group a2 eco
TRANSCRIPT
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Advertising
Assuming a linear demand function of mobile servicessubscribers, following eqn. shows dependence number ofsubscribers on advertisement expenses:
Qd = a + bPCI - cPTS+ dA
where
Qd: Demand of mobile phone subscriptions
PCI: Per Capita Income of subscribersPTS: Price for Telecom Services
A: Advertisement expenses
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Advertising Contd..
For the firms, advertising is a major decisionFirms can make profit maximizing advertising decisions
depending on the characteristics of demand curve. = PQ(P,A)-C(Q)-A
where: Total profitP: Price of the productQ(P,A): Quantity demanded depending on price and advertising expenses
A: Advertising expenses
C: Cost of production.
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Advertising Contd..
Given a price, more advertising results in more sales
But there is a particular profit maximizing advertisingexpenditure
Increase the advertising until the marginal revenue froman additional rupee of advertising, Mr
ads, just equals the
full marginal cost
Mrads
= 1+MC(Q/ A)
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Quantity
Price(Rs/Q) MC
AR
ACAC
MR
AR
MR
Q0 Q1
P1
P0
0
1
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Advertising Contd..
Rule of thumb for Advertising: To maximize theprofit, advertising to sales ratio should be equal to minusthe ratio of the advertising and Price elasticity of demand.
A/PQ = -(EA/E
P)
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Advertising Expenses and MarketShare: Major Indian Telecomplayers
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Bharti Airtels data
Year AdvertisementExpenses (in Cr. Rs)
Sales Revenue ( inCr. Rs.)
Advertising/Sales
Subscriber Base(in millions)
Marketshare (%)
2002 9.22 636.19 0.01449 1.35 0.206
2003 0.42 1431.51 0.00029 3.07 0.236
2004 0.11 4,831.99 0.00002 6.5 19.294
2005 325.6 7,903.03 0.04120 10.98 21.022
2006 400.73 11,231.47 0.03568 19.58 21.722
2007 402.47 17,851.60 0.02255 37.14 22.494
2008 566.47 25,703.51 0.02204 61.98 23.741
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Vodafone Essars data
Year AdvertisementExpenses (in Cr. Rs)
Sales Revenue( in Cr. Rs.)
Advertising/Sales
Subscriber Base(in millions)
Marketshare (%)
2002 0 388.97 0 1.27 19.418
2003 27.84 333.63 0.0834 2.16 16.615
2004 9.37 292.83 0.03199 5.15 15.286
2005 26.46 484.4 0.05462 7.8 14.933
2006 33.54 396.36 0.08462 15.36 17.040
2007 87.39 796.91 0.10966 26.44 16.013
2008 244.09 2181.42 0.11189 44.13 16.903
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Idea Cellulars data
Year AdvertisementExpenses (in Cr. Rs)
Sales Revenue ( inCr. Rs.)
Advertising/Sales
Subscriber Base(in millions)
Marketshare (%)
2002 671.22 0 0.0000 0.81 12.385
2003 851.48 0 0.0000 1.28 9.846
2004 73.18 1,165.52 0.0628 2.73 8.103
2005 78.59 1,632.04 0.0482 5.07 9.707
2006 0 2,007.07 0.0000 7.37 8.176
2007 200.62 4,366.40 0.0459 14.01 8.485
2008 322.43 6,719.99 0.0480 24 9.193
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R&D Expenditure in Indian Telecomindustry
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R & D in Telecom Industry
R&D: Pushers And Drivers
PUSHERS DRIVERS Addition of 6.5 mn mobile users
every month and enterprises increase
spent Under pressure to keep cost of
providing services to an absolute
minimum Upgrades service providers require
are almost continuous India to be a leader in developing
technologies suited for emergingmarkets
Surge in Indian economy Infrastructure boost Lowering costs of associated
hardware and mobile devices Improving speeds in broadband Demand for high quality content Global aspirations
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Recent R&D developments
3 G and Broadband Wireless Services - allow
telecom companies to offer additional value added
services such as high resolution video and multi media
services in addition to voice, fax and conventional data
services with high data rate transmission capabilities.
Mobile Number Portability - allows subscribers toretain their existing telephone number when they
switch from one access service provider to another
irrespective of mobile technology
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What drives R&D expenditure
Economic and technological forces influence a firm'sR&D investment decision
Firm can spread the cost of R&D over its total sales,the expected market size of a firm's product should
be positively correlated with the incentive to investin R&D
R&D is high-risk investment, external financing isexpensive, and therefore internal cash flow is
preferred to external borrowingLack of funding is often cited to explain low levels of
R&D expenditure.
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R&D expenditure in Total cost
Total Costs
TC = F + MC*Q + R + A
where
F: Fixed costs of productionMC: Marginal costs of production
Q: Output
R: Research and development expense
A: Advertising expense
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Effect of R&D Expenditure
Quantity
Price
Profit
= Total Revenue - Total Costs
= P(Q)*Q -TC
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Important Telecom Policies andAct: Impact on Indian Telecom
Industry
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Situation before 1994
Telecom Industry primarily driven bypublic sector
monopoly
Resulted in only a marginal growth
Tele-Density increased only 1.92% between 1948 and
1994
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National Telecom Policy 1994
Provision of world class services at reasonable prices,
Ensuring Indias emergence as major
manufacturing / export base of telecom equipment
Availability of basic telecom services to all villages
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TRAI Act 1997
The TRAI Act constituted an independent regulator
for the telecom industry
Its mandate was to ensure a fair and transparent
policy environment
To promote a level playing field and facilitates fair
competition
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National Telecom Policy 1999
Migration from fixed license fee to revenue share
regime
Achieve efficiency and transparency in spectrum
management.
Strengthen research and development efforts in the
country
Increased penetration in rural markets
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Major Changes in Telecom Policy
Introduction of Calling Party Pay (CPP) regime
Unified Access licensing regime
Introduction of revenue share regime
Ceiling of tariffsNew Recommendation: Mobile Number Portability
Introduction of Mobile Termination Charges
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Situation after 1994
Telecommunication development started at slowpace with NTP 1994.
Accelerated later with the formation of TRAI and
introduction of NTP 1999India became the second largest wireless network in
the world in 2008
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Pre TRAI
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Thank You