An open letter to Mr. Narendra Modi – Cleaning the Telecom Muddle in the country

Dear Modiji

It is refreshing to see the course of action that you have been taking to put India and Indian Economy back on track. Knowing that your time is precious, i would keep this short and to the point. I write this letter with a four pointer action plan as the road-map for the recovery of telecom sector in India. While i would avoid playing cliche, the background to all this is how telecom/ broadband penetration is directly associated with GDP acceleration and inclusive growth of the economy. Out of the very many reports that substantiate this fact, the IAMAI ICRIER report on Internet’s impact on the Indian economy suggests a $17B p.a boost to Indian economy basis broadband basis the fact that 10% increment in broadband penetration can increase GDP by 1.08%.It is believed that if the TRAI broadband roadmap 2012 targets are met, it would generate $87B to Indian economy within 2012-14 time-frame.

The policy paralysis from 2011-2014 coupled with disputes on spectrum and spectrum-pricing, retrospective taxes has arrested the growth of telecom sector – and now with a stable governance building up for next 5 years, it is expected that you would be instrumental in resolving not only the immediate issues but provide a long term vision of growth of this sector. With due respect sir, may i beg to put a few pointers to the long term needs and hence the roadmap of the industry.

The right horse and the right cart
1. While spectrum related regulations need a cobweb cleaning – it is important that the roapmap takes into account the right spectrum for telecommunications. By right spectrum, i would mean the 450 MHz and 700MHzDD bands to be put in pace. With 4G in place, if the right spectrum support is provided to the ISPs/ operators, it will give a huge boost to providing high speed broadband not only to urban centres but also to rural areas. The economic effects of putting the right spectrum and the right technology together in the long runs outweighs any immediate hassles that need to be undertaken for setting this prescription in place.

Dont put the cart before the horse
2. Growth and Governance would need to walk side by side. One cannot follow the other. While governance would need to make monies and admissibly so, retrospective actions, arbitration and taxes would need to be side stepped. A very just economic model for spectrum auctions could involve – Low CAPEX (auction rates) and higher OPEX (Revenue shares) with operators.

A few horses for inclusive development through broadband
3. A phased project scoping of telecommunication projects with critical KPIs – which could be based on social parameters, such as education, healthcare, community care powered by broadband could also be a very apt in driving inclusive and sustained growth – could also lead to interesting results. Such a project would need to be driven from the PMO in terms of a large scale integration with ministries, states and operators

The race winning horse cannot have too many jockeys
4. Last but not the least, there has to be one apex body on Telecom, suitably represented by Telcos, Telecom infra companies, other telecom eco-system players, ministries, consulting bodies and the officials. We would need to do away with too many such bodies (including the now dissolved EGOM) and too many voices and opinions (often contradicting) – and need one apex body for the industry.

I am sure, with your wisdom and perspective, many and most of these points would be in your agenda. While there are other priorities that you may right fully have, this four pointer could be a good starting point for cleaning up the Telecom muddle in the country.

Yours Faithfully.

(Views expressed in this blog are solely mine with no affinity or bias towards anyone)

2013: India Smartphone Markets

Narrowing differences in the price bands of smartphones and feature phones, and consumer shift to larger screen devices is leading to massive increase in smartphone shipments in Indian context.

IDC
While, overall mobile phone shipments rose 18% to ~ 257 million units in 2013 from 218 million units in the 2012
The growth was powered by smartphones tearing down at 229% growth with a 44million CY 2013 shipment number
20% of these smartphones were the 5” phablet form factor
The 2nd half of the year saw a 60% groundswell in terms of smartphone shipment numbers
The roll of honour/market shares:

CMR
Overall mobile phone shipments reported at a minor deviation from IDC and reported at 247.2 million units as against 219 million in 2012
Smartphones contribution to 41.1 million units with 65.8% smartphones being 3G enabled
Overall contribution of smartphones to mobile phone volumes is 16.6%
What CMR also states is that 2013 is the foirst year when feature phone shipments shrunk by -.2% indicating the slow slide of the category – with growth being anchored by smartphones
The roll of honour/market shares

Indian Telecom 2013: The year that was and the way forward

End of Year 2012, the internet subs in India totaled 135 million and mobility subs were 864 million
2013 exit numbers would be 205+ million internet subs and 904+ million mobility subs
It is expected that the figures for Internet subs would pass 330 million by 2015
At the same time, Internet’s contribution from India’s GDP to grow from 1.6% in 2011 to 3.4% in 2015. 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.

As a state, India is fully aware of the criticality of telecom sector not only in its contribution to the GDP – but also in its ability to transcend geographies as an enabler – and telecom as the portal to next generation services on wireless.

NTP provides the policy framework but the process based uncertainties exist – most of these around the spectrum pricing and tax disputes. The under-pinning policy regime and execution road map has to be clear.

In 2013, two important policy enablers have been the announcement and approval of the mergers and acquisitions policy and foreign equity participation of 100% in Telecom sector. Dominant players can now old up-to 50% telecom market shares.

However in the same breath, regulations such as airwaves acquired by a acquiring major would only be used for 2G services becomes extremely self limiting.

Telecom players were looking for market capitalization and consolidation. The operators have started to focus on subscriber quality and have done away with the lucrative dealer commissions and promotional minutes. After 2008, for the first time, India has witnessed a surge in voice tariff

While the industry hopes to hit the 1 billion subscription mark by 2014, it continues to be deeply constrained by the negative growth witnessed in 2012.While the industry hopes to hit the 1 billion subscription mark by 2014, it continues to be deeply constrained by the negative growth witnessed in 2012. The Indian Telecom Industry accounts for 13% subscriptions and 2.3% share of the global telecom revenue.

Low cost driving reach and affordability would be critical but a derivative of a favorable Tax regime. Telecom tower companies given slew of benefits (such as gap funding, external commercial borrowing, lower import duties, excise exemptions) with Infrastructure status is a major step forward in this direction.

I am not sure why MVNO is a dirty word for Indian Telecom – may be because Indian Telecom barons only see it wholesale voice and data resale. However, the more successful MVNOs world over(especially in Europe) offer far enhanced services to its customers.

Digital Literacy through Vernacular applications is a key enabler for spread of Internet.

Indian Telecom also need to get their act right in terms of spectrum, pricing and business cases. For instance, TDD LTE which has been provided the 2300/2500 MHz band, doesnot make any commercial sense. The network at those bands will be extremely local and patchy and thus a below par experience. There needs to be a clarity on the Digital Dividend 700MHz, which will not only help operator business cases but also enable wider coverages for broadband – which is so critical to the growth of the iGDP.

The Mobile Economy in India

Mobiles and Mobility in India is a empowering industry which is expected to grow 408% with 2012-20 @ 19% CAGR
This adds atleast 1.3 million jobs between 2012-2020 and…
.. contributes to 375% increase in public funding
This also means a 409% increase to infrastructure investments

India’s citizens rely on mobile technology and mobile-enabled services to a degree that few would have predicted only a few years ago. With nearly 900 million mobile connections across the country, India represents a quarter of all mobile connections in Asia Pacific, and this figure is expected to rise to 1.16 billion by 2017. With improved
spectrum pricing and management, growth of mobile broadband service is expected to continue, with 3G and 4G adoption projected to increase by 31% between 2013 and 2017.

Nevertheless, India still lags behind the world’s major economies in mobile maturity and penetration. Network investment by mobile operators is held back by low tariffs due to the market conditions, an unusually high level of competition, and the financial burden caused by government policies that channel funds away from the sector, such as the high cost of access to spectrum. Indian operators are amongst countries that have the highest debt and lowest profitability ratios in the Asia Pacific region. This affects their ability to upgrade consumer services, meet demand in highly populated urban areas and expand networks to provide coverage to people living in rural areas.

India is lacking a regulatory environment that allows the sector to surge ahead and deliver the full, transformative
power of mobile to all. To do this, the government must design policies and regulations — working with the mobile
industry — that maximise long-term private sector investment. In order to invest, the industry needs clarity on the direction and the overall economic and regulatory environment that will be put in place to support this path. Only with a sustainable mobile industry will India be able to achieve the vision described in the country’s National
Telecommunications Plan — “to provide secure, reliable, affordable and high-quality converged telecommunication services anytime and anywhere for accelerated, inclusive socio-economic development.”

Increased penetration of mobile technology in India will bring with it many socio-economic benefits. In Agriculture, mobile solutions improve yields and provide greater access to markets. Greater access to healthcare and reduced mortality are facilitated by mobile solutions, while mobile technology brings financial services to rural and underprivileged communities. With mobile solutions, education for all is a goal that is increasingly within reach. Government and Administration has an important role to play in all of these areas by removing barriers to the integration of mobile solutions in an increasingly connected world.

Excerpts from the GSMA BCG study on Mobile Industry in India

Indian telecom: State and Statistics (TRAI)

India is taking to the Internet and how!

A recently released TRAI states 164.81 million users in India who have internet access. Out of that 143.20 million subscribers access internet through wireless phones, i.e. mobile phones and tablets. This puts 87% data users in India access internet through mobiles.

TRAI data also reports negative growth in the Indian telecom sector. According to data released by TRAI today, the number of telephone subscribers in India increased from 895.51 million at the end of December 2012 to 898.02 million at the end of March this year, registering a growth of 0.28 per cent over the previous quarter Dec-12. This reflects year-on-year (Y-O-Y) negative growth of 5.61 per cent over the same quarter of last year. Interestingly, urban teledensity declined from 149.90 to 146.96 whereas rural subscription increased from 338.54 million to 349.22 million, and rural teledensity increased from 39.85 to 41.02. Monthly Average Revenue Per User (ARPU) for GSM service has been increased by 6.99 per cent, from 98 in December 2012 to 105 in March this year, with YoY increase of 7.84 per cent.

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