Indian Telecom: The tide seems to be turning and the industry is maturing

Reliance Q1, 2013 results possibly holds out light to the beleagured Indian Telecom Industry in terms of the business case. It signals the end of hypercompetitive era (and operator bleed), end of consumer sops (change of direction to quality of acquisition), increasing data revenue (that was inevitability catching up), Eco-system consolidation across Operators, ISPs, VAS providers and building alliances and emergence of EVDO +GSM devices.

Highlights
1. RCOM has reported today 7.2 million 3G subscribers and 29.4 million data connections for the quarter ending March 31, 2012, and a 21% increase in data traffic quarter on quarter.
2. RCOM increased tariff’s by 20% on both GSM and CDMA. Reduced promotional offers by 65%, and are reducing discounted plans.
3. RCOM is trying to create a healthy ecosystem, forging relationships with leading global plans, and entering into exclusive partnerships with social media networks. RCOM has tied up with leading handset manufactuers for CDMA smartphones. RCOM entered into an exclusive arrangement with Lenovo. Phones will be attractively priced and work on CDMA and GSM, allowing switching calls between the two, based on the strength and quality of the signal.
4. There is also an exclusive partnership with Google, and RCOM announced partnerships with Whatsapp, Twitter in India. Twitter and RCOM has launched a Reliance Twitter access pack.
5. RCOM will move 9500 employees to partner roles.
2G is inking GSM Intracircle roaming arrangements. The first such agreement is with Aircel. These will increase RCOM’s national 2G footprint by 10,000 base stations. All other agreements will be completed by the second quarter of this financial year
6. The RCOM-Reliance Jio deal. Jio will utilize fibre across RCOM’s intercity fibre optics network. IT will have reciprocal access to Reliance Infocomm’s infrastructure in the future. This is the ‘first’ such agreement between the two companies (which means that more deals are being discussed).
7. Industry is facing virtual consolidation. Pricing power is coming back, and there are improvements in RPM. RCOM is rationalizing Prepaid tariffs, by removing free minutes and improving tariffs by 20%.
8. Revenue contribution of data- Wireless growth is 2.5%, but the growth of GSM and Data businesses are growth engines. 64% of wireless revenue for RCOM. One year ago, it was 59%, moving up 500 basis points as a contribution of GSM and Data.

Quoting Mr.Gurdeep Singh (President CEO, Wireless Business, Reliance Communication)
We changed course and aligned go to market strategy to as 3G metro, 3G lit markets and non-3G markets, relooking pricing, branding, distribution, and kept the go to market elements differently for all three markets. Quarter on quarter of GSM+Data is going up. We had consciously taken a call that CDMA network will be a high speed data network, by being a dominant player in the dongle market, and make an effort to bring branded handsets into the smartphone market. We will make efforts with HTC and Blackberry, and another few announcements are planned. What’s good about CDMA device ecosystem is that it is CDMA+GSM.
We don’t rule out rolling out EVDO+GSM phones.

The GSM + Data has grown 6% quarter on quarter in terms of revenues. We have been ahead of the industry growth in this segment in the last 3 quarters. We gained 100 basis points in revenue market share, and have an accelerated growth path. A large part of the revenue comes from 2G Internet (GPRS), and in light of some operators who have given up spectrum in some circles, which is increasing opportunity for RCOM in these circles. We’re seeing traction in that direction. GSM+data, the growth will be on data.

We’re not late with the ICR arrangements. Now that the hypercompetitive stage is behind, there is a good reason for us to consolidate our position. We’ll be smart enough to go for revenue corridor, data corridor. We want to get to the market quickly, make a good case to deploy our own assets.

2300 MHz needs far more sites than a 2G footprint, should Reliance Jio have an ambition to be a pan-India operators. Ours is a large portfolio of towers, and many of the towers in the main cities are fibre-ised.

We are in advanced stages of discussions to lease out towers to Reliance Jio.Our objective is to migrate customers to CDMA smartphones in the CDMA segment. We’ve raised prices of CDMA handsets. The attempt is to get a better quality customer. We’ll see the complete bleed stopping in CDMA in the next two quarters. The bleed is coming to a stagnation, and it will contribute as we populate more CDMA smartphone users.Growth in GSM+data will outperform the market.

Powering the next wave of revenue growth in Indian telecom

As per latest stats from Gartner, India’s mobile services market is expected to grow eight per cent to Rs 1.2 trillion in 2013 but will account for only two per cent of the worldwide mobile services revenue as operators are struggling to increase profit margins. The revenues from mobile services stood at Rs. 1.1 trillion in 2012. According to Gartner, mobile connections in India are expected to grow to 770 million in 2013, up 11 per cent from 712 million connections in 2012. In current circumstances, the Indian telecom market will account for 12 percent of worldwide mobile connections, but just 2 percent of worldwide mobile services revenue (in constant USD) in 2013

Some of the factors are which are hurting the Indian Telcos significantly
• The Mobile ARPU hasn’t shown any pace in growth over some time now even though the drop has been arrested by the operators. Thus operators are not adding incremental revenues. The ARPU of GSM mobile operators have declined by up to 24% during the period between 2008 and 2011
• Over the top service providers such as Facebook and WhatsApp are eating into the SMS cash cow.
• The legislative and regulatory uncertainties over taxes and other payments and agreements are bleeding the operators.
• With the Metros and Tier 1 cities hyper connected, the next wave of growth would be the rural hinterlands – However, further rural expansion of mobile services will come at a cost.

Indian Telcos are looking at mobile broadband services to be the next wave of revenue growth. Coupled with innovative solutions and services, associations which cut through different other eco-systems (media transmission) and local mobile apps which is key to break thru the multi-lingual geographies – Telcos are putting in place, strategies for addressing the data revolution. While India plays catch up with the rest of the world in terms of mobile broadband adoption, telecom operators need to think of growing the top line through innovative services. A report on Indian telecom authored by AT Kearney, states that non-voice revenues of mobile operators will increase to 27 per cent by 2015 from 14 per cent in 2011, of which about 15-20 per cent will come from mobile data, which is expected to grow at 126 per cent. The voice revenues will decrease to 73 per cent from 86 per cent during the same period. Proliferation of smart devices is accelerating this shift towards data. In 2008, only 3.8 per cent of handsets sold in India were smart phones. By 2011, this had increased to 8.1 per cent and is further expected to grow to 25 per cent by 2016

Relevant Applications for various segments are being put forth and with the launch of 4G and increasing reach of 3G services, the data revolution is about to roll in. Innovation in utility apps that help bring efficiencies in a consumer’s life will bring in sustained revenue and will be relatively more difficult to replicate by new entrants. While social and video apps are doing extremely well in India, it is time to look beyond these and deliver apps that can have a sustained business model. India has a phenomenal pent up demand for mobile broadband and local mobile apps that solve everyday problems for consumers.

SMS- The Operator cash cow is dying. Time for telcos to wake up & smell the data coffee.

As SMS celebrates its 20th anniversary , Chat apps are overtaking SMS communication globally. The Operator cash cow is dying. Time for telcos to wake up & smell the data coffee.

A new study by Informa loads the dice up for Chat apps. For the first time, more messages are being sent via applications such as iMessage, WhatsApp and Viber than traditional texting. Messages sent using such apps outnumbered those sent through carrier-based SMS in 2012 and the lead is expected to widen this year as chat apps send twice as many messages as texting. Although traditional SMS has a larger user base, iMessage, WhatsApp or other chatting apps are sending more texts per user, giving them the momentum. Informa estimates that on an average, a chat app user sends 32.6 messages per day, versus just five for SMS. This despite there being 3.5 billion SMS users compared to 586 million among the top six messaging apps surveyed by the researchers.

Mirroring this sentiment, Ovum estimates that Indian telecom operators may lose $3.1 billion in SMS revenues by 2016. In 2012, the Indian telecom industry lost close to $781 million in SMS revenues, as mobile telephony subscribers increasingly used social messaging apps for quick communication. According to data from the Telecom Regulatory Authority of India (TRAI), the number of monthly SMS sent per GSM subscriber fell by 5.62 per cent to 36 for the three months ended September 2012 from 38 in the year ago timeframe. For CDMA users, this number was marginally up to 25 during the same period. Industry watchers believe that there is a secular fall in SMS revenues for both CDMA and GSM operators.

There are a couple of reasons that are driving the consumer growth in the chat apps segment
1. As smartphones outnumber dumb feature phones, app-based messaging is set to eclipse texting. The next evolutionary step is likely to be calling from Facebook, now in limited roll-out, and other social networks.
2. In addition to being cheaper, these apps are more interactive as compared to the traditional SMS. (We could see the popularity of messaging apps wane if they decide to charge for the service. WhatsApp, for instance, is reportedly considering a paid 99 cents a year subscription.)

The demise of SMS is perhaps most symptomatic of the evolution of communications underway. First was the voice call, which largely vanished as texting became common. As SMS slowly declines as a significant revenue opportunity, mobile Internet (broadband or narrowband) is steadily growing as a key revenue generator.

Carriers, globally are playing to the changing notes, and are giving away unlimited texting on data plans. The intent is to convert dwindling SMS revenues into a broadband revenue opportunity. Indian telecom operators seem to be cognizant of this shift. They are increasingly co-bundling free messengers and content services to push data usage as an alternative to cascading SMS revenues. Last year, Reliance Communications tied up with WhatsApp and Facebook, enabling its GSM customers to use the two services for Rs 16/month. Aircel, too, has taken the leap by tying up with Nimbuzz. Others have started this integration – Nokia recently launched a new phone, Asha210, which has a dedicated WhatsApp button

The Chat platform providers are riding the wave and are collaborating with telecom companies for monetising the chat platforms through operator billing

India: Mobile and Smartphone markets (2012 vs 2011)

1. Mobile handset sales in India grew 20.8 per cent to 221.6 million units in 2012 (over 183.4 million units in 2011)
2. Feature phones sales grew 19.9 per cent to 206.4 million in 2012 from 172.2 million in the previous year
3. Although we see a huge market ‘hype’ around smartphones, the fact remains that the India mobile handset market is still dominated by shipments of feature phones.
4. This indicates India is still a ‘new phone’ market, where feature phones contribute to the bulk of shipments compared to replacements or upgrades
5. Smartphones comprised a small chunk of the overall handset market at about 7 per cent, the high-end category grew at a robust 35.7 per cent to 15.2 million devices in 2012 from 11.2 million units in 2011
6. The market remains largely fragmented across a huge number of Players – most of them white labeled Indian brands manufactured in China.
7. With the entry point of smartphones coming down to about Rs.3000-4000, 2013 could be the tipping point for smartphone adoption in India as buyers intending an upgrade purchase would make the jump to smartphones.

Source: CMR

Beyond the tip of the Ice-Berg- The Multi Billion $$ Indian MVAS market Opportunity

Presenting a few key take outs from the WCIR (Wipro Council of Industry Research) and IAMAI report on the Future of the India MVAS industry – Beyond what is now to where it could be headed in times to come.

1. Number of mobile Internet users in India set to explode by a factor 2X between December 2012 and March 2014, from 87.1mln to nearly 165 mln.
2. Indian MVAS market will grow at a CAGR of 25% between 2012 and 2015 to reach US $9.5 billion in 2015, from an estimated US $4.9 billion in 2012.

3. Even though 96% of the survey respondents accessed the internet on mobile devices, only 56% had subscribed to some form of paid MVAS
a. Most of these subscriptions are basic offerings such as SMS alerts and CRBTs
b. Paid services used today only enable limited value delivery to providers and consumers alike
4. VAS services available today are perceived to lack customization and are easily replaced with freely available options.

5. Complexity is consistently rated as a key barrier to service adoption. 64% of participants believed that advanced mobile health services would to be too complex to use.
6. Users express concerns about the unique aspects of the mobile experience that could compromise usability. 56% of participants were concerned about the screen size of mobile devices.

7. Researches such IAMAI and Wipro establish that they are willing to pay for services when they perceive value.
a. 80% of the respondents believe that enriched and transformational data services will save time.
b. Therefore, the use of basic services is projected to decline, while enriched and transformational services are projected to rise from current usage levels
c. Transformational services will reinvent the consumer experience – and may ultimately replace the brick and mortar alternatives or complement them
8. In terms of VA services, mEntertainment is expected to be the largest contributor to operator MVAS revenues and provides key opportunities in localized vernacular content, on-demand music and video content and live TV shows and events
9. Innovation in other MVAS categories such as mEducation, mFinance, mHealth has largely stalled out with basic SMS and IVR based information services.
10. Services available today only skim the surface of consumer experience. As categories reach higher and higher maturities, consumer requirements will evolve faster- driving a rapid shift in consumer preference from basic to enriched to transformational services

With acceleration in 3G/4G deployments, increasing smartphone penetration and MVAS maturity – Users will migrate from the basic services to enriched services aand furthermore to Transformational services – and that will drive dramatic growth in the industry. Listing down a few recommendations maximize chances of success in the Indian MVAS market.

Source: Beyond the tip of the Iceberg IAMAI/WCIR report

India iGDP set to break through $100billion with 300mln+ connections by 2015: McKinsey

The Internet Economy in India is future waiting to happen. With approximately 200 million new users connecting to the internet in the next 3-4 years horizon Internet is the next big economic and commercial business opportunity. On a cummulative basis the internet economy’s contribution to India’s GDP (i-GDP) is set to break the $100 bln mark (a 3X growth compared to 2012)

1. Number of internet subscribers in India expected to grow from 135 million (Exit 2012) to 330 million (2015).
2. At the same time, Internet’s contribution from India’s GDP to grow from 1.6% in 2011 to 3.4% in 2015.
3. Thus India’s i-GDP (internet contribution to GDP) is expected to hit about $100 billion by 2015 – making it one of the most attractive investment locations and industries globally. Refer to the Chart below for the Assumptions and Calculations

4. Device Convergence; low cost device innovations; reach and affordability of data networks; Increasing digital literacy; access relevant apps and services on the net are factors that are driving the growth of Internet networks in India.

Whats now required is a comprehensive government policy roadmap for the Telecom sector which has been adrift following a few bad calls by the government.

Source of Data: McKinsey Report March 2013 – India’s Internet Opportunity.

India’s edging on the cusp of data revolution

44 million smartphone users
39 million 3G subscribers

These numbers appear miniscule against a 975 million sub base in Indian Telephony. But these small numbers signify more than just numbers – these stats indicate usage and habit of data consumption which is on a up-swing in Indian data context.

Sample Bharti Airtel’s quarterly results – which saw it posting slow down in profits for 12th successive quarter- big jumps in customers’ data usage are remarkable to note. The following extract from the result statement show – data use per customer rose 21% and the number of customers using fast 3G wireless data networks rose 29%.

This is not the single point of data as last year’s Nokia Siemens Networks reported 78% increase in 3G data traffic. In its report, based on data from 290 million Indian mobile data users, Nokia Siemens pointed out that mobile phones were the preferred medium for internet access in India, with 81% of data users saying they used their phones primarily for web browsing. Another 17% used their phones mainly for watching videos or listening to music.

Thus India and its mobile savvy 925 million subscribers is gobbling up data and is on the verge of a data revolution on small screens.

The India Internet scene thus is delivering as was expected with Internet and Entertainment consumption spiking on mobile screens. With erratic power supply it is a natural tendency to fall back on phones to deliver information and entertainment on the small screen. What complements the cause is the fact that the mobile phone screen is the single most viewed screen on a daily basis.

Howwever the best part is the significant upside that is awaiting – Internet penetration in India is lower at 11-12 per cent compared to other Asian countries (South Korea and japan have 50% data usage penetration levels). Even the densest penetration urban zones in India are only 39% penetrated. While a lot of it is to do with the infrastructure in India Compared to US, which has six carriers of 3G with 30 Mhz of 2G and 60 Mhz of 4G whereas India has an average bandwidth of of 8 Mhz of 2G.

RIL’s big disruptive push on 4G (Part II)

Continued from an earlier post – RIL’s 4G push and the disruptions that could happen there-off.  The first disruption was the ability to create data hotspots with high speed WiFi through 4G Backhaul.

Disruption 2: Triple play services across voice#, data, media, education and broadcast segments

The second disruption, is in terms of triple play services – and the game really looks close to the broadcast services that I had written about some time back. To that extent, RIL would look to cut into revenue space of cable companies. In one of my earlier posts, I had mentioned about how Telco operators could up-end both cable distribution and content management and RIL seems to be planning content exclusivity along with data-pipe ownership. (Now that is something even Apple hasn’t perfected). The triple play strategy of voice, data and video could be very effective in acquiring wallet share of the customer. By exploring the television and cable space, RIL was looking to tap another potential 100 million screens for its broadband services and drive the triple play offering.

RIL as a broadcaster is geared up for media convergence and will deliver content to any new platform. RIL has been creating a walled garden for content, which will give new opportunities to VAS (value-added service) providers and open up space for new niche channels.

Disruption3: The price factor

With an eye on the larger pie, Reliance would bet on building data habit into Indian customer psyche mainstream. There are rumours about Rs.3500 tablets and data plans priced around Rs10 per gigabyte. With a mighty 4G backhaul, powered by 802.11n WiFi and data speeds upto 100mbps-1Gbps and Rs.10/GB cost of data, the traffic rates are bound to multiply. RIL is betting on this traffic surge to build its big push in Telecom.

#: Assuming that RIL will find a way to muscle in VoIP regulation for Inland calls also. RIL does have that clout to make that possible.

 

RIL’s big disruptive push on 4G (Part I)

Why RIL’s push into 4G services could be the most disruptive effort in India’s Telecom history?

As Reliance Industries (RIL) readies to launch 4G services in India, it is worth looking at the game plane for RIL – how it plans to disrupt the industry and the present Telecom business paradigm. While there is no launch date for Reliance 4G launch yet, it is expected that RIL will launch its 4G services in 4-7 metros by mid 2013 (3 years after it acquired 4G licences by acquiring Infotel).

On the footsteps of Carlos Slim Helu

The 2300MHz 4G band in India is prohibitively costly for plain carpet area coverage and most of the operators are picking up traffic hotspots to put up their equipments and BTSs. Interestingly enough, RIL’s gameplan of riding on WiFi actually works on the contrary – it will create 30000 hotspots across selected metros which will let users access 4G-LTE network speeds on a WiFi framework. The cost of providing one to one terminal based solutions through a wireless route would have been extremely costly in terms of OPEX and CAPEX. However, RIL has turned this weakness into its strength going through the Fibre Optic route and a MiFi terminal.

• This allows it to serve more devices/ users per terminal thereby reducing cost of servicing per unit device
• It also caters to a segmented strategy – SOHO, SME, HNI Homes, Retail, Enterprise etc.
• Therefore it makes WiFi the short area wireless standard.

Going forward, in the future, RIL will ride on its fibre optic network coupled with Femtocells to increase coverage carpet area. Refer to the illustriation below for understanding of the MiFi zones and Femtocell solutions to cater to focussed carpet areas.

Disruption 1- An add on connection initially, which takes over the main connection

The disruption here is that, by the use of WiFi, RIL will tap into every operator customer by providing a WiFi over-ride on the wireless services of competitors. A XYZ operator customer will also have RIL pre-paid data card which will allow him high speed WiFi in catchment areas- schools, colleges, restaurants, offices, airports, railway stations etc. The XYZ Operator services will only be used for low volume/low value  services outside RIL hotspots. Inherently from a customer perspective, he uses bulk of his data/voice plans from only certain catchments (Office, College, Home etc). The service platform of RIL 4G will be device agnostic targeting both wired and unwired devices.

(to be continued)

Who says 3G is a disappointment?

Data is the new revenue mantra for the Indian telcos as voice revenues have pile drived. According to Nokia Siemens MBIT report on the data consumption in India, there has been a 54% increase in mobile data traffic in India between December 2011 and June 2012. While the over all mobile traffic grew by 54%, the growth in 3G traffic (78%) was more than 2G, which grew by 47% over the same period last year. 3G data traffic has seen a surge this year, especially in last 3 months thanks to over 70% slashing on 3G rates

The Mbit Index report also revealed that 2G users in India are consuming three-quarters of the total mobile data traffic, on average, while 3G users consume four times more data than 2G users. At current pace, the report expects that India’s mobile data consumption to double by June next year.

Although the 3G consumption has growth thanks to 3G rates coming down and availability of cheap Smartphones & 3G phones, there is still quite a lot of room for improvement in 3G services. Even today, except for most urban areas, 3G coverage is rather minimal. Additionally, 3G data services have lot of scope of improvement in terms of consistent data transfer rates.

In most cases, even today, 3G transfer rates vary a lot from area to area depending on the coverage and network provider.

Other Interesting Highlights from Mbit Index Report

1. By the end of June 2012, 3G has outpaced 2G in terms of data traffic growth.
2. 2G traffic currently generates over 75% of the total data traffic generated.
3. A first time 3G user consumes close to 400 MB (megabytes) of data every month compared to about 100 MB consumption over 2G.
4. Recent tariff reductions in 3G services have resulted in doubling 3G data traffic month on month.
5. Web browsing contributes 81% of 2G data traffic
6. Only 17% of 2g traffic is used for downloading videos.