The Mobile Internet Report Key Themes*

Capex Required for 3G Network Could Strain Carrier Balance Sheets –
Investments in 2010E Don’t Yield Incremental Returns for Several Years
3G rollout is a positive for carriers’ networks, but a negative for their balance sheets –
Although 3G (higher voice efficiency) would mitigate the spectrum constraint in highly
congested areas, the significant capex associated with building a Pan-Indian network could
lower the ROI of existing operators and strain their balance sheets.
Bharti Airtel
Reliance
Communication Idea Cellular
3G Spectrum Cost (MM) $1,000 $1,000 $1,000
Annual Maintenance Cost $500 $250 $200
Significant Capital
Investment Could
Strain Carrier Balance
Sheet in 2010E
Capex to Sales Ratio
F2007 F2008 F2009E F2010E F2011E
Bharti Airtel 50% 53% 39% 50% 21%
Reliance Communication 59% 122% 79% 53% 25%
Idea Cellular 40% 82% 59% 83% 36%
Net Debt to Equity Ratio
F2008 F2009E F2010E F2011E
Bharti Airtel 0.19 0.16 0.23 0.09
Reliance Communication 0.48 0.65 0.75 0.66
Idea Cellular 1.7 0.28 0.71 0.71
Return on Capital Expenditure
F2008 F2009E F2010E F2011E
Bharti Airtel 30% 29% 24% 23%
Reliance Communication 12% 10% 10% 10%
Idea Cellular 15% 7% 9% 11%
Carriers Forced to Take
on Debt, but Won’t See
Incremental Returns on
Capital Expenditures
for Several Years
Source: Vinay Jaising, Morgan Stanley Research estimates. 621