Last September, Apollo joined Aircel to launch a tele healthcare delivery project. Tele medicine and tele triage facilities were made available to over 45 million subscribers of Aircel under the project then. Apollo at present has a capacity to cater to 100 million users. Apollo Hospitals has tied up with Idea Cellular and is in talks with three more telecom service providers for its mobile healthcare delivery programme. The company also wants to rope in insurance companies and other private sector firms to widen the network. The programme is also trying to rope in insurance companies, who already provide coverage to the patients, and can extend it to mobile health, thus making the service free of cost. With the subscribers of new service providers incorporated into the programme, Apollo expects to provide the service to 300 million users in 12 months. Apollo is expanding the service with more number of telecom service providers and is also adding more associated services in the platform.
MVNO has been a concept that has been scorned at after the debacle of the Virgin-Tata Teleservices MVNO effort. Sunil Bharti Mittal had written of MVNOs in a statement in 2009 and the industry seems to have forgotten the MVNO concept. I have always maintained that MVNO done the right way will be a business model that could create difference in the end game: revenues and bottomlines. Towards this, I had many months earlier provided the examples of European MVNOs who are engaged in delivering differentiated value to consumers.
To me, the Apollo model is a ideal and exemplary manner of launching MVNO services in India even though it is not referred to as MVNO services in the first place. Tele Medicine/Healthcare is an invaluable tool in health care as it helps patients to get service from doctors even in remote areas without the need of patient’s physical presence at Doctor’s clinic. The patient data is collected through various processes like history, data-entry, biometrics and integration of medical equipment. The data is stored and shared between healthcare professionals to diagnose, treat and follow-up be it (regular treatment, post–surgery etc).Some of the significant benefits are, reduced patient health risks; enhanced access to care for patients living in rural/remote areas; reduced healthcare delivery costs; saves time and travel; minimized hospital admissions and objective and timely clinical information.
Tele-Healthcare is a model consumer need and business opportunity and tele-healthcare delivery could be a huge platform. It would work on three levels
1. Tele-Triage: Treatment of common ailments which could take the crowd out of the clinics and hospitals. The Tele-healthcare provides an essential touchpoint for quick resolution of the common and daily health problems.
2. By integrating other services such as insurance, the platform could be versatile in terms of cross functional integration: Insurance, Medicine, Hospital services and more. This would take the pain out of healthcare services.
3. At a higher level, specific devices and healthcare apps could get integrated to deliver higher order medicine/healthcare services to people. Imagine not having to go to the clinic for bllod tests every week and instead doing the test at home and sending the relevant reports to the doctor.
From a business model perspective, Telecom Service providers need to look at services such as Healthcare, Learning and Long Distance education, utilities as a means of augmenting their drying profit streams. The sooner the better. MVNOs are promising in this space.
The second coming of MVNOs in US
On Monday, Sprint said has signed deals with four MVNO partners interested in offering post paid wireless services under their own brand – Long Distance Consolidated Billing Company (LDCB), NPG Cable, Call One and Baja Broadband. NPG will offer a quad play bundle combining video, internet, home phone and cell phone service, while Chicago-based Call One will offer a single source for integrating voice, data, video and internet services with phone systems and network equipment, wiring, installation and management. Baja Broadband will enhance its broadband cable system in New Mexico, Colorado, Utah and Nevada and LDCB will bolster its wire line long-distance service with wireless.
The US versus Europe MVNO Debate
This is good news for MVNOs after almost being written off from the map of United States. So is this the second coming of MVNOs or is it just consolidation after the end of the initial hype. Contrary to the US markets, the UK and European Markets have successful examples of MVNOs and MVNAs running. In Europe Tesco Mobile is major player, but we haven’t seen the same model succeed in the US which also has large volume retailers like Win Dixie, Wal Mart, Target and others. Amongst others, ESPN Mobile and Disney Mobile have failed in US and Virgin Mobile is struggling. In the UK, Virgin Mobile is a major mobile brand.
The one difference that seems to emerge between the US and the European markets is that the Europeans seem to be able to stick to a business plan that caters to a niche. The US investors have been overeager to dominate a whole country when they should be content with one or two states or categories.
So what’s working and what’s not
The strategy of adding value through price is not going to last long, if it hasn’t passed already.
The MVNO model is alive and well in Europe and what is really promising over there, as in the US, is that network operators are behind the model now rather than fighting it. Over time this will lead to greater access and control to the underlying infrastructure for the MVNO, giving the capability for further innovation which, is really where the MVNO model will thrive and have a big impact on the industry as a whole. Opening up and allowing more control of the underlying network and its capabilities will essentially allow the MVNO to act as another service layer with which to develop and offer more innovative products and services particularly in the apps space. In my opinion the products and services in the broader market today really are just at the tip of the iceberg in terms of how telecommunications can help us in our everyday lives
The stunted growth in terms of innovation so far, would be to do with protectionism by operators, or the walled garden approach as it’s become known.
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.
Please feel free to rate the post and put your comments (negative or positive as may be!)
Read the earlier posts here:
This is the second post on the series: The advent of MVNOs and discusses the MVNO environs in India!
A few months back, Sunil Bharti Mittal (CMD, Bharti – Airtel) went on record saying that the MVNO model will not find many takers in India (read report). The idea was that with the kinds of tarriffs prevalent in India, MVNOs will not be able to sustain business and be profitable. The fact that Virgin Mobile’s foray into MVNO platform has not been as hugely successful bears this statement for the time-being. But in a long term basis, can MVNOs be ruled out of the country? Diamond, a global management consulting firm has some interesting pointers in terms of emergence of the MVNO business models in India.
1. The threshold mobile penetration levels (for the emergence of MVNOs) in these markets are around 40%! –> Markets typically display a level of mobile penetration above 40% at the time of launch of the first MVNO.
2. Higher levels of industry wide consolidations favor the launch of MVNOs.
3. Less competitive markets (high levels of dissatisfaction amongst consumers) favor MVNOs (because they cater to new customers and innovative solutions).
A study of 16 countries where MVNOs have been operating for a few years now, conducted by
India with its fastest growing telecom subscribers status is typically a mash of various degrees of penetration. On one end, the A category circles have 70 – 80% penetration ratios and on the other end, C category circles are at 15 – 20% penetration status. Thus India is to be seen a collection of 23 separate markets instead of a single homogenous market when assessing the opportunity for MVNOs. The Cat A and B circles are over ripe for MVNOs and there are states, where the MVNO business would not be as effective given low penetration levels. Also the tariffs are getting rapidly commoditized and if its were not for the consolidation, these tariff would be close to unprofitable! Number portability could rapidly increase churn in the eco-system, unsettling the top rug high ARPU consumer bases with the existing operators.
Within these set of circumstances, there may exist an opportunity to serve users better or serve a high profit niche segment. With the penetration levels at 32% nationally and tariffs touching lows, the MVNO route may be a key differentiator and an access to higher premiums. One needs to be define MVNO at this time. A re-selling, re-branded plain vanilla will not be attractive to users. In the case of Virgin, it has done some excellent work in associating itself with a category of customers. However, its proposition is based on cost which by itself is not the best way to differentiate especially if you are re-selling airtime.
Thus it is important, that the MVNA and MVNE route is taken to differentiate oneself in this market! Healthcare sector is one lucrative idea for MVNA/E, so is department of posts and telegraph, railways, banking etc. There is a need and necessity for including this diversity into the existing eco system. This would constitute differentiated service to consumers for which they would be ready to pay premiums. A focused attempt centered on the metros and high penetration areas can also keep costs under control and if the collaboration within the players in the eco system is good, can lead to high profit businesses.
Should we reconsider the model once more, Mr Mittal?
The third part of The advent of MVNOs will deal with the legal challenges of establishing this business in India.
A Mobile virtual network operator (MVNO) offers mobile voice and data services without owning any spectrum or infrastructure. Basically it leases network from a Mobile network Operator (MNO). It uses the leased capacity to sell retail services to consumers under its own brand name leveraging assets such as a strong brand, loyal customer base, exclusive content or an extensive distribution channel. At one extreme the MVNO can adopt as “pure reseller” position, where in it re-brands MNO’s service using its own brand name and sells it through its distributor channels. On the other hand, it could adopt a “pure MVNO” position, providing value added elements in its offering. The decision to adopt a given business model is governed by several factors including the targeted scale if business, level of in house telecom expertise, extent of initial investment the MVNO is willing to make and the level of risk the MVNO is willing to undertake.
The schematic given above is a representation of the US MVNO markets.
The earliest MVNO in the US market was Virgin Mobile and Qwest, who had their processes and platforms to complement the MNO network. They did this by either purchasing platforms or operating them in-house or through dedicated partnerships. At the next level with multiplication in MVNOs, the market started migrating to parties who could provide relevant BSS/OSS processes and platforms.These service providers whose core competence was the platform and they build the mobile services around this platform are referred to as the Mobile Virtual Network Enablers (MVNEs).
With increase in Market complexity, there emerged a class of Mobile Virtual Network Aggregators who acted as intermediaries between multiple MNOs, handset providers and back end platform providers with the MVNOs. Hence these were the experts in the field who served to reduce risk and time to market and lower the risk profile of launching an MVNO.
In saturated and high mobility markets, with excess capacity, MNOs have a choice of acquiring retaail consumers to fill up the network or filling up the network on whole-sale basis to a MVNO reseller, or a combination of both. The decision should/is influenced by the idea of maximizing Average Margin per Minute (AMPM). The AMPM is determined by factors such as
1. Price charged per minute
2.Subscriber cquisition costs
3. Costs of serving a customer (Cash Cost per user CCPU). The CCPU depends upon network related costs and other non network related costs.
As the markets mature, the AMPM shrinks due to increasing price competition, increasing acquisition costs, increasing costs of providing servicing and support and other factors such as change in mix of services, loss in share of high margin services etc. In such situations, the MNOs may find that AMPM asociated with wholesale minutes is higher than their averages. In addition to that, there could be niche, smaller markets, where the MNO may consider an investement to be unviable (given its operations). MVNOs could be used to address those specific niche markets and consumer segments.
Highly penetrated markets with limited competition between mobile network operators may lead to a situation where some customer segments are likely to be “underserved” in specific aspects of mbile experience. The dissatisfaction could come from either poorly tailored products and services or other brand intangibles. This is a classic case of short comings of the “One Size Fits all” strategy –> MNOs have scale benefits and lower operating costs but miss out on the Customer satisfaction bit.