I have been writing about the how a price war in the Indian Telecom industry would be a future in vain. I have also written about why Telcos should explore future in data and consumer centric services rather than price wars. The pay per second bloodbath was clearly inevitable. However, i cant think, why would Large Telcos in the country miss the trick. A price led strategy would never be sustainable, and yet the whole industry seems to have rushed into 1 paise per second formula. Am i missing something?
The explosion of subscribers in India has put a lot of pressure on the existing telecom infrastructure and the frequencies available. While there have been efforts like sharing of infrastructure between operators which has allowed to keep Capex under control, there are also minefields such as Mobile Number Portability which adds a lot of uncertainty relating to the subscriber adds and churn. 3G is seen as an answer to the lack of bandwidth, but the license fees demanded by the government is exorbitant and will require long periods of gestation. India has also attracted players like MTS, Telenor, Etisalat, DoCoMo adding a lot of uncertainty in the existing market conditions.
The principal source of operator revenue is voice and data. (Data services here also implies SMS and MMS services). Under the present bandwidth shortages, existing operators have only been able capitalize on the voice led growth. SMS is the only the significant other contributor to revenues in Indian telecom eco-system. The current contribution of data services to operator revenues range from 8 to 11%. This includes SMS and also includes the Tata Teleservices and Reliance CDMA connections, which are typically data heavy services. GSM’s data revenues would be much lesser than CDMA. India being a 80% GSM country, the ratio of data services to Telecom services thus lags the international numbers. World over the higher percentage of Data revenue balances the fall in ARPU.(The Data ARPUs are on the rise globally). In India, data services provide no such safety net.
A case in point is the US telecom market which is the world’s highest consumer of telecom based data solutions. Over the last 5 years, Data ARPU has increased 7X while the Voice ARPU has reduced by 30% in the same period. A $15 dollar ARPU loss in Voice has been compensated by a $12 increase in Data ARPU. One might argue that this be the case in US which is a 3G country. But the point made in Indian context though different in regulatory and eco-system aspects, draws from this example.
- While voice tariffs in India is the lowest, Data tariffs in India are amongst the highest in the world. Cost being an important determinant of penetration, higher data costs have acted as barriers to data spread.
- Application and Content Revenue sharing models sometimes make it difficult for higher levels of applications to be built because of cost/higher break even periods. Even if applications are made, the revenue sharing with Telcos in India, would make it difficult for the Apps provider to advertise or communicate the offering to consumers.
- There is little in terms of consumer services to High ARPU consumers. Telcos in India could perhaps learn from Indian banks a few lessons in differential treatment of HNIs.
- All this time, Telcos in India have done little to tie up with content providers such as Googles of the world. LBS, Maps, Navigation and Social Networking could have been a great apps. This is a “Blue ocean” where Telcos have not ventured yet at all.
- The CEOs of one of the biggest Telcos in India once dismissed the MVNOs as “loss making”. Perhaps it is time to re-think strategy in terms of branded and exclusive content. (Read Report)
- All this while, Nokia has been preparing its platforms to differentiate itself through services. Telcos were in a far better position to aggregate service bundles and yet they didnot. Did all of them miss the trick? Did they fall into the Operator Dumb Pipe syndrome trap!
So, when it was sunny, all the Telcos in India did was to make good subscriber numbers in falling ARPUs. That was the low lying fruit. Nobody perhaps looked at the next levels, because they were rolling in money anyways. The bloodbath in terms of per second tariffs is now catching the Telcos. They still prefer to look at market shares rather than the EVAs and Bottom-lines.
Next story in making would be the inevitable shake out and age of acquisitions.
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Read the earlier posts here: