Ahead of 3G launch, evolution dilemma for mobile operators

Innovate or perish — the message for telecom operators rings loud and clear.

As the sector gears up for rollout of 3G services, sector experts feel the operators will have to come up with newer ways of doing business to be able to maintain revenue continuity or face a burnout going forward.

Between themselves, telecom operators in India added 20 crore new subscribers in 2009.

But, their combined revenue increased barely 3%.

Even if one attributed 30% of the subscriber additions to usage of dual and disposable SIM cards, revenue accretion from the additional users during the year was minimal.

Understandably, therefore, breaking even on the huge amounts they have spent on acquiring 3G spectrum and putting in place the required infrastructure will be easier said than done.

Operators cite low-ticket users from rural India and ever decreasing call tariffs as the twin reasons for the decrease in revenue growth.

“With hyper competition and 10+ operators in each circle, there is always at best a tenuous equilibrium in terms of competitive dynamics. Even if consolidation were to happen, it will take some time before prices can rebound, and in my view that is a very unlikely outcome. In short, there is little upside on voice revenue in the market,” Arvind Subramanian, partner and director at Boston Consulting Group India told DNA.

Besides a decline in user revenue, operators face the threat of seemingly uncharted areas such as cloud computing and free voice services over the Internet.

“Three shifts have unleashed waves of both creativity and destruction in the telecom market. First, customer behaviour is becoming more varied, as consumers take advantage of new features at their fingertips. Fixed-line telephone has one function; the iPhone, hundreds. Customers expect anywhere, anytime access to content. Second, deregulation — a perennial force — continues to exert downward pressure on prices. Finally, open standards and global platforms such as the Web have lowered barriers to entry and fuelled an explosion in innovation and new services,” Stepan Breedveld, Ron Nicol, and Maikel Wilms, partners at Boston Consulting Group, wrote in a note in August.

As if this cocktail wasn’t deadly enough, operators also face congestion due to a surge in mobile data traffic just as their western counterparts such as AT&T have seen due to increasing iPhone usage.

In fact, and somewhat sadly, Indian telcos do not yet have data services capabilities such as user experience management.

“The next few years in Indian telecom market will mark a new era of data. Other developing markets like China and Indonesia have shown that data can quickly grow to as much as 20-30% of mobile revenue. But mobile data services demands new capabilities such as customer insight, analytics, product management, network management, pricing, promotion, user experience management, device management that the operators currently do not have and will need to build anew,” said Subramanian.

According to him, the ensuing consolidation in the telecom sector needs to take place with an eye on those capabilities.

“The key question is going to be whether those capabilities get built by the content & apps players or by the telcos in India. This is where consolidation among the mobile operators will help. It will afford the surviving operators some headroom to invest in building these capabilities,” said Subramanian.

Other observers see early signs of telcos positioning themselves for better data play in India.

“The journey for better data services has begun. On the one hand, telcos are launching entertainment services such as DTH, IPTV and content distribution, while on the other, for the enterprises, they are offering more data-based services through MPLS VPN, managed services, etc. Yes, the maturity of cross-sell and up-sell opportunities in those services will take a lot of time,” said Alok Shende, founder and distinguished researcher at Ascentius Consulting, a Mumbai-based telecom and IT sector research firm.
Others, such as Jatin Ahluwalia, a telecom sector veteran and founder director of Delhi based content development firm vRock Mobile, believe that operators in India will take time to move from outsourcing mindset to owning various newer capabilities.

“Let us take the example of one of the largest telcos in India. It has at the moment more than 100 partners providing everything from network equipment, IT to value added services and others. Besides, it manages more than 1200 applications and services for its subscribers. So, it will take time for the firm to acquire all of those capabilities in-house,” said Ahluwalia.

A telecom sector analyst at a Mumbai-based broking firm, though, feels data revenue stagnation for telcos is some time away. “We still have some voice revenue to be unlocked —- those from rural areas. Besides, data revenue is growing at about 20-25% yoy and there is huge elasticity in data services. So, we would see data revenue ticking for some 5-6 years more. But after that, telcos have to be really creative,” said the analyst, who requested not to be named as he is not authorised to speak to media.

In short, telcos will have to stay relevant as customer preferences evolve with time, say observers.