The Mobile Internet Report Key Themes*

Carriers Earn Incremental ARPU / Revenue from 3G Users –
but Carriers Could Face Winners Curse If Capex Is too High
Despite incremental revenue from 3G network, ROE looks unattractive – We believe 3G
network rollout could lead to incremental business potential of ~$4.4-$6.6B, assuming
incremental monthly ARPU of $4-6. However, we are bearish on 3G operations in India
from a ROE perspective, as we believe there is a risk of a “Winner’s Curse”, since after
paying for the license fee and incurring necessary capex for network expansion, it may be
difficult for the operators to generate material returns on capital employed.
Morgan Stanley Estimate of Incremental ARPU / Revenue from 3G Network Rollout
Current Wireless Sub Base (MM) 457
Current Post-Paid Subs as % of Total 20%
Current Post-Paid Subs 91.4
Average ARPU (FQ1:10E) $5.04
Current Prepaid ARPU $3.36
Current Post-Paid ARPU $18.88
Addressable 3G Market (MM Subs) 91
3G Incremental ARPU Scenarios $4.00 $5.00 $6.00
3G Incremental Industry Revenue ($MM) $4,387 $5,484 $6,581
EBITDA Margin 35% 35% 35%
EBITDA ($MM) $1,535 $1,919 $2,303
Source: Vinay Jaising, Morgan Stanley Research.
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