I recently met Ashish Reddy in Virginia. A 30-year-old techie from South India, he works in a lab owned by a Virginia-based telecom company. He joined this company when he was 24 and since then made it a point to visit his home town in Andhra Pradesh every other year to spend at least three weeks with his parents. But this time he is not going to India. Reddy fears that with the current recession in the US forcing many large companies to lay off thousands of employees, he may not find his job when he returns.
The economic downturn in the US is beginning to hit everyone and it is visible. We were four Indian journalists visiting the US and we travelled across New York, Virginia and California - easily among the most affluent American states. Even in this short time one could see the impact of the economic downturn.
On my arrival at the JFK Airport in New York, I happened to take a cab driven by a Sikh. The 42- year-old garrulous man, with his family in Amritsar (and a girlfriend in New York), has been chasing the great American dream in his cab for the past 10 years. But now, unable to raise enough income to repay his loans and support his family, he wants to apply the brake and go back to India.
As I was being driven to a hotel, the Sardarji, instead of showing me the sights and sounds of the Big Apple, was pointing out at the beggars on the street and young men with cards around their necks which read "Willing to work - Want a job". Coming from India, where such sights are common, I did not give it a second thought.
But when I reached the hotel, a reputed international chain near Times Square, I was quite surprised to find the absence of basic services, usually associated with a top notch hotel. The toothpaste, brush and a shaving kit were a part of the mini-bar, priced at $5 each! I was lucky to have packed a full toilet kit but my fellow journalists had to trudge to Times Square to buy toothpaste in the middle of the night.
A hotel employee said the management had decided to offer a no-frills service given the increasing costs and declining visitors as a result of the economic slowdown. There were other stronger signals too. Near-empty malls even on the eve of Thanksgiving Day, newspapers with depressing stories, shops giving massive discounts as they were going out of business and people like Reddy are bracing themselves for tough times ahead. Take the case of Shailesh, a Gujarati, who sells premium range shoes in a mall located in the upmarket Santa Clara area. In normal times, his clients included top executives of the Silicon Valley. But sales were dipping over the past few months. He expected business to pick up during the Thanksgiving week but I saw just a few guys hanging around.
When a fellow journalist walked in to buy a pair of shoes, the Gujarati man was so desperate to get a sale done that he offered a 40 per cent discount. Tony, the owner of a cab agency who drove us around San Francisco, said his business had declined by 30 per cent over the past four months. "People are travelling less these days. I haven't seen some of my regular clients for many months now," he said.
The last time I was in New York was right after the 9/11 attacks. I really don't know what was more depressing - the sight where the twin towers once stood or the grim look on the faces of executives as I walked down Wall Street.
But what stood out then, as also now, are the determination and hope that Americans harbour as they go about making sense of the latest crisis. It is this hope that has given the newly elected President Barack Obama a superman- like status. So one could see Obama caps, Obama T-shirts, Obama posters being sold on New York streets. People like Tony are betting huge on the next US President. You ask anyone about their opinion on Obama, especially the youngsters, and their eyes light up.
And to be fair, things are not all that bad. Not when compared with Indian lifestyle. Yes, Americans may not be buying SUVs or yachts, but we had to wait for an hour before we could find a seat at Sarabeth's - the hugely popular restaurant near the Central Park in New York. The hotels may be offering no-frill service, but we were being driven around in a stretch limousine through San Francisco. Well, recession is a relative term.
Flying back home, I thought of Reddy and sent up a fervent prayer that he'll be able to visit his parents soon.
Saturday, December 13, 2008
Thursday, December 11, 2008
Unified Rivalry
They have been fighting a pitched battle for a larger share of the global unified communications market for over two years. Now with the Indian enterprise segment increasingly investing in efficient networks and productive systems, the brawl between Microsoft, Avaya and Cisco has hit Indian shores. Ironically, one is a software giant, the other two are the leaders in traditional communications hardware. While Microsoft wants to leverage its dominant position in the desk top software market, Cisco and Avaya are betting on its strength as a leading provider of IP based voice solutions to tap the growing unified communication space.
Depending on who you talk to, unified communications is described as telephone and video collaboration, or as a converged network for voice and data, or used as an all-encompassing term to describe all forms of call and multimedia/cross-media message-management functions. To put it simply, a unified communications system includes elements of presence, instant messaging, IP telephony, audio conferencing, web conferencing or data collaboration, unified messaging (a common message store for voicemail, email, and faxes),mobility, and/or video conferencing -- all accessible through a single client interface or within an embedded application interface.
When done right, unified communications can reduce downtime that’s implicit in any interaction. Consider this: according to a study, more than 70 percent of business calls are placed on hold for an average of 45 to 60 seconds each in a traditional legacy network. The average executive spends 17 minutes each day on hold, and some 80 percent of phone calls end up in voice mail. UC curbs the wastage of time by letting users reach the right person at the right time through their preferred mode of contact. This goes way beyond slashing hold times or staying clear of voice mail. It means organising information faster and getting that information to the right person in a usable format when the recipient needs it most.
“The prime deliverables of UC are cost reduction/ optimization and productivity improvement. Both of these are as well the prime objectives of each of the business leaders in India. This convergence of deliverables and objectives is driving the interest in UC and its uptake,” says Mr. Vivek Porwal, BU Head – Unified Communications, Avaya GlobalConnect.
The unified communications global market is estimated to touch nearly $48 billion by 2012. In India, the UC market is still nascent with total size of around $600 million. But this is quickly growing exponentially even as small and medium enterprise segment is beginning to understand the benefits of deploying UC solutions. Growth rate of UC in India is among the highest globally. According to a forecast from Frost & Sullivan on UC in India, the total market size of UC is likely to grow to more than $1B by 2010. Explaining the uptake of UC, Mr K.B. Sanish, Research Analyst, Gartner India says, “ According to our user analysis in North America and Europe in the CME segment some the major reasons for implementing unified communications is as follows: Of the organizations that have implemented UC, the top two reasons cited for deploying it is related to business process improvements. These included improving the speed of business across the organization (cited by 44% of respondents) and offering better communications for distributed sites and remote or mobile workers (cited by 39% of respondents).”
According to Gartner, hard factors like a need to replace equipment and lower total cost of ownership each also played a part in the decisions of 33% to 36% of CMEs that made unified communications investments.
While everyone agrees on the potential and benefits of UC in India, vendors are working on different strategies to garner a larger share of this market. As expected, Microsoft’s approach is focused on desktops and email based applications. It is integrating several collaborative applications to enable UC functions on the desktop. Microsoft is playing to its strengths here because it’s the market leader in desktop software and has a long history in many aspects of UC such as e-mail, office productivity tools and instant messaging. “Microsoft has long seen that the path to UC was in powerful, well-integrated software. Microsoft UC solutions enable customers to preserve their investments in their PBX and avoid upgrading their network infrastructure while quickly realizing the productivity and cost-reduction benefits of unified communications. Designing unified communications functionality into the solution rather than acquiring point products helps provide customers with an enhanced end-user experience and helps make system management easier. Because Microsoft takes a software-platform approach rather than relying on hardware, customers receive investment protection,” says Mr Sanjay Manchanda, Director, Microsoft Business Division, Microsoft India
On the other hand Cisco and Avaya’s strategy is to start with an intelligent IP network and build the UC capabilities into the network. Says Minhaj Zia, National Sales Manager, Unified Communications, Cisco India & SAARC. “Cisco's core business is enabling an IP based network platform. Since it is the leader in this market and IP enables the ability to converge data, voice, video and mobility, we are well positioned to drive the UC platform in the market over the next few years.”
Both sides of the camp feel that their approach to UC is better than the other. Taking a shot at Microsoft’s strategy, Avaya’s Porwal says, “E-mail and desktop UC accounts for only 10-15 per cent of the UC revenues. Major revenues for UC are from Voice and Collaboration. Voice (including IP telephony) contributed the maximum proportion of approx. 73 per cent of this market followed by conferencing (video, audio and web) and messaging and calendaring (which includes e-Mail, Internet Messaging, Unified Messaging and mobile business messaging,” says Avaya’s Porwal
But Microsoft reckons that this is far from the truth. “The most used application in enterprises today is e-mail. According to an IDC report on unified communications, stand alone e-mail is still considered biggest productivity tool and ranks topmost (96% ranked it among top 3 applications having impacted productivity the most). Microsoft is focused on extending the same familiar Outlook experience to other applications. Microsoft has always held that e-mail is a critical component of unified communications and now competitors are changing their approach to fill out clear gaps in their solutions that Microsoft is already offering. In fact, Cisco’s acquisition of Post Path, a Linux-based messaging solution provider (Exchange competitor) is a testament to the fact Unified Communications is not just about telephony,” counters Manchanda.
Traditional IP hardware vendors such as Cisco think that voice based applications are clearly driving the UC market. “Microsoft is talking about email and desktops because it does not have a good voice solution in its UC portfolio,” says Zia.
Admitting that it is lagging behind when it comes to the telephony aspect of UC, the software major, which has clients including Marico, Moser Baer, NIIT, BILT and Laxmi Vilas Bank, says it is working on to plug the gap. “We are taking proactive steps in building our Voice Credibility by showcasing our Voice Quality and its integration with our Email, IM and Conferencing environments. We are doing this through an extensive Pilot program and Partner Enablement. In just in a year of entering voice, we have featured in the Gartner Magic Quadrant for Telephony (2008) in the Visionary quadrant. The telephony space has been contested by our competitors for many years now and for us to come from software background and positioned in the visionary quadrant is creditable,” says Manchanda.
Cisco, which was among the first to move into the UC space and sold millions of IP phones before Microsoft entered this segment, claim that Microsoft solutions are not open sourced. “Microsoft mostly insists on using their software and applications, especially on the desk top, whereas Cisco has always believed in the interoperating with existing systems and applications. This has cost implications for the users,” says Zia
Responds Manchanda, “On the contrary, Microsoft Unified Communications solution is compatible and interoperable with other communication infrastructure used by organisations today. In fact we offer choice in end point devices with partners like Polycom and other SIP phone providers which are more cost effective than other competitors like Cisco and Avaya who provide their own hardware (server, gateway and phones) to run their applications. Customers are tied into these investments and very often the cost of upgrading this hardware turns out to be more expensive than a new purchase.”
But even as they fight it out, there are some common challenges for the vendors. For one UC is still primarily being deployed by verticals which have been traditionally strong in using IT in enhancing their productivity i.e. banking and financial sector and ITeS. Other sectors are still weighing their options. Second, UC is highly segmented with not many corporates deploying the entire gamut of services under the unified communications portfolio. At present, companies are deploying just some parts of the solution which could be just IP telephony or just an email based application with some video capabilities. Analysts predict that it will take another 2 years or more for Indian corporates to start using UC in its true sense. However the vendors are confident that given the huge benefits that UC brings to the enterprise segment in terms of cost savings and better productivity, there is a compelling reason for more and more corporates to adopt it.
Therefore there are other players like IBM and Nortel who have also jumped into the fight for UC deals. According to industry estimate, UC deals worth $400 million could be up for grabs in India over the next 2 years. Clearly, the gloves are off. The battle is so fierce that even independent analysts, with whom e-world spoke to, refused to stick their neck out with their prediction on who will win. The first round though seems to have gone to Avaya, which according to IDC has a 30 per cent share and is the market leader in the unified communications space in India. But the war has just begun with many more rounds to go.
Depending on who you talk to, unified communications is described as telephone and video collaboration, or as a converged network for voice and data, or used as an all-encompassing term to describe all forms of call and multimedia/cross-media message-management functions. To put it simply, a unified communications system includes elements of presence, instant messaging, IP telephony, audio conferencing, web conferencing or data collaboration, unified messaging (a common message store for voicemail, email, and faxes),mobility, and/or video conferencing -- all accessible through a single client interface or within an embedded application interface.
When done right, unified communications can reduce downtime that’s implicit in any interaction. Consider this: according to a study, more than 70 percent of business calls are placed on hold for an average of 45 to 60 seconds each in a traditional legacy network. The average executive spends 17 minutes each day on hold, and some 80 percent of phone calls end up in voice mail. UC curbs the wastage of time by letting users reach the right person at the right time through their preferred mode of contact. This goes way beyond slashing hold times or staying clear of voice mail. It means organising information faster and getting that information to the right person in a usable format when the recipient needs it most.
“The prime deliverables of UC are cost reduction/ optimization and productivity improvement. Both of these are as well the prime objectives of each of the business leaders in India. This convergence of deliverables and objectives is driving the interest in UC and its uptake,” says Mr. Vivek Porwal, BU Head – Unified Communications, Avaya GlobalConnect.
The unified communications global market is estimated to touch nearly $48 billion by 2012. In India, the UC market is still nascent with total size of around $600 million. But this is quickly growing exponentially even as small and medium enterprise segment is beginning to understand the benefits of deploying UC solutions. Growth rate of UC in India is among the highest globally. According to a forecast from Frost & Sullivan on UC in India, the total market size of UC is likely to grow to more than $1B by 2010. Explaining the uptake of UC, Mr K.B. Sanish, Research Analyst, Gartner India says, “ According to our user analysis in North America and Europe in the CME segment some the major reasons for implementing unified communications is as follows: Of the organizations that have implemented UC, the top two reasons cited for deploying it is related to business process improvements. These included improving the speed of business across the organization (cited by 44% of respondents) and offering better communications for distributed sites and remote or mobile workers (cited by 39% of respondents).”
According to Gartner, hard factors like a need to replace equipment and lower total cost of ownership each also played a part in the decisions of 33% to 36% of CMEs that made unified communications investments.
While everyone agrees on the potential and benefits of UC in India, vendors are working on different strategies to garner a larger share of this market. As expected, Microsoft’s approach is focused on desktops and email based applications. It is integrating several collaborative applications to enable UC functions on the desktop. Microsoft is playing to its strengths here because it’s the market leader in desktop software and has a long history in many aspects of UC such as e-mail, office productivity tools and instant messaging. “Microsoft has long seen that the path to UC was in powerful, well-integrated software. Microsoft UC solutions enable customers to preserve their investments in their PBX and avoid upgrading their network infrastructure while quickly realizing the productivity and cost-reduction benefits of unified communications. Designing unified communications functionality into the solution rather than acquiring point products helps provide customers with an enhanced end-user experience and helps make system management easier. Because Microsoft takes a software-platform approach rather than relying on hardware, customers receive investment protection,” says Mr Sanjay Manchanda, Director, Microsoft Business Division, Microsoft India
On the other hand Cisco and Avaya’s strategy is to start with an intelligent IP network and build the UC capabilities into the network. Says Minhaj Zia, National Sales Manager, Unified Communications, Cisco India & SAARC. “Cisco's core business is enabling an IP based network platform. Since it is the leader in this market and IP enables the ability to converge data, voice, video and mobility, we are well positioned to drive the UC platform in the market over the next few years.”
Both sides of the camp feel that their approach to UC is better than the other. Taking a shot at Microsoft’s strategy, Avaya’s Porwal says, “E-mail and desktop UC accounts for only 10-15 per cent of the UC revenues. Major revenues for UC are from Voice and Collaboration. Voice (including IP telephony) contributed the maximum proportion of approx. 73 per cent of this market followed by conferencing (video, audio and web) and messaging and calendaring (which includes e-Mail, Internet Messaging, Unified Messaging and mobile business messaging,” says Avaya’s Porwal
But Microsoft reckons that this is far from the truth. “The most used application in enterprises today is e-mail. According to an IDC report on unified communications, stand alone e-mail is still considered biggest productivity tool and ranks topmost (96% ranked it among top 3 applications having impacted productivity the most). Microsoft is focused on extending the same familiar Outlook experience to other applications. Microsoft has always held that e-mail is a critical component of unified communications and now competitors are changing their approach to fill out clear gaps in their solutions that Microsoft is already offering. In fact, Cisco’s acquisition of Post Path, a Linux-based messaging solution provider (Exchange competitor) is a testament to the fact Unified Communications is not just about telephony,” counters Manchanda.
Traditional IP hardware vendors such as Cisco think that voice based applications are clearly driving the UC market. “Microsoft is talking about email and desktops because it does not have a good voice solution in its UC portfolio,” says Zia.
Admitting that it is lagging behind when it comes to the telephony aspect of UC, the software major, which has clients including Marico, Moser Baer, NIIT, BILT and Laxmi Vilas Bank, says it is working on to plug the gap. “We are taking proactive steps in building our Voice Credibility by showcasing our Voice Quality and its integration with our Email, IM and Conferencing environments. We are doing this through an extensive Pilot program and Partner Enablement. In just in a year of entering voice, we have featured in the Gartner Magic Quadrant for Telephony (2008) in the Visionary quadrant. The telephony space has been contested by our competitors for many years now and for us to come from software background and positioned in the visionary quadrant is creditable,” says Manchanda.
Cisco, which was among the first to move into the UC space and sold millions of IP phones before Microsoft entered this segment, claim that Microsoft solutions are not open sourced. “Microsoft mostly insists on using their software and applications, especially on the desk top, whereas Cisco has always believed in the interoperating with existing systems and applications. This has cost implications for the users,” says Zia
Responds Manchanda, “On the contrary, Microsoft Unified Communications solution is compatible and interoperable with other communication infrastructure used by organisations today. In fact we offer choice in end point devices with partners like Polycom and other SIP phone providers which are more cost effective than other competitors like Cisco and Avaya who provide their own hardware (server, gateway and phones) to run their applications. Customers are tied into these investments and very often the cost of upgrading this hardware turns out to be more expensive than a new purchase.”
But even as they fight it out, there are some common challenges for the vendors. For one UC is still primarily being deployed by verticals which have been traditionally strong in using IT in enhancing their productivity i.e. banking and financial sector and ITeS. Other sectors are still weighing their options. Second, UC is highly segmented with not many corporates deploying the entire gamut of services under the unified communications portfolio. At present, companies are deploying just some parts of the solution which could be just IP telephony or just an email based application with some video capabilities. Analysts predict that it will take another 2 years or more for Indian corporates to start using UC in its true sense. However the vendors are confident that given the huge benefits that UC brings to the enterprise segment in terms of cost savings and better productivity, there is a compelling reason for more and more corporates to adopt it.
Therefore there are other players like IBM and Nortel who have also jumped into the fight for UC deals. According to industry estimate, UC deals worth $400 million could be up for grabs in India over the next 2 years. Clearly, the gloves are off. The battle is so fierce that even independent analysts, with whom e-world spoke to, refused to stick their neck out with their prediction on who will win. The first round though seems to have gone to Avaya, which according to IDC has a 30 per cent share and is the market leader in the unified communications space in India. But the war has just begun with many more rounds to go.
Tuesday, September 23, 2008
Do we need MVNOs?
What is common to supermarket firm Tesco, coffee shop Tchibo, hamburger chain Hesburger, periodical Cosmo Girl, broadcasters MTV, ESPN and Disney, airline Easyjet and music bands the Twins, Nelly, and Kiss? All of them have tried to get into the telecom business as a Mobile Virtual Network Operator (MVNO).
What started in 1999, when Richard Branson’s Virgin brand started using T-Mobile’s network and spectrum to offer cellular services in the UK, has now become a global phenomenon with more than 350 MVNOs around the globe. MVNOs are a category of service providers who take bandwidth and infrastructure on wholesale rates from existing mobile operators and then resell them in the market with their own branding and tariff plans.
Indian telecom consumers will also get their own set of MVNOs soon. The Department of Telecom, in consultation with the Telecom Regulatory Authority of India (TRAI), is working on a policy framework to allow Mobile Virtual Network Operators to start cellular services in the country. This could potentially bring in another five-ten more new players into the Indian cellular segment, which is now the world’s fastest growing market.
But with as many nine-ten players already offering the lowest tariffs in the world, is there a business case for MVNOs? While incumbent operators believe that there is not much scope for MVNOs in India, virtual operators could be in vogue. Most of the existing operators currently have price as their differentiator. There needs to be a better value proposition than just voice and text bundles. MVNOs will play a key role in bringing about this paradigm shift with differentiated services and accessing untapped market segments. The partnership between Tata Teleservices and Virgin Mobile is an example in the Indian context. Virgin Mobile started the ‘Get paid for your incoming calls’ plan specifically targeted at the youth segment. Within five months of launching the service, Virgin has managed to get over 3 lakh subscribers.
The MVNO platform also provides global telecom majors an easy foray into the booming Indian mobile market. Since acquiring a new telecom licence in the country has become a daunting task, global telecom majors, including BT, Verizon and France Telecom, are all betting on entering through the Mobile Virtual Network Operators route.
As an MVNO, these telecom companies will be able to get into the mobile space quicker without owning any infrastructure or spectrum and at much lower costs compared to existing telecom operators. MVNOs will not only provide customers with a wider bouquet of services and value-added service but they will also serve to introduce greater competition, which should, in turn, bring down telecom prices. MVNOs also enable non-telecom companies to enter the mobile world. Their specialties, such as brand, content and distribution, are strong assets to create an attractive business proposition. Apart from customer acquisition, the benefits of non-telecom players becoming an MVNO are an enhanced customer relationship and more direct and easy access to the customer through mobile devices. An MVNO, such as a bank or a retail chain, is in a better position to afford razor-thin margins, leveraging the shared overhead costs by other lines of business, says a new report called Asia Calling: Taking on the rising MVNO wave in Asia from Ernst & Young.Issue of Sharing spectrum
But some of the incumbent operators, who are not in favour of opening the market for MVNOs, argue that the Government should first make sure that there is enough spectrum for existing players. But the fact is that the spectrum crunch is limited to metros and larger towns. It is not an India-wide issue. In the international market, MVNOs have so far evoked mixed reactions. Globally, there are about 350 virtual operators of which some have found success, including operators in Denmark who have captured nearly 25 per cent of the market from existing players. But others in the US, such as Walt Disney, have not found too much success. MVNOs have been successful only if they offer a ‘low frill’, ‘low cost’, ‘SIM only service’ to customers, and if they offer a differentiated service offering to a target segment and create a niche e.g. Carphone Warehouse in the UK has almost 1,700 stores which gives it the capacity to reach out to a large chunk of UK subscribers.
However, fearing erosion in their market share, existing mobile players including Bharti Airtel, Reliance Communications and BSNL have taken a stand that MVNOs may be irrelevant to the Indian market.
Reluctance from existing players could wilt the MVNO story because they may find it difficult to find an operator who would be willing to share infrastructure. Moreover, existing operators’ wish to protect their own brand name could result in a turf battle in case any of the MVNOs succeed.
But like it happened in other countries slowly and steadily, the operators will come around once they realise the value an MVNO brings to the partnership. Prospective MVNO companies have sought TRAI’s intervention to make it mandatory for the existing operators to share infrastructure.
There could be other challenges too. According to Ernst & Young, MVNOs have to compete with well-entrenched players where they usually have a strong brand presence. This could mean higher marketing and distribution costs for MVNOs as they rely heavily on branding.
MVNOs also are completely dependent on the host carriers’ network coverage and reliability, and depend on them for service upgrades. They will have to risk their brands for inferior service quality from the operators.
The necessity for MVNOs to compete on price in the short term, particularly in the low Average Revenue Per User (ARPU) Indian environment, exerts pressure on MVNO profit margins. As more players enter the market, they will drive down ARPU further, making the financial proposition less attractive. But Indian mobile services market is moving towards one that will be conducive for the entry of MVNOs, especially with a number of new licensed operators planning to launch GSM mobile services by the end of the year. New players such as Unitech and Datacom will have significant excess capacity available on their Networks. These operators will not be able to roll out their services to all parts of the country. This is where an MVNO can help them in competing with the existing national players. Some of the existing players, who are not in the top 2 or 3 in terms of subscriber base, will also have excess spectrum that can be shared with an MVNO. The other major catalyst for the emergence of MVNOs is the rollout of third generation (3G) technology based networks. As customers are migrated to 3G, the 2G network capacity becomes more readily available and the generally low 3G adoption also implies surplus 3G capacity. That’s an open invitation to desi brands such as coffee chain Barista, airline Kingfisher, broadcaster NDTV, supermarket Reliance Retail and banks such as ICICI to foray into the Indian telecom space as an MVNO.
What started in 1999, when Richard Branson’s Virgin brand started using T-Mobile’s network and spectrum to offer cellular services in the UK, has now become a global phenomenon with more than 350 MVNOs around the globe. MVNOs are a category of service providers who take bandwidth and infrastructure on wholesale rates from existing mobile operators and then resell them in the market with their own branding and tariff plans.
Indian telecom consumers will also get their own set of MVNOs soon. The Department of Telecom, in consultation with the Telecom Regulatory Authority of India (TRAI), is working on a policy framework to allow Mobile Virtual Network Operators to start cellular services in the country. This could potentially bring in another five-ten more new players into the Indian cellular segment, which is now the world’s fastest growing market.
But with as many nine-ten players already offering the lowest tariffs in the world, is there a business case for MVNOs? While incumbent operators believe that there is not much scope for MVNOs in India, virtual operators could be in vogue. Most of the existing operators currently have price as their differentiator. There needs to be a better value proposition than just voice and text bundles. MVNOs will play a key role in bringing about this paradigm shift with differentiated services and accessing untapped market segments. The partnership between Tata Teleservices and Virgin Mobile is an example in the Indian context. Virgin Mobile started the ‘Get paid for your incoming calls’ plan specifically targeted at the youth segment. Within five months of launching the service, Virgin has managed to get over 3 lakh subscribers.
The MVNO platform also provides global telecom majors an easy foray into the booming Indian mobile market. Since acquiring a new telecom licence in the country has become a daunting task, global telecom majors, including BT, Verizon and France Telecom, are all betting on entering through the Mobile Virtual Network Operators route.
As an MVNO, these telecom companies will be able to get into the mobile space quicker without owning any infrastructure or spectrum and at much lower costs compared to existing telecom operators. MVNOs will not only provide customers with a wider bouquet of services and value-added service but they will also serve to introduce greater competition, which should, in turn, bring down telecom prices. MVNOs also enable non-telecom companies to enter the mobile world. Their specialties, such as brand, content and distribution, are strong assets to create an attractive business proposition. Apart from customer acquisition, the benefits of non-telecom players becoming an MVNO are an enhanced customer relationship and more direct and easy access to the customer through mobile devices. An MVNO, such as a bank or a retail chain, is in a better position to afford razor-thin margins, leveraging the shared overhead costs by other lines of business, says a new report called Asia Calling: Taking on the rising MVNO wave in Asia from Ernst & Young.Issue of Sharing spectrum
But some of the incumbent operators, who are not in favour of opening the market for MVNOs, argue that the Government should first make sure that there is enough spectrum for existing players. But the fact is that the spectrum crunch is limited to metros and larger towns. It is not an India-wide issue. In the international market, MVNOs have so far evoked mixed reactions. Globally, there are about 350 virtual operators of which some have found success, including operators in Denmark who have captured nearly 25 per cent of the market from existing players. But others in the US, such as Walt Disney, have not found too much success. MVNOs have been successful only if they offer a ‘low frill’, ‘low cost’, ‘SIM only service’ to customers, and if they offer a differentiated service offering to a target segment and create a niche e.g. Carphone Warehouse in the UK has almost 1,700 stores which gives it the capacity to reach out to a large chunk of UK subscribers.
However, fearing erosion in their market share, existing mobile players including Bharti Airtel, Reliance Communications and BSNL have taken a stand that MVNOs may be irrelevant to the Indian market.
Reluctance from existing players could wilt the MVNO story because they may find it difficult to find an operator who would be willing to share infrastructure. Moreover, existing operators’ wish to protect their own brand name could result in a turf battle in case any of the MVNOs succeed.
But like it happened in other countries slowly and steadily, the operators will come around once they realise the value an MVNO brings to the partnership. Prospective MVNO companies have sought TRAI’s intervention to make it mandatory for the existing operators to share infrastructure.
There could be other challenges too. According to Ernst & Young, MVNOs have to compete with well-entrenched players where they usually have a strong brand presence. This could mean higher marketing and distribution costs for MVNOs as they rely heavily on branding.
MVNOs also are completely dependent on the host carriers’ network coverage and reliability, and depend on them for service upgrades. They will have to risk their brands for inferior service quality from the operators.
The necessity for MVNOs to compete on price in the short term, particularly in the low Average Revenue Per User (ARPU) Indian environment, exerts pressure on MVNO profit margins. As more players enter the market, they will drive down ARPU further, making the financial proposition less attractive. But Indian mobile services market is moving towards one that will be conducive for the entry of MVNOs, especially with a number of new licensed operators planning to launch GSM mobile services by the end of the year. New players such as Unitech and Datacom will have significant excess capacity available on their Networks. These operators will not be able to roll out their services to all parts of the country. This is where an MVNO can help them in competing with the existing national players. Some of the existing players, who are not in the top 2 or 3 in terms of subscriber base, will also have excess spectrum that can be shared with an MVNO. The other major catalyst for the emergence of MVNOs is the rollout of third generation (3G) technology based networks. As customers are migrated to 3G, the 2G network capacity becomes more readily available and the generally low 3G adoption also implies surplus 3G capacity. That’s an open invitation to desi brands such as coffee chain Barista, airline Kingfisher, broadcaster NDTV, supermarket Reliance Retail and banks such as ICICI to foray into the Indian telecom space as an MVNO.
Monday, September 8, 2008
Whats blocking AT&T's India plans!
Just a month away from 3G auctions in the country and foreign players are still looking for ways to enter the Indian market. After the Department of Telecom refused to review the decision to impose an entry fee of Rs 1,650 crore on new players wanting to bid for 3G spectrum, foreign players have now approached the Government to relax the merger and acquisition norms. Foreign operators want DoT to allow them to merge with an existing 2G operator if they manage to win 3G spectrum.
According to current M&A norms, new licence holders can merge or acquire only after 3 years. Last week DoT’s Secretary, Mr Siddharth Behura, said the policy was not unfair to foreign players. He had listed out three options whereby a foreign player could enter the booming mobile market.
“International operators who win in the bidding for 3G spectrum will have three options — they can acquire a unified access service licence or acquire up to 74 per cent stake in an existing operator or merge their 3G licence with an existing 2G licensee,†Mr Behura had told reporters on Friday on the sidelines of an industry event.
However, foreign players have rejected all the three options on the grounds that it is unviable. If they acquire a unified access licence by paying Rs 1,650 crore after winning the 3G bid, they will not get any 2G spectrum along with it. With just 5 Mhz spectrum being given for 3G, it won’t be enough for them to compete with existing operators who may have both 2G and 3G spectrum to play with.
The second option is to pick up a 74 per cent in existing unified access operator who has 2G spectrum but that could cost a premium. Some of the new players are already being valued at $3 billion even without starting any services. The third option of merging their 3G licence with a new 2G operator is the best option.
But DoT needs to clarify whether foreign players can merge with a 2G player without having to acquire a unified access licence from the Government.
Since the M&A norms prescribe a 3-year lock-in period on new players, foreign players want DoT to allow them to merge with 2G players, after winning the 3G spectrum, without having to acquire a unified licence from the Government separately.
Foreign players have also urged DoT to re-look at the option of auctioning 2G spectrum in which case they can bid for it. In case DoT is not willing to change the M&A rules, they have suggested that the entry cost of a vanilla unified access without 2G spectrum should be just Rs 80 crore instead of Rs 1,650 crore.
Meanwhile, analysts are suggesting that international players should not participate in the auction process at present as their growth prospects are limited by regulatory and market factors. They should keep themselves out of the race for the time being and wait for a better time, suggests a recent report by research firm Strategy Analytics. Will AT&T keep away?
According to current M&A norms, new licence holders can merge or acquire only after 3 years. Last week DoT’s Secretary, Mr Siddharth Behura, said the policy was not unfair to foreign players. He had listed out three options whereby a foreign player could enter the booming mobile market.
“International operators who win in the bidding for 3G spectrum will have three options — they can acquire a unified access service licence or acquire up to 74 per cent stake in an existing operator or merge their 3G licence with an existing 2G licensee,†Mr Behura had told reporters on Friday on the sidelines of an industry event.
However, foreign players have rejected all the three options on the grounds that it is unviable. If they acquire a unified access licence by paying Rs 1,650 crore after winning the 3G bid, they will not get any 2G spectrum along with it. With just 5 Mhz spectrum being given for 3G, it won’t be enough for them to compete with existing operators who may have both 2G and 3G spectrum to play with.
The second option is to pick up a 74 per cent in existing unified access operator who has 2G spectrum but that could cost a premium. Some of the new players are already being valued at $3 billion even without starting any services. The third option of merging their 3G licence with a new 2G operator is the best option.
But DoT needs to clarify whether foreign players can merge with a 2G player without having to acquire a unified access licence from the Government.
Since the M&A norms prescribe a 3-year lock-in period on new players, foreign players want DoT to allow them to merge with 2G players, after winning the 3G spectrum, without having to acquire a unified licence from the Government separately.
Foreign players have also urged DoT to re-look at the option of auctioning 2G spectrum in which case they can bid for it. In case DoT is not willing to change the M&A rules, they have suggested that the entry cost of a vanilla unified access without 2G spectrum should be just Rs 80 crore instead of Rs 1,650 crore.
Meanwhile, analysts are suggesting that international players should not participate in the auction process at present as their growth prospects are limited by regulatory and market factors. They should keep themselves out of the race for the time being and wait for a better time, suggests a recent report by research firm Strategy Analytics. Will AT&T keep away?
Sunday, August 24, 2008
Good call on Internet Telephony
The Telecom Regulatory Authority of India’s proposal to allow unrestricted Internet telephony augurs well for both the consumers and the telecom industry. Currently the Internet can be used only to make calls between two computer users within the country. The new proposal from the regulator will allow consumers to make calls through the Internet using normal mobile and fixed line phones. This recommendation has come at a time when domestic long distance calling rates seems to have hit a plateau. And as a corollary the minutes of STD usage per month is not picking up in proportion to the average increase in local call minutes. The basic problem in the domestic long distance telephony segment is that there is not enough competition to drive the market dynamics. Though there are more than 10 companies with licences to offer long distance telephone services, most of them are focused on services meant for the lucrative enterprise segment. There are not more than 4 operators offering STD services to the common population at a pan Indian level. Allowing unrestricted Internet telephony could take the number of operators to more than 50 as the technology allows the local Internet Service Provider to become an STD operator by routing calls, both local and long distance, through the world wide web. Compared to traditional long distance telephone services, the cost of offering Internet telephony is marginal as it does not require an ISP to own large networks of optic fibre cable or a cellular network spread across the country. It also works out cheaper because ISPs do not have to pay any carriage charges for Internet based calls, normally associated with the traditional long distance telephone service. Net telephony coupled with the regulator’s new proposal to allow consumers to choose their long distance operator through calling cards will make this segment more competitive. The net result of all this is that consumers will be able to get a choice of operators while making a long distance call at a fraction of the tariffs that exists today. The industry too benefits as it will bring a new stream of revenue for both the ISPs and the existing telecom operators. The Internet Service Providers Association of India reckons that Net telephony will give a fillip to the broadband uptake in the country as the ability to make telephone calls over the Internet would make it a more compelling reason for the consumer to take a connection. Leading telecom markets like Europe and the USA have already adopted this technology. Globally about 18 per cent of voice calls are now being routed through the Internet. Fearing that this trend may be replicated in India too, incumbent players have raised objections to the TRAI’s recommendations. They have demanded that the level playing field should be maintained by asking the ISPs to pay an entry fee of Rs 1650 crore before they can start offering voice calls. The same telecom operators were allowed to launch Net telephony by the Government two years back but no one has offered the benefits of this technology to the consumers. Now when the ISPs are being allowed to offer this service, the existing operators are playing the level playing field card worried over losing their market share. But any such levy on the ISPs would kill Net telephony even before it has started. In fact internet telephony, if introduced, will also benefit the incumbent telecom players in the form of additional revenue by leasing out capacity to the ISPs. Plus the telcos can themselves start offering Net telephony services and compete with ISPs in the market place rather than at the regulatory level. In any case the interests of the consumers outweigh the interest of any particular segment of the industry. It has taken more than 4 years for the TRAI to come out with this consumer friendly recommendation. The Government should stay clear of any pressure from the lobby groups and allow unrestricted Net telephony at the earliest.
Sunday, August 3, 2008
All set for 3G
Paving the way for high speed mobile connectivity in the country, the Communications and IT Minister, Mr A. Raja, on Friday said that the auction for third generation mobile services will be completed in four months.
3G services are expected to facilitate higher speeds and data throughputs, which enable the delivery of a wide range of multimedia services, including video telephony, e-commerce and television on mobile devices like handsets, smart phones and palm tops. For instance, a 3-minute song can be downloaded in 15 seconds using 3G compared with the 8 minutes needed in existing mobile technologies. Consumers will, however, have to pay extra for the service and also buy a 3G-compatible handset.
To start with, only 4-5 operators per circle will be selected from the auction process due to limited availability of spectrum. Delhi and Mumbai will each have only two 3G operators of which one slot has already been given to the State-owned MTNL. Given that there are at least 9-10 private players in the fray, the lower number of slots could make the bidding more aggressive, especially in the two metro cities. That could in turn make 3G services expensive for consumers.
But operators said they would make 3G affordable in a price-sensitive market like India. “If 3G has to succeed in India, then operators will have to take the affordability plank. We have seen this in voice services where the uptake was low as long as the tariffs were high. In other countries, 3G may be a premium service but here it could be a different story,” said Mr T.V. Ramachandran, Director-General, Cellular Operators Association of India. One of the first things before anyone can experience third generation services is to have a compatible device. Currently, a simple 3G-enabled mobile handset costs about Rs 8,000 and a high-end smart phone costs about Rs 20,000. But device manufacturers such as Nokia, Sony Ericsson, and chip makers such as Qualcomm are taking a slew of initiatives to make these devices affordable in India.
Qualcomm, for instance, is working on smart phones that cost Rs 10,000 and a PC-like Internet access device priced at around Rs 8,000. The company is also planning to launch a USB port priced at around Rs 3,500, which will allow consumers to access high speed wireless broadband on their laptops or PCs.
“We are aggressively taking initiatives to make 3G devices affordable. We have the devices and using our single chip solution we have been able to arrive at a price point that is suited to the Indian market,” Mr Kanwalinder Singh, President, Qualcomm Indian and South Asia, told Business Line.
Qualcomm is also in talks with Indian mobile operators to launch carrier branded 3G mobile handsets. “Operators such as Vodafone and Hutchison have their own handset brands for 3G services in Europe. In India, too, we think that Indian GSM operators will launch 3G services bundled with their own branded handsets. We are in talks with them to work out the deal with an OEM manufacturer,” Mr Singh said.
Nokia, which has more than 25 3G enabled handsets in the market is also working on the affordability issue.
Mr D. Shivakumar, Vice-President and Managing Director, Nokia India, said, “The announcement of the 3G policy heralds the next phase of growth for India’s growing mobile industry. Nokia has a holistic approach towards driving the adoption of 3G in India, both at the infrastructure and at the handset level.
“As the market leader, we firmly believe that 3G technologies and future enhancements will offer the most expeditious and cost-effective means of providing mobile Internet access to the mass market.”High stakes
Since the success of 3G in India is paramount to the interest of all these global vendors, they will be announcing India-specific initiatives. No other market can give volumes like India can. Globally, 3G services is still at an early stage and if it succeeds in India, then the vendors can go to other developing countries with cheaper devices.
Third generation mobile policy couldn’t have come at a better time for cellular service providers. At a time when their average revenue per user is slipping to below Rs 250 and when most operators are faced with severe crunch in spectrum, 3G services is being looked at nothing less than the messiah for operators.
Over the past two years, GSM-based operators have been reporting declining ARPUs, one of the indicators of their financial health. They have tried to bring in a number of new value added services to counter the declining tariffs for voice calls. However, with existing cellular technologies only so much was possible. With 3G technology operators are hoping to introduce high speed data services that will bring new services such as video on demand, mobile TV, video telephony and other entertainment related services. At speeds that are almost 10 times the existing technologies, 3G will provide a better user experience. Other than revenues, 3G will allow operators to enhance their capacities even for voice traffic. Operators are facing severe 2G spectrum crunch in top 20-30 cities due to which their future growth will be hampered. The Government has already indicated that it has limited spectrum left for 2G services. In this scenario if the operators want to sustain the current momentum of adding 6 million subscribers every month, the 5 Mhz spectrum being allocated for 3G services will be more than useful. While 3G is good for data services, it is also 3 times more efficient than existing technologies in terms of packing in subscribers. COAI has projected 75 million 3G subscribers by 2012.
However, some of the new players have expressed concern that 5 Mhz may not be sufficient for a standalone 3G operator to do both voice and data. The policy is skewed in favour of existing players. On one hand Government is not giving any more 2G spectrum to new players and on the other hand only 5 Mhz is being given for 3G. New players will also have to cough out nearly Rs 4,000 crore to just qualify for the auction.
While 2-3 CDMA players will also be given 3G spectrum, the total number of operators may go up to 10 subsequently if the Defence releases more spectrum. The Government will clarify the total number of slots up for grabs based on the spectrum availability, before the auction begins. The policy may act as deterrent to many foreign players. A foreign player will have to commit a minimum investment of $1 billion for 3G in India. That will make sure that only a few serious players will come in. DoT has also made it mandatory for the new players to have prior experience in rolling out 3G services. This means that some of the Indian companies such as Hindujas, Jindal and DLF, which had earlier sought a telecom licence, will have to partner with a global player with 3G experience if they want to participate in the auction.
The biggest gainers are State-owned BSNL and MTNL, which have already been given 3G spectrum ahead of the rest. The two companies are planning to launch services within the next 3-6 months.
3G services are expected to facilitate higher speeds and data throughputs, which enable the delivery of a wide range of multimedia services, including video telephony, e-commerce and television on mobile devices like handsets, smart phones and palm tops. For instance, a 3-minute song can be downloaded in 15 seconds using 3G compared with the 8 minutes needed in existing mobile technologies. Consumers will, however, have to pay extra for the service and also buy a 3G-compatible handset.
To start with, only 4-5 operators per circle will be selected from the auction process due to limited availability of spectrum. Delhi and Mumbai will each have only two 3G operators of which one slot has already been given to the State-owned MTNL. Given that there are at least 9-10 private players in the fray, the lower number of slots could make the bidding more aggressive, especially in the two metro cities. That could in turn make 3G services expensive for consumers.
But operators said they would make 3G affordable in a price-sensitive market like India. “If 3G has to succeed in India, then operators will have to take the affordability plank. We have seen this in voice services where the uptake was low as long as the tariffs were high. In other countries, 3G may be a premium service but here it could be a different story,” said Mr T.V. Ramachandran, Director-General, Cellular Operators Association of India. One of the first things before anyone can experience third generation services is to have a compatible device. Currently, a simple 3G-enabled mobile handset costs about Rs 8,000 and a high-end smart phone costs about Rs 20,000. But device manufacturers such as Nokia, Sony Ericsson, and chip makers such as Qualcomm are taking a slew of initiatives to make these devices affordable in India.
Qualcomm, for instance, is working on smart phones that cost Rs 10,000 and a PC-like Internet access device priced at around Rs 8,000. The company is also planning to launch a USB port priced at around Rs 3,500, which will allow consumers to access high speed wireless broadband on their laptops or PCs.
“We are aggressively taking initiatives to make 3G devices affordable. We have the devices and using our single chip solution we have been able to arrive at a price point that is suited to the Indian market,” Mr Kanwalinder Singh, President, Qualcomm Indian and South Asia, told Business Line.
Qualcomm is also in talks with Indian mobile operators to launch carrier branded 3G mobile handsets. “Operators such as Vodafone and Hutchison have their own handset brands for 3G services in Europe. In India, too, we think that Indian GSM operators will launch 3G services bundled with their own branded handsets. We are in talks with them to work out the deal with an OEM manufacturer,” Mr Singh said.
Nokia, which has more than 25 3G enabled handsets in the market is also working on the affordability issue.
Mr D. Shivakumar, Vice-President and Managing Director, Nokia India, said, “The announcement of the 3G policy heralds the next phase of growth for India’s growing mobile industry. Nokia has a holistic approach towards driving the adoption of 3G in India, both at the infrastructure and at the handset level.
“As the market leader, we firmly believe that 3G technologies and future enhancements will offer the most expeditious and cost-effective means of providing mobile Internet access to the mass market.”High stakes
Since the success of 3G in India is paramount to the interest of all these global vendors, they will be announcing India-specific initiatives. No other market can give volumes like India can. Globally, 3G services is still at an early stage and if it succeeds in India, then the vendors can go to other developing countries with cheaper devices.
Third generation mobile policy couldn’t have come at a better time for cellular service providers. At a time when their average revenue per user is slipping to below Rs 250 and when most operators are faced with severe crunch in spectrum, 3G services is being looked at nothing less than the messiah for operators.
Over the past two years, GSM-based operators have been reporting declining ARPUs, one of the indicators of their financial health. They have tried to bring in a number of new value added services to counter the declining tariffs for voice calls. However, with existing cellular technologies only so much was possible. With 3G technology operators are hoping to introduce high speed data services that will bring new services such as video on demand, mobile TV, video telephony and other entertainment related services. At speeds that are almost 10 times the existing technologies, 3G will provide a better user experience. Other than revenues, 3G will allow operators to enhance their capacities even for voice traffic. Operators are facing severe 2G spectrum crunch in top 20-30 cities due to which their future growth will be hampered. The Government has already indicated that it has limited spectrum left for 2G services. In this scenario if the operators want to sustain the current momentum of adding 6 million subscribers every month, the 5 Mhz spectrum being allocated for 3G services will be more than useful. While 3G is good for data services, it is also 3 times more efficient than existing technologies in terms of packing in subscribers. COAI has projected 75 million 3G subscribers by 2012.
However, some of the new players have expressed concern that 5 Mhz may not be sufficient for a standalone 3G operator to do both voice and data. The policy is skewed in favour of existing players. On one hand Government is not giving any more 2G spectrum to new players and on the other hand only 5 Mhz is being given for 3G. New players will also have to cough out nearly Rs 4,000 crore to just qualify for the auction.
While 2-3 CDMA players will also be given 3G spectrum, the total number of operators may go up to 10 subsequently if the Defence releases more spectrum. The Government will clarify the total number of slots up for grabs based on the spectrum availability, before the auction begins. The policy may act as deterrent to many foreign players. A foreign player will have to commit a minimum investment of $1 billion for 3G in India. That will make sure that only a few serious players will come in. DoT has also made it mandatory for the new players to have prior experience in rolling out 3G services. This means that some of the Indian companies such as Hindujas, Jindal and DLF, which had earlier sought a telecom licence, will have to partner with a global player with 3G experience if they want to participate in the auction.
The biggest gainers are State-owned BSNL and MTNL, which have already been given 3G spectrum ahead of the rest. The two companies are planning to launch services within the next 3-6 months.
Friday, June 13, 2008
Battle for WiMax
On May 28, the Telecom Regulatory Authority of India (TRAI) called all the telecom operators for an urgent meeting to discuss an important issue that threatens to take the sector into yet another round of turf battle.
The issue that has split the industry is whether the Government should price spectrum for broadband wireless access services using technologies such as WiMax differently or should it be treated on a par with pricing decided for third generation mobi le spectrum.
While existing GSM operators, Ericsson, Nokia, Qualcomm and others who are promoting 3G technologies want the pricing to be the same for all types of wireless technologies, companies such as Reliance Communications, Tata Teleservices, Intel and Motorola want WiMax spectrum to be priced lower.
Rethink spurred by ITU move
The telecom regulator had earlier recommended a differential pricing for the two types of wireless access technologies but then decided to review its decision in the light of developments at the International Telecommunications Union — the global telecom standards and regulatory body.
When TRAI had made its initial recommendations in 2006, WiMax was still an evolving technology and was not considered as next generation. Therefore, in its earlier suggestion, TRAI said that the base price for WiMax should be lower. So while the reserve price for third generation technologies such as WCDMA and EVDO may be pegged at a maximum of Rs 80 crore for each service area (Circle), for WiMax, the regulator had suggested a maximum of Rs 10 crore. However, in 2007, the ITU decided to consider WiMax as a third generation mobile technology, which got the Indian regulator to rethink on its earlier recommendations.
For and against
But companies such as Intel, which is betting big on WiMax, say that there is no reason for a rethink and TRAI should stick to its earlier position. “There should not be any comparison between 3G and WiMax. While 3G is essentially a voice-based technology that also does data, WiMax is best suited for data at present. India is lagging way behind other countries in terms of broadband penetration and we believe that WiMax will enable much faster rollouts. Government should keep the entry cost low to enable cheaper and faster broadband access to consumers,†says R Sivakumar, Managing Director (South Asia), Intel.
On the other hand, Qualcomm, which is expecting major revenue in the form of royalties from 3G technologies, is opposed to the idea of differential treatment.
We do not believe that there should be significant differences in the reserve prices between frequency bands. Given that the propagation characteristics of these bands (for WiMax) are not significantly different from 2.1 Ghz (used for 3G mobile service) and the lack of sound economic rationale for introducing such a difference in the reserve price, Qualcomm believes that price of spectrum should be on a par with that of the 3G reserve price fixed by TRAI. This approach will ensure a level playing condition and encourage the deployment of spectrally efficient and cost-effective technologies,†says Kanwalinder Singh, President, Qualcomm India.
The entry of Wimax has also realigned the equation between global technology providers. Nokia, which is considered a global rival to Qualcomm, this time is in agreement with the US-based company's views. The proposed differential pricing by subsidisation in spectrum allocations for broadband services may bring increased broadband penetration in the short term but will create problems and complexities in the long term, specially related to utilisation of spectrum. We believe that a uniform spectrum pricing policy for the systems rendering same services should be implemented, says a note from Nokia to TRAI.
A lot at stake
The difference of opinion between the equipment vendors is not merely academic. The stakes are, in fact, very high. Companies such as Intel and Motorola are making huge investments in developing products based on WiMax technology around the world. Intel is also investing billions of dollars to fund operators who want to roll out a wireless network using WiMax.
But Intel’s main concern is that, as of today, devices and network equipment for rival 3G technologies are much cheaper due to the global scale and volume. While WiMax is just beginning to take off globally, 3G has been deployed in a number of countries. A 3G-enabled handset, for instance, is available today for less than Rs 10,000.
Though Intel is confident that it will be able to bring down costs for WiMax devices gradually, a lower entry charge, in the form of spectrum price, compared to 3G, would help it to position the technology as an attractive proposition, especially to the new players in the Indian cellular segment. Clearly, a massive uptake in India is crucial to Intel’s global plans for WiMax.
On the other hand, Qualcomm, Ericsson and Nokia know that 3G has an edge in terms of the pricing for the end consumer and they don’t want to give any room that will allow WiMax operators to cushion that advantage in the form of lower entry cost.
Operators' stance
Obviously the issue has also divided the telecom operators depending on who has bigger plans for deploying WiMax. Reliance Communication, Tata Teleservices and Maxis-backed Aircel are playing the affordability/rural card and have demanded that TRAI stick to its earlier recommendation of fixing lower reserve price for WiMax.
The government's main objective is proliferation of affordable broadband services. For this purpose the regulatory costs in provisioning of broadband services should be kept at bare minimum. Linking broadband wireless access (BWA) to 3G service for determining levies or allocating spectrum on similar terms is not appropriate. In case allocation BWA and 3G are considered at par and spectrum is allocated at same terms then BWA service shall never be able to take off,†says an RCOM executive.
Dismal broadband scene
To be fair, penetration of broadband services till now has been dismal. Only 4 million subscribers have taken a broadband connection compared to a target of 10 million by 2007. The primary reason for the poor penetration is the limited number of fixed line telephones. Therefore, to meet the Broadband Policy objectives and targets, heavy deployment of wireless access services will be needed. Technologies like WiMax can be used to increase broadband penetration in the country.
While GSM operators agree on the need for wireless broadband technologies, they allege that the affordability plank is being used by the WiMax camp to get freebies from the Government.
“This is similar to the way they brought in CDMA technology in 1999. They claimed concessions saying that CDMA will be used for providing fixed wireless telephones to provide affordable services to the poor man. But a few years later, all of the CDMA operators became full-fledged mobile service providers. Now they are saying that WiMax will be used for providing wireless broadband to the villages when everyone knows that the technology will be capable of doing exactly what a 3G technology can do,†says a GSM representative.
The Association of Unified Telecom Service Providers of India (AUSPI), representing RCOM and Tata Tele, charges GSM operators with blocking competition. “WiMax technology, as of today, can be used only for providing wireless broadband access. Though voice may be possible someday why should we be asked to pay a higher fee for something that may or may not happen in the future? GSM lobby is always trying to block competition,†says S.C. Khanna, Secretary General, AUSPI.
The TRAI is expected to give its final views on the issue shortly. However since the stakes are high, a decision either way will be contested. That means consumers will have to wait longer to get access to high-speed wireless Internet access.
The issue that has split the industry is whether the Government should price spectrum for broadband wireless access services using technologies such as WiMax differently or should it be treated on a par with pricing decided for third generation mobi le spectrum.
While existing GSM operators, Ericsson, Nokia, Qualcomm and others who are promoting 3G technologies want the pricing to be the same for all types of wireless technologies, companies such as Reliance Communications, Tata Teleservices, Intel and Motorola want WiMax spectrum to be priced lower.
Rethink spurred by ITU move
The telecom regulator had earlier recommended a differential pricing for the two types of wireless access technologies but then decided to review its decision in the light of developments at the International Telecommunications Union — the global telecom standards and regulatory body.
When TRAI had made its initial recommendations in 2006, WiMax was still an evolving technology and was not considered as next generation. Therefore, in its earlier suggestion, TRAI said that the base price for WiMax should be lower. So while the reserve price for third generation technologies such as WCDMA and EVDO may be pegged at a maximum of Rs 80 crore for each service area (Circle), for WiMax, the regulator had suggested a maximum of Rs 10 crore. However, in 2007, the ITU decided to consider WiMax as a third generation mobile technology, which got the Indian regulator to rethink on its earlier recommendations.
For and against
But companies such as Intel, which is betting big on WiMax, say that there is no reason for a rethink and TRAI should stick to its earlier position. “There should not be any comparison between 3G and WiMax. While 3G is essentially a voice-based technology that also does data, WiMax is best suited for data at present. India is lagging way behind other countries in terms of broadband penetration and we believe that WiMax will enable much faster rollouts. Government should keep the entry cost low to enable cheaper and faster broadband access to consumers,†says R Sivakumar, Managing Director (South Asia), Intel.
On the other hand, Qualcomm, which is expecting major revenue in the form of royalties from 3G technologies, is opposed to the idea of differential treatment.
We do not believe that there should be significant differences in the reserve prices between frequency bands. Given that the propagation characteristics of these bands (for WiMax) are not significantly different from 2.1 Ghz (used for 3G mobile service) and the lack of sound economic rationale for introducing such a difference in the reserve price, Qualcomm believes that price of spectrum should be on a par with that of the 3G reserve price fixed by TRAI. This approach will ensure a level playing condition and encourage the deployment of spectrally efficient and cost-effective technologies,†says Kanwalinder Singh, President, Qualcomm India.
The entry of Wimax has also realigned the equation between global technology providers. Nokia, which is considered a global rival to Qualcomm, this time is in agreement with the US-based company's views. The proposed differential pricing by subsidisation in spectrum allocations for broadband services may bring increased broadband penetration in the short term but will create problems and complexities in the long term, specially related to utilisation of spectrum. We believe that a uniform spectrum pricing policy for the systems rendering same services should be implemented, says a note from Nokia to TRAI.
A lot at stake
The difference of opinion between the equipment vendors is not merely academic. The stakes are, in fact, very high. Companies such as Intel and Motorola are making huge investments in developing products based on WiMax technology around the world. Intel is also investing billions of dollars to fund operators who want to roll out a wireless network using WiMax.
But Intel’s main concern is that, as of today, devices and network equipment for rival 3G technologies are much cheaper due to the global scale and volume. While WiMax is just beginning to take off globally, 3G has been deployed in a number of countries. A 3G-enabled handset, for instance, is available today for less than Rs 10,000.
Though Intel is confident that it will be able to bring down costs for WiMax devices gradually, a lower entry charge, in the form of spectrum price, compared to 3G, would help it to position the technology as an attractive proposition, especially to the new players in the Indian cellular segment. Clearly, a massive uptake in India is crucial to Intel’s global plans for WiMax.
On the other hand, Qualcomm, Ericsson and Nokia know that 3G has an edge in terms of the pricing for the end consumer and they don’t want to give any room that will allow WiMax operators to cushion that advantage in the form of lower entry cost.
Operators' stance
Obviously the issue has also divided the telecom operators depending on who has bigger plans for deploying WiMax. Reliance Communication, Tata Teleservices and Maxis-backed Aircel are playing the affordability/rural card and have demanded that TRAI stick to its earlier recommendation of fixing lower reserve price for WiMax.
The government's main objective is proliferation of affordable broadband services. For this purpose the regulatory costs in provisioning of broadband services should be kept at bare minimum. Linking broadband wireless access (BWA) to 3G service for determining levies or allocating spectrum on similar terms is not appropriate. In case allocation BWA and 3G are considered at par and spectrum is allocated at same terms then BWA service shall never be able to take off,†says an RCOM executive.
Dismal broadband scene
To be fair, penetration of broadband services till now has been dismal. Only 4 million subscribers have taken a broadband connection compared to a target of 10 million by 2007. The primary reason for the poor penetration is the limited number of fixed line telephones. Therefore, to meet the Broadband Policy objectives and targets, heavy deployment of wireless access services will be needed. Technologies like WiMax can be used to increase broadband penetration in the country.
While GSM operators agree on the need for wireless broadband technologies, they allege that the affordability plank is being used by the WiMax camp to get freebies from the Government.
“This is similar to the way they brought in CDMA technology in 1999. They claimed concessions saying that CDMA will be used for providing fixed wireless telephones to provide affordable services to the poor man. But a few years later, all of the CDMA operators became full-fledged mobile service providers. Now they are saying that WiMax will be used for providing wireless broadband to the villages when everyone knows that the technology will be capable of doing exactly what a 3G technology can do,†says a GSM representative.
The Association of Unified Telecom Service Providers of India (AUSPI), representing RCOM and Tata Tele, charges GSM operators with blocking competition. “WiMax technology, as of today, can be used only for providing wireless broadband access. Though voice may be possible someday why should we be asked to pay a higher fee for something that may or may not happen in the future? GSM lobby is always trying to block competition,†says S.C. Khanna, Secretary General, AUSPI.
The TRAI is expected to give its final views on the issue shortly. However since the stakes are high, a decision either way will be contested. That means consumers will have to wait longer to get access to high-speed wireless Internet access.
Friday, May 30, 2008
Disconnected calls
Indian telecom companies may want to go global but, so far, they have had mixed success. While Bharti Airtel, Tata Communications and Reliance Communications have had a fair share of success in the long-distance segment through acquisition of cable networks, including Tyco Global and FLAG, they have failed to acquire telecom licences in countries such as Qatar, Kenya and Saudi Arabia. Bharti’s attempt to acquire South African major MTN only adds to that list.
The reason for the partial success has primarily been the pricing of the acquisitions.
Most of the successes for Indian telecom players have come in cases where the deal came cheap.
For instance, both Tata Group and RCOM acquired Tyco Global and FLAG respectively when the global undersea cable market was facing a bandwidth glut. In 2004, Tata paid just $130 million to acquire Tyco Global Network, which had 60,000 km of cable spread across three continents.
The following year, the Tatas acquired another long-distance player, Teleglobe, for $239 million which catapulted the company to the number-three international bandwidth provider in the world.
Similarly, Bharti bagged licences for Seychelles in 1998 when mobile services were just beginning to reach consumers. Bidding against biggies
However, Indian telcos have lost out whenever competitive bidding has taken place. For example, Bharti and Reliance lost out in the race to acquire a licence in Saudi Arabia after Kuwait Mobile Telecom Company bid a whopping $6 billion.
Indian telcos also lost out to France Telecom when 51 per cent of Telkom Kenya was up for grabs. France Telecom coughed up nearly $400 million for 2.8 lakh fixed-line telephone subscribers.
The talks between Bharti and MTN may also have failed due to price considerations, as the South African company wanted $50 billion while Mittals were prepared to give about $3 billion.
Analysts said that Indian operators are already working on thin margins, given the low tariffs in the country, and therefore they cannot afford an expensive buy to maintain profitability. The other reason is that home-grown operators are still small in scale compared to global giants such as Vodafone, giving them lesser chance of winning a competitive bid. In the case of the Bharti-MTN deal too, the Indian company refused to get into a pricing war by putting in a bid even as others like Etisalat expressed interest in quoting a price.
The reason for the partial success has primarily been the pricing of the acquisitions.
Most of the successes for Indian telecom players have come in cases where the deal came cheap.
For instance, both Tata Group and RCOM acquired Tyco Global and FLAG respectively when the global undersea cable market was facing a bandwidth glut. In 2004, Tata paid just $130 million to acquire Tyco Global Network, which had 60,000 km of cable spread across three continents.
The following year, the Tatas acquired another long-distance player, Teleglobe, for $239 million which catapulted the company to the number-three international bandwidth provider in the world.
Similarly, Bharti bagged licences for Seychelles in 1998 when mobile services were just beginning to reach consumers. Bidding against biggies
However, Indian telcos have lost out whenever competitive bidding has taken place. For example, Bharti and Reliance lost out in the race to acquire a licence in Saudi Arabia after Kuwait Mobile Telecom Company bid a whopping $6 billion.
Indian telcos also lost out to France Telecom when 51 per cent of Telkom Kenya was up for grabs. France Telecom coughed up nearly $400 million for 2.8 lakh fixed-line telephone subscribers.
The talks between Bharti and MTN may also have failed due to price considerations, as the South African company wanted $50 billion while Mittals were prepared to give about $3 billion.
Analysts said that Indian operators are already working on thin margins, given the low tariffs in the country, and therefore they cannot afford an expensive buy to maintain profitability. The other reason is that home-grown operators are still small in scale compared to global giants such as Vodafone, giving them lesser chance of winning a competitive bid. In the case of the Bharti-MTN deal too, the Indian company refused to get into a pricing war by putting in a bid even as others like Etisalat expressed interest in quoting a price.
Thursday, May 22, 2008
How integrated telcos are making their moolah
The Government may want more revenues from telecom operators, but large integrated players including Bharti Airtel have found a smart way to save at least Rs 1,000 crore a year in the form of licence fee revenue share.
In the current licence fee regime, telecom companies providing the whole gamut of services, including long distance telephony, are required to pay only 6 per cent of the annual revenues from long distance services compared to a total levy of 12 per cent for mobile services. These companies are saving on the net outgo to the Government by loading higher revenue component to their long distance licence.
For example, Bharti recently increased its long distance carriage charge from 25 paise a minute to around 60 paise. This means that if STD rates are at Rs 1.50 a minute, Bharti is passing on almost 45 per cent of the revenues on to its long distance arm compared to just 10 per cent earlier. Through this arrangement, Bharti can easily save about Rs 200 crore by paying a lower revenue share to the Government. Operators also save as they do not have to pay spectrum charges on the long distance revenue compared to about 2 per cent of the revenues from cellular services. The savings, however, have enabled the operators to lower the STD rates considerably from Rs 2.60 a minute to Rs 1.50 a minute.
That’s not all. The integrated companies are also carrying their intra circle mobile-to-mobile calls on their own long distance network. Latest quarterly report shows that Bharti carried nearly 89 billion minutes on its cellular network. According to industry estimates, almost 70 per cent of all mobile calls are within the same circle. This means that a part of the revenue from nearly 60 billion minutes of intra circle calls is being routed through the national long distance network. That’s another Rs 800 crore saving out of the amount that the company pays to the Government as revenue share. This has enabled operators to offer intra circle calls within their own network at low tariffs. Reliance Communciations, for instance, is offering Reliance-to-Reliance calls at 40 paise a minute.
However, despite the new practice, the Government may not end up getting any lesser amount from telecom operators. Increasing subscriber base, booming minutes of usage coupled with the entry of new players will keep the Government’s coffers rolling. In 2007-08, the Government earned Rs 10,000 crore from licence fee and spectrum charges. This is estimated to go up to Rs 20,000 crore in 2008-09 as operators’ overall revenue base increases.
Officials in the Department of Telecom said that the operators were within the rules in following the new routing scheme. Bharti executives said that while they did not comment on commercial aspects of the business, they were fully compliant with all regulatory norms. “There are a number of operators with a long distance licence and they can also leverage their network. Operators are under pressure to reduce tariffs all the time due to the competition and, therefore, it is up to them to find the best way keep their business profitable,” said an industry analyst.
In the current licence fee regime, telecom companies providing the whole gamut of services, including long distance telephony, are required to pay only 6 per cent of the annual revenues from long distance services compared to a total levy of 12 per cent for mobile services. These companies are saving on the net outgo to the Government by loading higher revenue component to their long distance licence.
For example, Bharti recently increased its long distance carriage charge from 25 paise a minute to around 60 paise. This means that if STD rates are at Rs 1.50 a minute, Bharti is passing on almost 45 per cent of the revenues on to its long distance arm compared to just 10 per cent earlier. Through this arrangement, Bharti can easily save about Rs 200 crore by paying a lower revenue share to the Government. Operators also save as they do not have to pay spectrum charges on the long distance revenue compared to about 2 per cent of the revenues from cellular services. The savings, however, have enabled the operators to lower the STD rates considerably from Rs 2.60 a minute to Rs 1.50 a minute.
That’s not all. The integrated companies are also carrying their intra circle mobile-to-mobile calls on their own long distance network. Latest quarterly report shows that Bharti carried nearly 89 billion minutes on its cellular network. According to industry estimates, almost 70 per cent of all mobile calls are within the same circle. This means that a part of the revenue from nearly 60 billion minutes of intra circle calls is being routed through the national long distance network. That’s another Rs 800 crore saving out of the amount that the company pays to the Government as revenue share. This has enabled operators to offer intra circle calls within their own network at low tariffs. Reliance Communciations, for instance, is offering Reliance-to-Reliance calls at 40 paise a minute.
However, despite the new practice, the Government may not end up getting any lesser amount from telecom operators. Increasing subscriber base, booming minutes of usage coupled with the entry of new players will keep the Government’s coffers rolling. In 2007-08, the Government earned Rs 10,000 crore from licence fee and spectrum charges. This is estimated to go up to Rs 20,000 crore in 2008-09 as operators’ overall revenue base increases.
Officials in the Department of Telecom said that the operators were within the rules in following the new routing scheme. Bharti executives said that while they did not comment on commercial aspects of the business, they were fully compliant with all regulatory norms. “There are a number of operators with a long distance licence and they can also leverage their network. Operators are under pressure to reduce tariffs all the time due to the competition and, therefore, it is up to them to find the best way keep their business profitable,” said an industry analyst.
Friday, May 9, 2008
Indian telcos look for global acquisitions
Saturated urban markets, declining average revenue per user, tighter acquisition laws and the desire to achieve global scales is driving Indian telecom operators to foray into other emerging countries.
Bharti Airtel, Reliance Communications, Tata Communications and State-owned Mahanagar Telephone Nigam Ltd have already launched services in some of these new markets and are hungry for more.
“This is not a surprise development because as the Indian urban market gets saturated, these companies are looking at other emerging markets to sustain the growth. Africa, for instance, is one of the growing markets outside India. The other reason would be to get global scales, just like foreign multinational companies that are entering India. Indian telcos are also eyeing the advantages related to global scales,” said Ms Arpita Pal Agrawal, Associate Director, InfoComm Advisory Services, PricewaterhouseCoopers. High Revenue
While ARPU in India is just around the $5 level, this is much higher at around $11 in other emerging markets. By foraying into such territories, Indian companies are hoping to cash in on higher margins.
Analysts also point out that Indian mobile market has already reached the 300 million mark and another 200 million subscribers are expected, mostly from rural areas. This is enough to sustain the current growth rate for only about 3-4 years more after which operators may come under pressure. M&A norms
The recent mergers and acquisition norms have also made it impossible for existing telecom companies like Bharti and Reliance Communication to grow organically. A deal with South Africa’s MTN will give Bharti access to nearly 60 million subscribers across 21 countries.
For a company like MTNL, foreign markets offer an opportunity to go beyond Delhi and Mumbai. “MTNL has the licence to offer services in Delhi and Mumbai, which is already becoming a saturated market with more than 25 million subscribers and seven different operators. We need to look elsewhere to increase our revenues,” says an MTNL executive. MTNL’s profits have been dipping over the past few years and the company is, therefore, betting big on the foreign telecom forays.
For Tata Communications (formerly VSNL) too, expanding its presence to global markets has been part of a well thought-out strategy to reduce its dependence on domestic market where its share has been dwindling over the past few years due to competition. The company plans to invest $2 billion for global expansion over the next few years. Operation costs
But Indian companies also have to deal with challenges related to higher cost of operations, different regulatory environments and competition from large global European and American majors who are also eyeing these emerging markets.
However, analysts don’t see too much resistance. “Indian operators are aware of these issues better and they will make a bid or acquire a licence only if it makes any business case. In the past too, some of the Indian operators have bid for licences but they have not quoted huge sums even if that meant losing out,” says Ms Agrawal.
One advantage that Indian operators have is that they have learnt the trick to make profits even as they offer the lowest tariffs in the world. Bharti’s talks with South African major MTN, if successful, will take this strategy to a new level. Other companies are eyeing countries such as Kenya, Egypt, CIS and the Gulf region to expand their footprint. (Business Line)
Wednesday, April 30, 2008
Qualcomm has got it right
If there is one company that has gained big time from the developments in the Indian telecom space it has to be San Diego based chip maker Qualcomm. The number of CDMA based pan Indian operators in the country will soon go up from two to four with the entry of Sistema and BSNL. The entry of these two players has more or less nullified any adverse impact from Reliance Communications and Tata Teleservices' decision to get into GSM based services. Qualcomm, which holds a monopoly on CDMA related patents, is hoping that 41 million handsets will be sold in the country this year. Though thats a little less than the 51 million done last year, the numbers are not bad given that everyone had written off CDMA in India a few months back (see 'CDMA's second innings'). But the real push for Qualcomm will come when India starts rolling out 3G services. The chip maker holds significant patents on 3G devices for both EVDO (to be deployed by CDMA operators) and WCDMA technologies (to be deployed by GSM operators). With 4 CDMA operators and at least 5 GSM players set to roll out 3G services in the country, thats a huge opportunity for Qualcomm. Already the company is drooling over the prospects and is hoping that India climbs up the ladder in terms of contribution to its global revenues. I met Kanwalinder Singh, the man who is driving Qualcomm's business in the country and he is bullish. In a bid to make third-generation mobile and broadband services affordable, Qualcomm is taking a slew of initiatives, including an Internet access device priced at around Rs 8,000. The company also plans to launch a USB port priced at around Rs 3,500 to access high-speed wireless broadband on laptops or PCs. While 3G services are yet to enter the country, Qualcomm is already gearing up to provide the end-devices at affordable rates.
“We are ready for 3G. We have the devices, and using our single chip solution we have been able to arrive at a price point that is suited to the Indian market. Once the policy is announced and operators start rolling out 3G services, we will make sure that consumers are able to take benefit of this technology,” Kanwalinder Singh said.
The USB port based on HSDPA technology is expected to be launched in the fourth quarter of 2008. “Our success with CDMA-2000 based USB ports has proved that there is a demand for wireless data access devices. We will replicate that success in the 3G segment by pricing the USB port at less than Rs 3,500,” Singh said. CDMA-based wireless data cards have been a huge hit in the country with as many as 5 million subscribers. Qualcomm also plans to introduce smart phones priced less than Rs 10,000 and based on multi-operating systems such as Windows, Linux and Android.
On the low-cost Internet access device, Mr Singh said the aim is to enable consumers to access broadband without having to invest in a laptop or PC. The product is in the design stage. Qualcomm is also in talks with Indian mobile operators to launch carrier branded 3G handsets. “Operators such as Vodafone and Hutchison have their own handset brands for 3G services in Europe. In India too we think that Indian GSM operators will launch 3G services bundled with their own branded handsets. We are in talks with them to work out the deal with an OEM (original equipment manufacturer),” Mr Singh said. Qualcomm is in talks with Indian handset brands such as Spice to launch 3G-enabled handsets. There's only a small hitch in the entire plan. Indian policy makers have been talking about 3G services for more than two years. Still there is no finality on when the high speed mobile service will actually be permitted, espcially since there is a question mark on the availability of spectrum. Qualcomm would be hoping that 2008 will be the year of high speed growth in India.
“We are ready for 3G. We have the devices, and using our single chip solution we have been able to arrive at a price point that is suited to the Indian market. Once the policy is announced and operators start rolling out 3G services, we will make sure that consumers are able to take benefit of this technology,” Kanwalinder Singh said.
The USB port based on HSDPA technology is expected to be launched in the fourth quarter of 2008. “Our success with CDMA-2000 based USB ports has proved that there is a demand for wireless data access devices. We will replicate that success in the 3G segment by pricing the USB port at less than Rs 3,500,” Singh said. CDMA-based wireless data cards have been a huge hit in the country with as many as 5 million subscribers. Qualcomm also plans to introduce smart phones priced less than Rs 10,000 and based on multi-operating systems such as Windows, Linux and Android.
On the low-cost Internet access device, Mr Singh said the aim is to enable consumers to access broadband without having to invest in a laptop or PC. The product is in the design stage. Qualcomm is also in talks with Indian mobile operators to launch carrier branded 3G handsets. “Operators such as Vodafone and Hutchison have their own handset brands for 3G services in Europe. In India too we think that Indian GSM operators will launch 3G services bundled with their own branded handsets. We are in talks with them to work out the deal with an OEM (original equipment manufacturer),” Mr Singh said. Qualcomm is in talks with Indian handset brands such as Spice to launch 3G-enabled handsets. There's only a small hitch in the entire plan. Indian policy makers have been talking about 3G services for more than two years. Still there is no finality on when the high speed mobile service will actually be permitted, espcially since there is a question mark on the availability of spectrum. Qualcomm would be hoping that 2008 will be the year of high speed growth in India.
Saturday, April 26, 2008
M&A norms shuts out existing players
The new mergers and acquisition guidelines issued by the Department of Telecom seems to have disturbed the calculations of service providers. For starters the three-year lock-in period, mentioned in the new guidelines, will only be applicable in the case of mergers.
This means that companies including Datacom (owned by Videocon), Unitech and BPL will be allowed to offload up to 74 per cent equity to foreign companies as per the existing FDI norms or 100 per cent stake to any non-telecom Indian companies. But they will not be able to sell out to existing Indian companies. Both Datacom and Unitech have begun scouting for an international partner. This paves the way for foreign players such as AT&T, which will be able to acquire a controlling stake in any of the new licence holders such as Unitech or even operators such as Aircel and Idea Cellular, which have a mix of new and old licences. And since AT&T knows that the number of buyers aren't too many, it can quote a lower price. But existing pan Indian telecom players such as Airtel and Vodafone will, however, not be able to acquire equity in any of these companies. According to the M&A norms, no entity can have equity stake of more than 10 per cent in two different companies. So if Airtel wants to pick up more than 10 per cent stake in Datacom then it will not be able to do so. Both Airtel and Vodafone had shot off a month ago that the new players would be sitting ducks for them to acquire. After the final guidelines were announced Airtel's Sunil Mittal turned around and said that they were not interested in acquisitions in India anymore and are looking at international markets. The ring tones have surely changed.
Wednesday, April 16, 2008
Global majors fight for Indian enterprise communications market
The last time a British company had its Board meeting in India was probably when East India Company had made inroads into the country in the 18th century. Almost three centuries later, on March 27, 2008, all the top executives from the UK-based telecom giant British Telecom, including its Chairman, were in New Delhi for their first ever Board meeting outside the home country.
Though the meeting was a hushed affair, the significance of the event was not lost. For BT, India is clearly the focus market for its enterprise and professional advisory solutions.
The presence of a large number of corporates in India has certainly caught the eye of other enterprise services providers as well. Global telecom behemoths AT&T, France Telecom, Cable & Wireless and Verizon are fighting it out for a larger share of the enterprise segment.
So what is making these companies go after the enterprise segment at a time when everyone else is chasing the Indian cellular market?
Analysts reckon that though some of these telecom majors are contemplating a foray into the mobile business as well, it is the enterprise communication services that are more lucrative.
The Indian cellular market is a capital-intensive, low-margin, high-volume game, which may not bring immediate revenues, while on the other hand, the enterprise business is a relatively lower-investment and higher-margins opportunity.
With the Indian economy growing at over 8 per cent a year, most multinationals across the world either are already in the country or are planning a foray. And they are looking for telecom companies who can offer them connectivity with international quality standards. Sanjay Vig, Chief Executive Officer, Orange Business Solution, India, a division of France Telecom, explains, “The economic growth in India is attracting a large number of multinational companies into this market. These companies want the best solutions for not just their connectivity but also for their entire communication needs. One estimate puts the enterprise communication market to cross the $4,000-million mark by 2010 and we are going after that.”In a bid to get a larger share of the enterprise markets all these companies are scaling up their India presence and trying to differentiate their product offerings. Orange, which claims to service 600 multinational companies from its Indian unit, has accelerated its expansion in the country over the last year. “Our network presence has expanded to all metros with support services in key business centres across the country.
The network is supported by 10 points of presence (PoPs) in Bangalore, Mumbai, Delhi (dual PoPs) and Chennai, Hyderabad, Kolkata and Pune. Currently, Orange Business Services directly employs over 1,600 people in India,” Vig says.
Orange has also set up its third global service centre in India, which is not just for the Indian market but to also service its global clientele.Ahead of the pack
But when it comes to scale of operations, BT and AT&T seem to be ahead of the pack. Eyeing revenues of $250 million from India by 2009, BT has expanded its reach within the country to 14 cities. The company, which recently launched its international voice and data services, will hire 6,000 people by next year as it expands its operations in India.“With our increased presence in India we are gearing up to gain access to Tier-II and Tier-III cities. Our greatest challenge in India is to ensure that our services and operations exceed customers’ satisfaction. With leadership position in the Business Process Outsourcing (BPO) sector firmly established, BT is now extending its horizon to Indian multinationals going global, with specific focus on the Banking, Financial Services, Media, Broadcast, Pharmaceuticals, IT and Hospitality sectors. The challenge for BT in India is to stay ahead of the game,” says the BT India Chairman and Managing Director, Arun Seth.
With 14 connecting points in India, the company claims that it has the highest by any global service provider. The expansion is primarily targeted at Indian multinational companies that require global connectivity. At present, BT has more than 300 customers in India, most of whom are foreign multinational companies.AT&T plans
However BT’s aim of realising $250 million revenues from India may not be that easy with arch rival AT&T snapping at its heels. The US-based company is bringing a significant part of a $1-billion investment corpus into India in ramping up its local presence.
To start with, AT&T has already hived off India as a separate region, a status that was until now reserved for high-growth markets such as Japan and China. “With an 85 per cent year-on-year growth, India is clearly the fastest growing market for AT&T. We are setting up three additional nodes, taking the total to 10 and we are also setting up an Internet data centre in the country,” says Sanjiv Bhagat, CEO and Managing Director, AT&T India.Move up the value chain
The stiff competition in the segment is forcing these service providers to climb up the value chain and differentiate it from rivals. Until now, enterprise services meant providing leased lines for Virtual Private Network services, or providing ATM, frame relay and WAN-LAN integration services.
BT, for example, is expanding its professional services division in India. Professional services involve providing advisory services, best practices and best technology suited to the needs of their clients.
“Professional services give BT the edge over its rivals as it enables us to offer the best possible solutions to our clients by understanding their needs. BT offers a wide range of professional services on a consultancy basis to cover every aspect of business communications. We specify and explain the services recommended meeting needs and providing a detailed costing,” says Seth. BT is also now offering network IT services to its corporate customers.
On the other hand, AT&T is foraying into application services such as Web-based video and audio conferencing in a bid to be a one-stop communications solution provider to enterprises. Acquisitions, to boost appeal
As a strategy to keep adding to the value proposition that they would like to bring to their potential customers, these players are looking to acquire small and medium-sized companies that will enhance their product offering.
Both BT and Orange have already acquired companies with presence in India. While Orange picked up GTL’s IT services arm, BT has acquired i2i Enterprises and Singapore-based services firm Frontline, which also has a unit working in Chennai with 2,000 employees.
“This investment strengthens significantly our presence in Network Related Services and in the Asia-Pacific region, two major areas of growth in Orange Business Services strategy to be a leading global communication provider. The acquisition will help Orange further grow its business in India by reinforcing its local presence and to serve better European, American and Asian multinationals that need network-related services in India,” says Vig.
Verizon and Cable & Wireless, meanwhile, are still awaiting licences to kick-start their operations in India. Challenges ahead
But all is not rosy for these companies. One of the main concerns for the telecom giants is the low pricing in India compared to other markets.
“The large number of providers and the diminishing differentiation between them will heighten price competition, which has lessened in recent years. This will further commoditise a market already struggling with low margins. In turn, this will put more strain on service providers, especially those that invest heavily in building managed and IT services capabilities,” says Gartner’s Magic Quadrant for Asia/Pacific network service providers, 2007.
The other significant challenge for these global players will be from Indian telecom companies such as Tata Communications (formerly VSNL), Reliance Communications and Bharti Airtel, who are not only setting up a huge network of under-sea cables but also taking the fight for the enterprise market into BT and AT&T’s own backyard in Europe and the US.
“Asian carriers have improved significantly on their network performance and quality, even though they were late starting Internet Protocol virtual private network (IP VPN) services. This improvement, combined with their superior service and support and increasingly competitive pricing, means they present increasingly good value for money in terms of price-performance, which will allow them to step up the competition,” says the Gartner report.
The foreign players, however, are confident of replicating their global success in the Indian market.
“We have to be competitive if we want to stay in the market and with our global scale and expertise we are confident of sustaining our growth in India,” says AT&T’s Bhagat.
Though the meeting was a hushed affair, the significance of the event was not lost. For BT, India is clearly the focus market for its enterprise and professional advisory solutions.
The presence of a large number of corporates in India has certainly caught the eye of other enterprise services providers as well. Global telecom behemoths AT&T, France Telecom, Cable & Wireless and Verizon are fighting it out for a larger share of the enterprise segment.
So what is making these companies go after the enterprise segment at a time when everyone else is chasing the Indian cellular market?
Analysts reckon that though some of these telecom majors are contemplating a foray into the mobile business as well, it is the enterprise communication services that are more lucrative.
The Indian cellular market is a capital-intensive, low-margin, high-volume game, which may not bring immediate revenues, while on the other hand, the enterprise business is a relatively lower-investment and higher-margins opportunity.
With the Indian economy growing at over 8 per cent a year, most multinationals across the world either are already in the country or are planning a foray. And they are looking for telecom companies who can offer them connectivity with international quality standards. Sanjay Vig, Chief Executive Officer, Orange Business Solution, India, a division of France Telecom, explains, “The economic growth in India is attracting a large number of multinational companies into this market. These companies want the best solutions for not just their connectivity but also for their entire communication needs. One estimate puts the enterprise communication market to cross the $4,000-million mark by 2010 and we are going after that.”In a bid to get a larger share of the enterprise markets all these companies are scaling up their India presence and trying to differentiate their product offerings. Orange, which claims to service 600 multinational companies from its Indian unit, has accelerated its expansion in the country over the last year. “Our network presence has expanded to all metros with support services in key business centres across the country.
The network is supported by 10 points of presence (PoPs) in Bangalore, Mumbai, Delhi (dual PoPs) and Chennai, Hyderabad, Kolkata and Pune. Currently, Orange Business Services directly employs over 1,600 people in India,” Vig says.
Orange has also set up its third global service centre in India, which is not just for the Indian market but to also service its global clientele.Ahead of the pack
But when it comes to scale of operations, BT and AT&T seem to be ahead of the pack. Eyeing revenues of $250 million from India by 2009, BT has expanded its reach within the country to 14 cities. The company, which recently launched its international voice and data services, will hire 6,000 people by next year as it expands its operations in India.“With our increased presence in India we are gearing up to gain access to Tier-II and Tier-III cities. Our greatest challenge in India is to ensure that our services and operations exceed customers’ satisfaction. With leadership position in the Business Process Outsourcing (BPO) sector firmly established, BT is now extending its horizon to Indian multinationals going global, with specific focus on the Banking, Financial Services, Media, Broadcast, Pharmaceuticals, IT and Hospitality sectors. The challenge for BT in India is to stay ahead of the game,” says the BT India Chairman and Managing Director, Arun Seth.
With 14 connecting points in India, the company claims that it has the highest by any global service provider. The expansion is primarily targeted at Indian multinational companies that require global connectivity. At present, BT has more than 300 customers in India, most of whom are foreign multinational companies.AT&T plans
However BT’s aim of realising $250 million revenues from India may not be that easy with arch rival AT&T snapping at its heels. The US-based company is bringing a significant part of a $1-billion investment corpus into India in ramping up its local presence.
To start with, AT&T has already hived off India as a separate region, a status that was until now reserved for high-growth markets such as Japan and China. “With an 85 per cent year-on-year growth, India is clearly the fastest growing market for AT&T. We are setting up three additional nodes, taking the total to 10 and we are also setting up an Internet data centre in the country,” says Sanjiv Bhagat, CEO and Managing Director, AT&T India.Move up the value chain
The stiff competition in the segment is forcing these service providers to climb up the value chain and differentiate it from rivals. Until now, enterprise services meant providing leased lines for Virtual Private Network services, or providing ATM, frame relay and WAN-LAN integration services.
BT, for example, is expanding its professional services division in India. Professional services involve providing advisory services, best practices and best technology suited to the needs of their clients.
“Professional services give BT the edge over its rivals as it enables us to offer the best possible solutions to our clients by understanding their needs. BT offers a wide range of professional services on a consultancy basis to cover every aspect of business communications. We specify and explain the services recommended meeting needs and providing a detailed costing,” says Seth. BT is also now offering network IT services to its corporate customers.
On the other hand, AT&T is foraying into application services such as Web-based video and audio conferencing in a bid to be a one-stop communications solution provider to enterprises. Acquisitions, to boost appeal
As a strategy to keep adding to the value proposition that they would like to bring to their potential customers, these players are looking to acquire small and medium-sized companies that will enhance their product offering.
Both BT and Orange have already acquired companies with presence in India. While Orange picked up GTL’s IT services arm, BT has acquired i2i Enterprises and Singapore-based services firm Frontline, which also has a unit working in Chennai with 2,000 employees.
“This investment strengthens significantly our presence in Network Related Services and in the Asia-Pacific region, two major areas of growth in Orange Business Services strategy to be a leading global communication provider. The acquisition will help Orange further grow its business in India by reinforcing its local presence and to serve better European, American and Asian multinationals that need network-related services in India,” says Vig.
Verizon and Cable & Wireless, meanwhile, are still awaiting licences to kick-start their operations in India. Challenges ahead
But all is not rosy for these companies. One of the main concerns for the telecom giants is the low pricing in India compared to other markets.
“The large number of providers and the diminishing differentiation between them will heighten price competition, which has lessened in recent years. This will further commoditise a market already struggling with low margins. In turn, this will put more strain on service providers, especially those that invest heavily in building managed and IT services capabilities,” says Gartner’s Magic Quadrant for Asia/Pacific network service providers, 2007.
The other significant challenge for these global players will be from Indian telecom companies such as Tata Communications (formerly VSNL), Reliance Communications and Bharti Airtel, who are not only setting up a huge network of under-sea cables but also taking the fight for the enterprise market into BT and AT&T’s own backyard in Europe and the US.
“Asian carriers have improved significantly on their network performance and quality, even though they were late starting Internet Protocol virtual private network (IP VPN) services. This improvement, combined with their superior service and support and increasingly competitive pricing, means they present increasingly good value for money in terms of price-performance, which will allow them to step up the competition,” says the Gartner report.
The foreign players, however, are confident of replicating their global success in the Indian market.
“We have to be competitive if we want to stay in the market and with our global scale and expertise we are confident of sustaining our growth in India,” says AT&T’s Bhagat.
Wednesday, April 2, 2008
Video Kaun?
Ask anyone in the telecom industry on what he thought of Videocon's bid to buy out Motorola's handset business and chances are that you may get a smirk for an answer. No one gives Videocon's maverick owner Venugopal Dhoot any chance of being successful in this latest venture for two reasons. First - the money. Despite the huge losses it has suffered over the past few years. Motorola's handset business is still worth 4 billlion dollars. Given that Dhoot has shelled out Rs 1500 crore for acquiring telecom licences and will have to cough up another 5-6000 crore very quickly to roll out the services, it seems tough for him to raise the money required. Secondly, Videocon is an unknown entity in the international scene. When the news broke out that Dhoot has sent an expression of interest to Motorola, most of the global pundits were asking "Video who?" Most of the industry, including Motorola executives first reaction was that it was an April Fool's day joke. Others are dubbing it as a cheap publicity stunt by Dhoot. Motorola sources said that even if Dhoots was serious it was unlikely that they would sell the brand to Videocon since there was a huge gap in the brand value and visibility between the two companies. "We will have better owners" is what Motorola sources say. If Dhoot manages to acquire Motorola he will have a huge challenge given that the global market is dominated by Nokia and others like Sony Ericsson. After the sucess of its razr handsets, Motorola has not been able to bring any product that has had success in the market. Over the last year Motorola has dropped from the second largest handset maker to the third largest. Its market share in India, the fastest growing mobile market, is dismally low in single digits. Dhoot says that having a handset business is in synergy with his existing plans for telecom services and retail. But thats only in India. What will Dhoot do to kick back Motorola's poistion in the global market where margins are very thin and competition is high? For Videocon this is going to be a huge challenge.
Double Bonanza For Telcos
The Government has announced two major decisions over the past one week that will bring cheer to the telecom operators. One, the rural levy called Access Deficit Charge has been abolished and second, operators have been allowed to share infrastructure except spectrum. While removal of ADC is expected to enable operators to save nearly Rs 750 crore every year, sharing of infrastructure will bring them greater savings. With the average revenue per user plunging down, these savings will give the service providers more room to play.
Until now, operators were allowed to share only the passive part of the infrastructure which include towers, power equipment and air-conditioning at various cell sites. Almost 60 per cent of the passive infrastructure is currently on a shared basis bringing nearly 40 per cent reduction in the operator’s capital expenditure. But now, operators will be able to share active infrastructure which is essentially the technical equipment needed to transmit mobile calls such as antenna, feeder cable, radio access network and transmission system. That should bring down roll costs for the operators by another 30-40 per cent. Infrastucture companies are already making plans to take advantage of this move. GTL, for instance, has tied up with Vanu Inc to conduct trails for sharing active infra. The cost of passive infrastructure alone for an operator may work out to Rs 15 lakh for a roof-top tower and around Rs 25 lakh for a 45-meter ground-based tower. These apart, there are several operating expenses such as electricity bills, rentals (between Rs 10,000 and Rs 25,000 per month, higher in some metros) for the space occupied, apart from regular maintenance charges for each tower. This makes it clear why there is a substantial saving in capex and operating expenditure for mobile operators who share these resources. Sharing also opens up a new revenue opportunity as new players roll out their services they will look to buy space on existing infrastructure rathen than start from scratch.
A burgeoning subscriber base and a more stringent spectrum allocation regime may create a higher requirement of cell-sites or tower sites for operators, to accommodate more subscribers and allow greater reuse of the radio frequency allotted to operators. This is especially true in dense urban areas, where finding space may not be easy. Infrastructure sharing could come to mobile operators’ rescue in this context. More than 3 lakh more cell sites are required over the next 3 years and no operator can do this by itself. Infrastructure sharing is crucial in rural areas where the revenue per user is very low. In order to encourage sharing in rural areas, DoT has proposed to give financial support from the USO fund to all operators who share their infrastructure. While all this sounds good for the telecom operators one hopes that the huge savings will be passed on to the consumers in the form of lower tariffs.
Until now, operators were allowed to share only the passive part of the infrastructure which include towers, power equipment and air-conditioning at various cell sites. Almost 60 per cent of the passive infrastructure is currently on a shared basis bringing nearly 40 per cent reduction in the operator’s capital expenditure. But now, operators will be able to share active infrastructure which is essentially the technical equipment needed to transmit mobile calls such as antenna, feeder cable, radio access network and transmission system. That should bring down roll costs for the operators by another 30-40 per cent. Infrastucture companies are already making plans to take advantage of this move. GTL, for instance, has tied up with Vanu Inc to conduct trails for sharing active infra. The cost of passive infrastructure alone for an operator may work out to Rs 15 lakh for a roof-top tower and around Rs 25 lakh for a 45-meter ground-based tower. These apart, there are several operating expenses such as electricity bills, rentals (between Rs 10,000 and Rs 25,000 per month, higher in some metros) for the space occupied, apart from regular maintenance charges for each tower. This makes it clear why there is a substantial saving in capex and operating expenditure for mobile operators who share these resources. Sharing also opens up a new revenue opportunity as new players roll out their services they will look to buy space on existing infrastructure rathen than start from scratch.
A burgeoning subscriber base and a more stringent spectrum allocation regime may create a higher requirement of cell-sites or tower sites for operators, to accommodate more subscribers and allow greater reuse of the radio frequency allotted to operators. This is especially true in dense urban areas, where finding space may not be easy. Infrastructure sharing could come to mobile operators’ rescue in this context. More than 3 lakh more cell sites are required over the next 3 years and no operator can do this by itself. Infrastructure sharing is crucial in rural areas where the revenue per user is very low. In order to encourage sharing in rural areas, DoT has proposed to give financial support from the USO fund to all operators who share their infrastructure. While all this sounds good for the telecom operators one hopes that the huge savings will be passed on to the consumers in the form of lower tariffs.
Sunday, March 30, 2008
Low cost handsets driving Indian mobile growth
With operators beginning to roll out cellular services in rural and semi urban areas, low cost handsets are driving India's mobile growth story. According to a report from the Yankee Group mobile handsets costing less than $50 account for 62 per cent of all imported units. The study points out that low cost CDMA handsets are more popular than the GSM ones in this category.
"Very low-cost (defined as sub-US$50) handsets have become integrally important to the Indian cellular market's astonishing growth. Sub-$50 models accounted for 62% of all imported units between January and October 2007. CDMA models from 13 vendors dominate this category, comprising 78 per cent of all sub-$50 imports," said the Yankee Group. While this is good news for mobile users, for handset manufacturers such as Nokia popularity of low end phones means lower margins. In order to cut down on costs Nokia is manufacturing most of the low end phones from its plant in Tamil Nadu. Whats also working for handset vendors is the huge volumes in the market. Nokia for instance earned 3.9 billion Euros in India. The Indian cellular market continues to add new subscribers at a world-leading rate of between 7 and 8 million users per month. "A number of factors including, but not limited to, service provider competition, service quality, brand affinity, effective marketing and distribution, device vendor competition, increasing per-capita GDP, and general demand factors such as choice, are driving growth. The broadening availability of ultra low-cost handsets (defined as sub-US$35) is also becoming one of the key drivers to subscriber growth," the study pointed out.
A comparison of GSM versus CDMA sub-$50 import volumes shows that sub-$50 CDMA imports outpaced sub-$50 GSM imports by a factor of approximately 3.5 times for the period. In terms of average selling price the CDMA handsets were found to be much cheaper than GSM low cost handsets. There are around 60 very low cost CDMA models from 13 vendors making it a highly competitive sector. This price gap between CDMA and GSM has, however, narrowed with the introduction of sub-$30 GSM imports from August to October. "Total market leader Nokia's contribution to sub-$30 GSM volumes increased from 15 per cent from January to July to 22 per cent from August to October," said the study.
"Very low-cost (defined as sub-US$50) handsets have become integrally important to the Indian cellular market's astonishing growth. Sub-$50 models accounted for 62% of all imported units between January and October 2007. CDMA models from 13 vendors dominate this category, comprising 78 per cent of all sub-$50 imports," said the Yankee Group. While this is good news for mobile users, for handset manufacturers such as Nokia popularity of low end phones means lower margins. In order to cut down on costs Nokia is manufacturing most of the low end phones from its plant in Tamil Nadu. Whats also working for handset vendors is the huge volumes in the market. Nokia for instance earned 3.9 billion Euros in India. The Indian cellular market continues to add new subscribers at a world-leading rate of between 7 and 8 million users per month. "A number of factors including, but not limited to, service provider competition, service quality, brand affinity, effective marketing and distribution, device vendor competition, increasing per-capita GDP, and general demand factors such as choice, are driving growth. The broadening availability of ultra low-cost handsets (defined as sub-US$35) is also becoming one of the key drivers to subscriber growth," the study pointed out.
A comparison of GSM versus CDMA sub-$50 import volumes shows that sub-$50 CDMA imports outpaced sub-$50 GSM imports by a factor of approximately 3.5 times for the period. In terms of average selling price the CDMA handsets were found to be much cheaper than GSM low cost handsets. There are around 60 very low cost CDMA models from 13 vendors making it a highly competitive sector. This price gap between CDMA and GSM has, however, narrowed with the introduction of sub-$30 GSM imports from August to October. "Total market leader Nokia's contribution to sub-$30 GSM volumes increased from 15 per cent from January to July to 22 per cent from August to October," said the study.
Tuesday, March 25, 2008
CDMA's second innings in India
When Reliance Communication and Tata Teleservices announced plans to launch GSM based cellular services everyone thought that it was the end of story for CDMA in India. However recent announcement from State owned BSNL and new entrant Shyam-Sistema, that they were rolling out pan Indian CDMA network, has given a new lease of life for the future of this technology. To be fair ever since CDMA was launched in the country it has had a bad deal, thanks to the strong GSM lobby and also the way it was brought into the market by Reliance and company. In its desperation to break into the mobile market, Reliance argued that CDMA was a more efficient technology which can offer mobile services at half the amount of spectrum than what GSM operators use. It was pegged as a low cost poor man's mobile. Both arguments were pushed hard to build political consensus to allow CDMA to enter the Indian market in the face of objections from the strong GSM lobby. The fallout of the two arguments was that a) CDMA operators got much less spectrum compared to GSM operators which meant they had to pack in almost double the number of subscribers in the same amount of spectrum and b) the poor man's mobile image pushed away the high end users to GSM which meant that CDMA operator's average revenue per user was dismal compared to the GSM counterparts. The third reason is that for a long time CDMA was playing catch up to the different variety of handsets available on GSM platform. CDMA handsets were also expensive compared to GSM handsets and in a price sensitive market that spelt doom. All these factors made the CDMA business look unviable compared to the more popular GSM platfrom. Even now not much has changed except for maybe availability of cheaper CDMA handsets. But what is driving some of the operators to use CDMA technolgy is in fact GSM's popularity. Most of the existing operators and new players are clamouring for GSM spectrum. While there is huge demand, the Government does not have enough for all. That could leave out a few aspiring mobile companies without spectrum for a year or two. For a company like Shyam-Sistema that's a wait that they cannot afford. Therefore moving into the CDMA segment is their biggest bet of getting a quick entry into the fastest growing mobile market. Of course the perception about the CDMA as being a low end mobile users platform could now work to its advantage given that it is only the rural and semi urban areas where the new roll outs are likely to happen. CDMA technology has also proven to be a better bet when it comes to data services and therefore high end users can be tapped by offering third generation mobile services whenever that is permitted by the Government. CDMA seems to be set for another innings in the country but it will have to weather the onslaught from the strong GSM operators.
Friday, March 21, 2008
All set for 3G a(u)ction
After all the brouhaha over second generation (2G) spectrum in the past few months, the Government has got it right by suggesting an open auction for 3G mobile licences in the country. This means that companies such as Shyam, Unitech, Videocon, STel and Swan, which recently got new 2G licences, will be able to take part in the auction for 3G services. A new company wanting to take part in the auction will have to take a unified access licence by paying an entry fee of Rs 1,650 crore for pan Indian operations. This could also give a chance to companies such as Moser Baer, Hindujas and AT&T which could not acquire a licence for 2G mobile services. Since these companies were at the back of a queue of applicants, they were left out by DoT based on the first-come first-served policy. Now they could straightaway bid for 3G spectrum after taking a licence. This will increase competition for existing operators such as Airtel, Vodafone and Reliance Communication as they were expecting the auction to be limited to only those companies which were currently in operation. Since new licence holders are still awaiting release of spectrum to launch 2G mobile services, they will compete hard with the existing players for acquiring 3G spectrum. While existing operators want 3G spectrum for packing in more subscribers in line with their growing user base, new operators would want it to kick start their operations. As per the proposals being finalised by DoT successful bidders would be given chunks of 5 MHz spectrum each in the 2.1 GHz band. A single operator will not be allowed to bid for more than 2 such blocks which means that a company like Airtel could get 10 MHz spectrum if it goes for an aggressive bidding. Given that DoT has 30 Mhz for 3G services, at least 4-6 operators could get a 3G berth. While BSNL and MTNL will get 3G licence without participating in the bidding, the two companies will have to cough up the same amount as quoted by the highest bidder during the auction process. The final guidelines are expected to be released by April and the auction is being planned for the later part of the year. Going by the initial enthusiasm from the operators Government can expect to rake in around $5 billion from the auction. Now that should prompt DoT to take a fresh view on allocating 2G spectrum also through an auction method instead of a flawed subscriber linked allocation criteria.
(Third generation services will enable mobile users to get high speed broadband connectivity on their handsets. This will allow operators to start offering interesting data services like video on demand and mobile TV. Operators also need 3G spectrum as it is more efficient in packing in more number of users in lesser bandwidth compared to existing mobile technologies.)
Wednesday, March 19, 2008
Right frequency for RCOM- 1800 or 900
Reliance's latest move to request for the extended GSM 900 MHz frequency band, instead of the 1800MHz for its GSM service is no surprise. It has been proven beyond doubt that the 1800 MHz is much less efficient than the 900 MHz band. Ask any of the fourth cellular operator such as Idea Cellular and they will tell you how they got a raw deal when the Government gave them spectrum in the 1800 MHz band. But what has surprised most experts is that RCOM has sought capacity in the 900 MHz band despite the knowledge that eGSM band may not be available anywhere in the near future. The Wireless Planning Coordination wing has not even mentioned the use of the eGSM band in the ongoing discussions for finalising the new national frequency allocation plan. It gets even more surprising that RCOM has asked for a band where there is only a maximum of 2MHz left (compared to 4.4 MHz it has got in the 1800 MHz). So is Reliance willing to wait till this band is cleared up for launching its GSM service? Sources claiming to know RCOM's gameplan say that the strategy is two pronged. First the application for eGSM band has been made so that the Government starts thinking about vacating this band. 900 Mhz is a huge advantage for existing GSM operators such as Airtel and Vodafone as they can start offering cheaper 3G services using this band compared to the 2.1 GHz band. So whoever has capacity in the 900 MHz band has a leg up on 3G. RCOM wants to have that advantage. The second part of its strategy is that it wants to be sure that when the Government decides to release the eGSM band it should either go to RCOM or no one. In other words by applying now RCOM has made sure that it claims first right ahead of the all the new operators who are also waiting for start up spectrum. Even if RCOM starts roll using the 1800 Mhz now, it can easily upgrade its network with minimum additional investment, for use in the more lucrative 900 MHz. Of course the existing GSM operators have already seen through the game plan and have told DoT that there will be more blood shed on the telecoms street if eGSM is given away to RCOM.
Monday, March 17, 2008
Are GSM operators losing sleep over the 'Virgin Effect'?
Within just two weeks of Virgin Mobile's entry into the Indian market, pre-paid mobile tariffs have started spiralling southwards. While Virgin launched with an aggressive scheme which allow subscribers to get paid for receiving incoming calls, Bharti Airtel has raised the battle pitch for the pre-paid mobile market by slashing airtime tariff to 50 paise a minute for its Delhi subscribers. The reduced tariff will be available for all mobile-to-mobile local calls. Pre-paid subscribers can avail themselves of the new scheme by buying a recharge coupon worth Rs 56 every month. The move comes after the Tata-Virgin combine raised the bar by launching mobile schemes for the youth segment offering airtime at 50 paise a minute. Most of the other mobile operators are charging Re One per minute on their pre-paid cards.
Mr Shashi Arora, CEO - Bharti Airtel Ltd. (Mobile Services), Delhi & NCR said, “We at Airtel have always been at the forefront in introducing best in class products and services for our consumers. This latest endeavour is towards making tariffs more affordable and within the reach of all income groups. We are sure our customers would find this opportunity very cost effective.”
However, the Virgin Mobile offer seems to be still more attractive as it allows subscribers to call fixed line users also at 50 paise a minute, besides getting paid for incoming calls. The Airtel offer is limited to mobile-to-mobile calls. The other difference is that while the Airtel offer does not give any talk time with the Rs 56 voucher, Virgin has a recharge coupon for Rs 50 with a talk time worth Rs 39. “Virgin Mobile branded services offer the best value for money for youth who call and text a lot. The way we do this is by rewarding them both for making outgoing and receiving incoming calls. Customers who make a lot of calls, will benefit from our 50 paise to any local network offer. Many third party experts agree that we offer great value for money.
For example, in a report released by Morgan Stanley earlier this month, they found that customers who made 140 minutes of outgoing calls could save up to 25-30 per cent if they used Virgin Mobile,” said a Tata Teleservices spokesperson.
More than 70 per cent of the 200 million mobile subscribers use pre-paid cards and they tend to change operators. Lifetime validity cards were launched just over a year ago by all the mobile operators in a bid to arrest the high churn rate, which is around 4 per cent. GSM operators are confident that they are ready for the Virgin blitz. Bharti Airtel, BSNL, Vodafone and Idea Cellular are internally gearing to up the ante in terms of pushing their own youth-oriented initiatives. “We are enhancing our youth-oriented advertising and marketing initiatives. Our entire customer service platform is based on self-service, where customers pick and choose what they want without actually interacting with a human interface and is aimed at the youth segment,” said an Airtel executive. Another GSM operator said that it was waiting for Virgin Mobile to unveil its complete range of value-added services. “It is still early days and we will react once the entire package is unveiled,” said a Mumbai-based operator.
Market watchers said that with more than 44 per cent of the user base falling in the youth segment, every player will be eyeing a larger share. GSM operators are taking comfort in the fact Virgin Mobile is on a CDMA platform which means subscribers will not be able to change the operator. “Youngsters like freedom, but the offer from Virgin will mean that one would be locked up on Tata Teleservices’ network,” said a GSM operator. GSM operators also said that the offer from Virgin to offer money for receiving calls works to their advantage because they also end up earning revenues. “About 80 per cent of the mobile base is on GSM and it is more likely that it will be a GSM user who will be calling a Virgin Mobile user. So a 10-minute call could mean earnings of at least Rs 5 for GSM operators,” said an industry expert.
However, what is working in favour of Virgin Mobile is that no other company can probably afford to replicate its advertising and communication strategy. While Virgin can be irreverent and funky since it is targeting only the youth, other mobile operators have to create a brand image for their larger mobile user community. GSM operators will also have to bear a huge cost if they were to match Virgin's offer to pay for incoming calls because of the large existing user base. Sources close to Virgin said, “Our entire proposition is based on simplicity and flexibility. This is backed by strong market research which clearly indicates that the youth are looking for an overall proposition, not a piece-meal approach that exists in the market today.”
With many new operators set to enter the fray Indian mobile market can expect more interesting days ahead.
With many new operators set to enter the fray Indian mobile market can expect more interesting days ahead.
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