Sarin, chief executive of Vodafone. With 45% of the growth likely to come from the rural belt and deployment and roll out in Indian terrain being a tough affair, the planned investments may not be adequate. However, Vodafone's plans to source low-price ultra handsets from ZTE may be a boon for the Indian consumers and a head-ache to competition. Vodafone could source handsets at special rates because it enjoys economies of scale, a big achievement for Vodafone vis-a-vis Indian operators.

Without a strong penetration in the rural markets, no telecom operator can sustain in the race. Tata Teleservices is planning to focus its strategy on rural market expansion. It had charted an investment of Rs 4,000 crore for the last year for expansion, out of which one third was earmarked for rural expansion. About Rs 1,500 crore was for beefing up operations in the existing network and the remaining Rs 1,000 crore was to be invested in wireline business and in other initiatives.

Reliance Communications is also committed to bringing about a complete revolution in rural telephony. This gigantic operation is targeted to cover two-thirds of Indian villages and over 5,700 cities and towns. On completion, it will offer connectivity to 65 crore Indians. This ambitious expansion, involving 8,500 Base Transceiver Stations (BTSs) will cover 91% of our national highways and 85% of rail routes.

Bharti Airtel has also set in motion the rural and semi-urban market expansion and continues to lead the effort. Increasingly, the focus is on B & C circles and specifically semi-urban and rural areas. Bharti Airtel is following the 'match-box approach' which essentially will ensure Airtel's availability wherever a match-box is available, ven in the smallest and remotest corners of the country. The other key initiative is its 'Chapa Chapa' approach which supports its objective of reaching out to all towns with a population of less than 5,000.

RURAL THRUST Operator Present Future Bharti Airtel Covers 50% population, present in 176,593 non-census towns 70% of population by March '08 BSNL Strong presence, presence in almost all towns and cities Capacity expansion required Hutchison Essar Medium presence, yet to roll out in 7 circles Strong push for rural, plans ultra low-cost phones Reliance Comm Covers 54% population, present in 245,728 non-census towns Increased focus, connectivity to 65 crore Indians Tata Group Medium presence, coverage in 4,000+ towns Need to increase capex on rural Source: VOICE&DATA

The incumbent BSNL's rural penetration can not be matched by any private telecom player, though customer unhappiness and low visibility and aggressive promotions may hurt BSNL targets.

INFRASTRUCTURE SHARING
Infrastructure sharing is the new game plan for telcos. Players like Reliance, Essar and Bharti have demerged/floated separate companies to look after the infrastructure business. BSNL is the only telecom operator in India which does not want to share infrastructure, opposing the moves of private telecom players. Tatas, who pioneered the concept of infrastructure sharing in order to curb the cost, share base stations with other operators and third parties. Bharti Airtel around 23% of its infrastructure and recently has demerged its tower business into a wholly-owned outfit called Bharti Infratel, while Reliance has demerged infrastructure business into a new company, namely Reliance Telecom Infrastructure.

Infrastructure sharing is expected to reduce the total cost of delivering telecommunication services, especially in rural areas, enabling both parties to expand network coverage more quickly and to offer more affordable services to a broader base of the Indian population. However, sharing of active infrastructure will attract glitches by the telecom regulator.

Its MoU with Bharti outlines a process for achieving a more extensive level of site sharing and covers both new and existing sites. Around one third of Hutch Essar's current sites are already shared with other Indian mobile operators and Vodafone is planning that around two thirds of total sites will be shared in the longer term. The MoU envisages the potential, subject to regulatory approval and commercial development, to extend the agreement to sharing of active infrastructure such as radio access network and access transmission.

Bharti said it would share a range of infrastructure-including around 70,000 towers-with Vodafone. Bharti would be the preferred vendor for Vodafone for NLD, ILD and leased line services and would also handle 50 per cent of Vodafone's incoming roaming traffic into India for three years under the agreement. But for Vodafone, it would not be an easy game as they have to take clearance from Essar, who is screaming for joint management.

INFRASTRUCTURE SHARING Operator Plans Bharti Airtel Present sharing is 23%, hiving off tower biz into a 100% subsidiary called Bharti Infratel BSNL Does not believe in sharing of infrastructure, but can use the same towers for both GSM and CDMA Hutchison Essar   Presently share about 1/3rd, plans to share 2/3rd. MoU with Bharti can be threatened by Essar Reliance Comm Demerger of tower biz - Reliance Telecom Infrastructure is in place Tata Group   Pioneered the concept, presently sharing it with operators and 3rd party players Source: VOICE&DATA

CUSTOMER INTERFACE
In order to become number one in India, Vodafone will have to further improve on customer satisfaction and win more customers. According to the VOICE&DATA Mobile Users' Satisfaction Survey 2006, there is a drop in the Hutchison customer satisfaction to 89.2%, which is marginally below the TRAI benchmark of 90% in 2006 from 93.8% in 2005, while the Bharti's customer satisfaction decreased to 90.2% in 2006 from 93.3% in 2005. While Tata Indicom has improved customer satisfaction to 90.3% in 2006 from 80.2% in 2005, Reliance customers show a decline of around 2%, to 87.6% in 2006 from 89.7% in 2005.

As part of improving the customer interface, the Vodafone brand (Voice data fone, chosen by the company to "reflect the provision of voice and data services over mobile phones) will sizzle in India for some more time as Hutch is the favoured brand name for the new promoters of Hutchison Essar.

With Vodafone, which has proven CRM and customer management expertise, Hutchison Essar will be looking at first stage nationwide consolidation for 16 circles, while single billing system for 2007 and capacity upgrades for all key systems including data warehouses, CRM and billing is in the pipeline. With the new strategies in place, Vodafone is expecting savings in capital expenditure and operating expenditure to the tune of $1 bn over the next five years.

Vodafone is here to stay for some time, though the UK telecom company makes timely exits from nearly saturated markets since the board is under pressure to perform. The growth and performance of telecom rollouts in other parts of the world will have a direct impact on its plans for India. Its honeymoon in India will depend on how it manages its partner Essar group, how it wins new subscribers.

Source: Voice&Data