ABCDJ – what now

Indian-Mobile-Value-Added-ServicesIn India, the Telecom Value-Added-Services (VAS) was referred to as the business of ABCDJ – Astro, Bollywood, Cricket, Devotion and Jokes. This was the volume and revenue driver for almost all mobile operators beyond the voice and text revenues and it sure was a significant one (if we include the ringtones and call-back tunes within Bollywood or Devotion category).

With the TRAI’s new SMS guidelines, the VAS players cannot send SMS based content to users who are on NDNC. There are talks of partial NDNCs but the fact remains that this business has been hit in a big way. The VAS players had been using SMS both as a channel for marketing and for delivering content too. The ones who have been hit the worst are the ones where the content is the text.

So what now? I think one of these may happen

  1. Telcos/VAS players will build a case & convince TRAI. Given the fact that Telco’s almost enjoyed a significant portion of the VAS revenues, this is surely already happening. The VAS players would need to show that the content is being delivered only to subscribed customers and the customers have an easy way to opt out it. (Airtel had started a on/off service for all products, now all might have to adopt it). There would surely be a lot of genuine customers who need a regular dose of ABCDJ delivered on their handset.What the VAS players might not get, is the use of SMS as an advertising channel to sell their services. If this happens, the cost of customer acquisition will go up, and hence the profitability metrics would be negatively impacted.
  2. Non-SMS channels for delivery. SMS was the ideal channel for content delivery as it allowed the VAS player to just focus on acquisition and content. Delivery was a no-brainer. There was no classification needed basis handset type etc to see if the content was delivered or not. With SMS gone, the players would want to explore GPRS based rich media delivery of content. Here the customer’s handset type will decide whether the specific user should be targeted with this content or not. Maybe now Telco’s will start focusing on selling smart phones either bundled or as part of a special deal. Any smart phone sold by Vodafone, gives them a customer to whom rich-media VAS can be sold. Maybe now the likes of CellTick will have a second lease of life in the Indian market.
  3. More active role by Telco in selling VAS. Till now, the role played by Telco in selling VAS content was restricted to sharing data with the players, and opening up a pipe for them to deliver. Now the Telco will remain the most important touch-point, and if they want the VAS revenues to grow, they would need to “sell” it now. Telcos might invest in a VAS emarketplace of sorts so that pulling the content is much easier.

Time will tell, what finally happens, but my guess is, that it surely is a critical discussion point at most Telco board rooms.

Has the BlackBerry revolution begun?

Last couple of weeks, I have been amazed at the number of users who have been flashing their BlackBerries. All my friends have one – whether they are salaried or self employed – and I do understand their need to be connected on emails.
But the surprise came when I met college students using BlackBerry Bold & customer care staff upgrading from a monochrome Motorola to a BB. It seems now you can never be too far from a BB !

Blackberry

So what really is causing this?

  • Is there a genuine need for a bigger base of users these days to be connected on emails?
  •  Is it that the Facebook/YM/twitter/Orkut apps run faster on BB & these users need to be connected with their “gang” on the social network
  • Blackberry messenger adds up a peer pressure of sorts on those who are not on it.
  • Or is it just that we have now learnt to spend more on our telecom bills. Also the handset being one of the most flashed objects you possess, the need to have a fancier gadget is more pronounced.
  • The lifecycle of a handset has reduced & people need to change (& simultaneously upgrade) to a better phone & experience. I remember seeing lot of college kids carrying those touch screen ASUS phones about 1.5-2 yrs back. They must now feel the need to upgrade & probably BB handsets at 11000Rs (and Rs 200 per month) sounds like a good option to them

What also is confusing is why these users are not experimenting with Nokia Push Email. I have seen a lot of users with the ESeries phones, but most of them do NOT have their emails configured on the phone.

I feel its a mix of all these & probably much more….but my take is that the BlackBerry will soon shoot up in its market share in the urban middle class consumers. There are far too many coincidences to just ignore this.

Rural telecom users price insensitive?

Read an interesting report in the ET today, based on some survey conducted by Credit Suisse. They survey found that the rural consumers are more quality consicous and less price sensitive. Hardly any of the polled users had switched operators basis call-rates.

Mobile operatorsThis is very interesting coz most of us (self included) had believed that this is a market where ARPUs would be low and constant reacquiring would mean that the telco’s hardly make any money.

Also the report says that the rural consumers would constitute almost 40% of the total users by 2012.These two findings have some serious ramifications:

– Infrastructure needs to be first priority when moving into a new market. Typically we had seen that most telco’s went to these markets with a promise of “cheaper” service

– The first mover will have advantage over others, everything else being same. This is evident from the lower switch rate seen in rural consumers.

– The marketing spends promos highlighting reduced rates etc will now have to be substituted with better distribution/session-experience.

But the most interesting this is that the rural consumers remain price sensitive inspite of having a clear priority for better service. This would make them a tough market for telco’s- providing high quality services at competitive price where ARPUs are anyways lower 🙂

TRAI on overdrive ! Telecom business to see a complete overhaul…

The last 7-10 days have been filled with a lot of action in the Telecom sector, and the regulatory authority TRAI seems to be at the centre of it all.

TRAIConsider these:

– 3G policy is launched

– BSNL MTNL given a go-ahead for an early 3G launch

– Net Telephony proposed by TRAI supported by DoT

– Legal threats to GSM players for failing to provide interconnect to Reliance’s GSM

– Proposal to allow takeover of 2.5G players without the wait period

– Allow callers to choose their STD/ISD carriers

While the 3G announcements were much expected, a few others have indicated a growing discomfort of TRAI with the current players.Else why would all these suddenly be proposed in a matter of 3-4 days.

I personally feel the option to strongchoose the STD/ISD player /strongwill see the light of the day much earlier than other proposals. Here’s why:

– Existing players will not oppose it as much as other changes coz adoption of calling cards etc requires a lot of marketing muscle from stand alone players. I am unaware of the technical issues involved in ISD traffic where the current players will not be able to sell the purchased minutes of talk time. But am sure they will be able to adapt soon with some kind of a predictive tool.

– Customers will be happy with the announcement and TRAI would have scored a brownie point ot two.

– Primary impact would be the ISD calls as STD are not considered so costly that consumers would pull out a card punch the long series of numbers therein.Even if look closely at the ISD market, that itself is very segmented coz

a) Well off people who have relatives/friends/clients abroad will not bother too much unless the differential is high

b) most empeople with internet connection /emcalling family friends aborad are using Skype/Google talk for longer regular conversations. So they would rather wait for a Skype phone to be allowed in India

c) People without internet access typically calling Middle East SE Asia locations will be the first ones to adopt this. But typically here also, the Indian party more often than not recieves the call- not originates it.

d) Corporate- they should be the only ones to see significant cost reduction by choosing the service provider. And they would want some smart solutions, wherein the code is automatically punched in when the user calls from an enterprise connected device.

The most disruptive proposal of it all would be the Net Telephony– as that would not only take away the key revenue drivers for all existing players, it would suddenly reduce the entry barriers in a very significant way.As consumers we should welcome this, coz the rates would surely plummet, but if you have expsoure to telecom in your investment portfolio (through the current players)- it could hit you hard. Though the new players waiting to enter the market with their Net-Telephony-only services, highlight that this is as secure as the incumbent technology- I have my doubts that they would be able to convince the final decision makers. Given the strong lobbying from existing players the recent terror experiences – security issues could become the Achilles heel for Net Telephony.

The other proposal to do away with the waiting period for a new player strongto take over an existing player/strong- seems to send a very strong and positive signal for Foreign players- Indian Telecom sector is now ripe for M&As. With

– Vodafone already having its wide operations

– Virgin running an MVNO with TATA Tele

– MTN having courted dumped both Airtel Reliancebr /Indian Telecom market is already high up in the radar. With Chinese market still being unaccessible- many more foreign players will try come down to experience the Incredible India.

One might ask- what will tempt them to come here with falling ARPUs and an even worse scene predicted. Apart from the sheer numbers, I think Indian players have been able to sell the idea to the world that they know how to operate on a large scale with lower costs (playing on volumes rather than margins). This was what everyone felt when the MTN courtship was taking place in full media glare.

Phew! So much action is anticipated that most of us had forgotten about the iPhone launch for a while…. Over to some more exciting glamorous developments in the business of staying connected !

3G now in India… immediate impacts on Telecom Sector

Today’s biz papers were all shouting out loud about the 3G telecom policy now finally being here. For the uninformed like me, it meant too much excitement about half a mark (thats how much of technology leap we would take by this costly migration from strong2.5G to 3G/strong ) on the score card…

3g MTNLSo I decided to read more about it and understand the business logic behind all the fuss. It seems 3G promises the platform for real convergence on the small screen (read handset)- with streaming video, media rich applications, high speed data transfer and what not. But the real low hanging fruits for the telcos lies in the 3G’s strongspectrum handling efficiency/strong.

As mentioned in a previous note-Spectrum is the biggest fixed cost for telcos and better utilisation in circles of high user base will reap immediate rewards.

So here I go again, trying to predict how the 3G roll-out will happen/strong in India:

  • The top players like Vodafone & Airtel will have to adopt 3G when it happens. There will be too much reputation risk (from the premium segment customers) for them to delay this. Coz in my mind, this premium segment customer has either tasted a better user experience abroad or feels that he would use these “cool” features once 3G is here
  • If the 3G license is available by circles- the top players will go about doing this in phases. I would have done it coz that way you dont need to implement it in smaller towns – barring a few like Ludhiana, Chandigarh etc
  • The battle for content will start- albeit with a substantial lag of 6-7 months, before the critical mass of consumers builds up
  • The initial 3G consumption on the consumer side will be high in the school & college/strong going segment- where entertainment will be the underlying theme- music, music videos, sports clips etc
  • Over a longer period of time- once the novelty factor fades out, it would be easy to segment the 3G consumers by category of content consumed/strong .Hence the Telcos will have to be tied up with the perceived leaders in each vertical.
  • It would create a whole new industry of applications , content providers. VAS as a term would now mean more than ring tones amp; wall papers 🙂
  • The average cost of phones bought will rise in short term, before 3G phone prices start coming down. 3G capability will become a decision criteria at the handset level- possible death of mid-segment phones.

Rural mobile telephony: Show me the money !

Remember the famous lines from “Jerry Maguire”-” Show me the money”

With the next battles for telecom shifting to the countryside- I guess most of the telco honcho’s are rattling along the same lines…Coz exciting as it may seem, rural cellular telephony doesnt seem “profitable” enough in all its entirety- or maybe I am missing something.

Now, from what I understand of this business- the two major costs are infrastructure (read that as towers etc)  bandwidth- both of which are semi-fixed costs. I say semi-fixed coz- these can be acquired only in batches- you cannot buy tower or bandwidth capacity for one incremental user. Even if the government subsidises the bandwidth in thr rural circles, the tower cost is not expected to come down.

Basic economic principles say that one should aim for demand maximisation in such conditions to ensure maximum utilisation of the installed capacity- assuming the Variable Revenue is more than the Variable Cost. Now given the population density in most of rural India, I can safely assume that there will never be (atleast in the next 5-7 years) enough # of concurrent calls to utilise the tower amp; bandwidth 100%. This is coz most villages do not have enough households (or househlds that can afford a cellphone connection).

Most rural users would not also relate to the “value-added-services” which currently account for a healthy 40% of revenues (in urban circles) and have been the key reason for rising ARPU in a market with reducing call-rates. The uneducated cell user will not really use the SMS/MMS functionality- which is 60% of the VAS revenues. They would infact need voice-activated services where content is also delivered as voice, unless the cell co’s decide to make the rural youth addicted to porn on the handset 🙂

Rural telephony

Add to this the govt’s keen involvement in tarriffs in this sector and one can safely assume that the cell co’s cannot experiment with higher tariffs in the rural circles. So how would these cellular operators make money in the rural circles?

There have been talks about shared infrastructure but even then the shared entity would not break even on its tower cost.I read somewhere that the govt. had experimented with giving a cell connection to the local postman in the villages- to be used by the village residents – something like a truly mobile STD booth. There were clear commissions demarcated for the telco amp; the postman- BUT the service never took off too well. So why are most telco biggies so excited about the rural circle. Well, to be honest- am not sure, but had I been a decision maker at Vodafone, I would have looked at it thus:- Most co’s want to get access to bandwidth at low rates- under the disguise of rural telephony. I would want to hoard on to this bandwidth for future or for roll-out in non-rural areas (see below) – The roll-out would be viable only in the villages of Punjab, Haryana,UP (W) etc ; not really the poorer states of the country.

– The villages that will see the roll-out (in other states) will be the ones close to some decent sized town amp; not the really interior villages. This is coz- in these villages one can expect substantial migratory population with enough disposable income. It could also lead to shared infrastructure between the town amp; the village at a much lower average cost (given that the bandwidth was acquired at the rural circle rate).

– The next lot of villages would be the ones closer to a busy highway or railway line- coz then I could provide roaming connectivity to my existing users and also look at some local customers in the circle.

So there’s some logic in getting to the village first amp; having that critical bandwidth( the only supply-constrained resource in this industry) and wait for the demand to pick up. But what beats me is why is the govt so keen on getting connectivity to the villages?I have been to many a villages during my road-trips and I can confidently say that this will only lead to an additional expense item for the rural households- something which is best avoided. What our villages need are low-cost, efficient and maybe shared resources of more basic kinds- irrigation, sanitation, healthcare,education,microfinance.