SERVICE PROVIDERS: The New Vibrancy

"We live in a moment of history where change is so speeded up that we
begin to see the present only when it is already disappearing."- RD Laing,
The Politics of Experience

One of the most loudly visible changes that the Indian telecommunication
landscape has undergone in the past couple of years has been the emergence of
wireless as the prima donna of the industry. From a nation starved of phones and
one where a phone was luxury even at the beginning of this century, India has
suddenly become a sort of wireless country. The surge of mobile phones has been
so fast that in just a decade of their arrival in India, they have outclassed
the plain old fixed line phones in term of numbers. Even though fixed line still
remains the primum mobile of the telecom industry in terms of network size and
revenue generation, for a generation of millions of Indians, telecom is more
about being mobile and wireless then anything else. And they have numbers to
believe so: not only did India add more than 21 million mobile phones in 2004,
the past year also saw mobile phones outnumbering a near stagnant fixed line
base. Figures from the Telecom Regulatory Authority of India show that there
were about 44.51 million mobile phones and 43.96 million fixed lines at the end
of October.

From another perspective, it is mobile that has played a key role in the
emergence of the private sector enterprise in the Indian telecom services
domain. Available data suggests that the share of private sector is now close to
50 per cent (as against 35 per cent in January 2004). By October 2004, private
sector companies accounted for 80 per cent of the total number of phones added
during the year in the country. And of the 80 per cent, almost 98 per cent were
mobile phones.

That in brief is the macro picture of India's telecom industry at the
beginning of 2005.

Making it affordable and growing

One of the reasons for the unprecedented growth of mobiles in the country
has been the realisation among the telecom companies that to grow and prosper,
they must expand at the bottom. In other words, make phones more affordable.
India being a country with majority of people in the low-income bracket, any
market expansion could not have been possible without adopting such an
all-inclusive strategy.

While in the beginning, private operators focused mostly on prospective
customers from the upper income groups, it was only when they started looking at
serving the lower income groups in innovative ways that the market really
expanded. Mobile phones, for instance, have fast moved from a class service to
mass service driven by continuously falling tariffs (and of course also the cost
of handsets). Mobile-to-mobile calls today cost as little as 99 paise per minute
while a mobile-to-landline call costs Rs. 1.25 per minutes. Long distances
charges are down to as little as Rs 2.25 from anywhere to anywhere in India. The
tariffs are likely to go down further once the ADC regime comes into effect in
February 2005.

Perhaps the most prominent example of an operator trying to make phones
affordable to the masses is that of Reliance Infocomm whose attractive bundling
options made mobiles affordable to a much larger number of people and brought it
millions of customers within months creating a sort of world record. Airtel
dramatically and substantially lowered the entry barrier and made mobile phones
much more convenient and affordable for people through its Easy Charge
electronic recharge service. Starting at Rs 50, electronic refills from Airtel
enable mobile users to top-up their phones in any denomination they choose.
Launched in January 2004, the Easy Charge service is now available at 60 to 70
thousand Airtel retail points across the country and in value terms 40 per cent
of recharge now happen electronically, Manoj Kohli, president, mobility, Bharti
Televentures.

Telecom operators who have recently launched high speed Internet access
recently have tried to make the service affordable with some of them offering
unlimited access for as little as Rs. 450 a month. Broadband services are likely
pick up steam in 2005 with low tariffs as a key driver of the market. It is
expected that India would have 18 million Internet subscribers by 2007 of which
50 per cent would be broadband subscribers.

It's not an easy game, so innovate and survive

Even though a large number of issues that the telecom companies focused on
3-4 years back (like improving customer care, speedy, differentiated service
offering, building new revenue streams, customer retention and churn management,
and managing technological change) still remain, it's a different world
altogether today. Fixed line or mobile, telecom in India, like the rest of the
world, is no more about selling connections and then voice minutes or just about
telecom companies...it's much more than all that.

For analysts, financial markets, the media, and the rest of those outside the
industry, India is today one of the world's most promising markets, but for
the telecom companies it's both promising and difficult. With at least six
operators in each circle, the Indian market is extremely competitive. And the
more it grows, the more difficult it becomes. Difficult not just because it is
one of the most complex and heterogeneous, it's a difficult market also
because Indian customers have grown up to be one of the most demanding in the
world. They are no more content with a simple delivery of service; they want it
to be made to their convenience and want operators to make the services
easy-to-use. They may pay less but would want more.

Add to that a decreasing ARPU and margins and other pressure points.
"Every quarter ARPU is dropping by 4 per cent. Last year, it was Rs. 466,
last quarter it was Rs. 402. It might stabilize at Rs. 350. Operators will have
to survive with low APRU," Cellular Operators Association of India (COAI)
director general TV Ramachandran recently told a conference of GSM operators.
What he was saying of the GSM operators may be true for everybody else.

So to survive and prosper, telecom companies must innovate and innovate every
day, every hour. It's obvious that to attract and retain customers and meet
their growing demands and create profits, service providers must come up with
not just with new innovative services and products, but must go for new
innovative ways of reaching out to the customers. And this is what Indian
telecom companies seem to be doing - innovating.

Branding, Segmentation and Creating Differentiators

In the past couple of years, all the operators including state-owned BSNL,
have spent a lot of time and money in segmenting their customers and building
brands - both efforts directed at building long-term relationship with
customers. Addressing an analyst conference on Bharti's third quarter results,
Manoj Kohli emphasized that Bharti's competitive edge will come from its
segmentation drive. Agrees Sukanta Dey, chief marketing and commercial officer,
Idea Cellular. "It's segmentation which will increase ARPU and reduce
churn," says Dey.

Hemant Sachdev of Bharti Enterprises says that with the kind of growth that
operators have been witnessing, differentiators will die and it is segmentation
would be key. "The big challenge for tomorrow is to define who we are. The
answer to that is going to define differentiators and segments and build a loyal
tribe of customers for us".

Leading Operators: Market Strategy
Operators	Strategy
	- Started with presence only in more lucrative markets but now has expanded to even a low potential market like Bihar. This shows that Bharti sees potential even in the most backward regions.
	- Aggressive mobile data strategy with a focus on corporate users as reflected in its current promotions for Blackberry, residential broadband also a major focus. Working on market segmentation. - Likely to launch 3G services in Mumbai and Delhi by the end of 2005 or 2006 beginning
	- Only service provider with a true pan-India presence - more of a legacy then strategy -  Will continue to focus on mobile, aggressive residential broadband plans - Price leadership in all telecom segments
	- India's only MNC operator has presence in almost all key regions and is keen to expand to all the other important markets. - A wireless-only operator, its very, in fact most focused operator when it comes to value-added services in terms of offerings as well as marketing of the services. - Currently, offers the widest range of service including push-to-talk and EDGE-based services. - Most likely to launch 3G services in Mumbai and Delhi by the end of 2005 or 2006 beginning
	- Presence in 8 circles, unlikely to go beyond that. - Focused only on mobile services, the operator is trying to expand its customer base using innovative tariff options and market segmentation and is also quietly getting into non-conventional GSM-based services like telemetry
	- Pan India strategy from the start as size and scale was always important for it. - In 2005, it is likely to get aggressive on broadband offerings and data services for enterprise. - Among the mobile operators, Reliance has been the most successful in marketing and offering mobile data services
	- Another integrated telecom player, Tata Teleservices is focusing on both mobile and fixed line offerings including broadband. Value-added and enterprise services key focus. - Even though its current presence limited to only a few circles, it is likely to cover almost the whole of India by the end of 2005.

Besides branding and segmentation, operators are also working to create
competitive differentiators and that's paying well. For instance, Hutch, which
is India's only pure play wireless operator, has been differentiating on the
basis on innovative value-added service (VAS). In fact VAS, which for long was
more a marketing exercise then real revenue grosser, has now hitting big time.
Hutch which has the highest ARPU among all the mobile operators, claims that it
has 22 per cent higher ARPU just because of VAS. Hutch offers an array of
services possible on its EDGE network including live TV programmes. In the past
three months, the operator has invested around a million dollar in enhancing its
VAS offerings.

Emergence of New Stakeholders

The emergence of new stakeholders in the telecom network has been another
key development in the past two years. These stakeholders have not only started
benefiting from the network, they have begun adding value to it, some times even
without the active cooperation of the network operators. For instance,
television (to a certain extent radio) has emerged as the key drivers of SMS
usage (vice-versa SMS has been the key driver of interactive TV in India).
During the past year popular television programmes on Sony, Star, NDTV, and Zee
generated millions of SMS. By December 2004, TV-driven SMS had generated
revenues worth Rs. 24 crore. Mobile operators, television channels, and SMS
application providers shared this amount with largest share going to the mobile
operator.

Despite the dynamism that telecom companies may be showing in responding to
market exigencies or customer demands, times ahead may be difficult and
challenging for them. They will surely need to continue innovating to attract
new customers and keep the existing ones. However, there is no guarantee at all
that it will help them rake in more profits or even sustain the existing levels
of profits unless new markets are exploited. For one, there is no indication
that there would be a big leap in customer spending on telecom. The silver
lining, however, is the fact that with only a little more than 8 per cent of the
population having phones, India's potential still remains utterly under
exploited. The challenge, therefore, for the industry would be to tap the
untapped effectively and profitably. Growth and profits will come from rapidly
reaching out to people who are still left out.

Ravi Shekhar Pandey