Strategic Thought Transformation - The IIPM Think Tank

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T E L E C O M R E V O L U T I O N TV Ramachandran, secretary general of the Cellular Operators Association in India (COAI). The past few years have seen the emergence of mobile music (e.g., ringtones, ringback tones, music clippings ring tones) as a major revenue stream for the music industry globally, running far ahead of revenues from the conventional music distribution channels. “I would never have expected the ringtones to capture a 10 percent market share in the worldwide music business,” says Thomas Geitner, Vodafone’s chief technologist. Penetration of music-capable phones in Asia is the highest in the world, given consumers’ willingness to pay more for their As one of the early entrants, Bharti Cellular Ltd, a wholly-owned subsidiary of Bharti Tele-Ventures, initiated its GSM operations in 1995. Though a relatively small player in the GSM market, Reliance Infocomm is the dominant provider of mobile services, when its CDMA-based mobile WLL service is counted. The two were followed by the state-run operator BSNL (Bharat Sanchar Nigam Ltd) and Hutchison Essar, a joint venture between Hong Kong’s Hutchison Whampoa Ltd and India’s Essar Group. Competition has intensified with the entry of two state-owned enterprises, BSNL and MTNL, along with the arrival of CDMA-WLL mobile service, Reliance’s challenge to the GSM operators. Through the past half a decade, India’s mobile industry has been swept by mergers and acquisitions, which contributed to the consolidation of the Indian mobile market. Furthermore, the state-owned fixed-line telcos – Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) – have also moved into the wireless sector. The government has been moving towards a restructure of the two state-owned telcos (BSNL/MTNL). With further liberalization, companies with substantial foreign investment are likely to benefit. phones in Asia. Estimated at $115 million, the Indian mobile music industry is expected to soar to some $170 million by this year end. Interestingly enough, the revenues of the mobile business are expected to exceed by $5 million those of the conventional music industry, such as compact disks and audio cassettes. With 98 million mobile subscribers at the end of March 2006, many phones are still low-end, but industry leaders expect India to reach 250 million subscribers in another two years. Most will buy handsets capable of playing polyphonic music or actual music. With greater bandwidth, more capable phones and networks, consumers can soon download larger files, including video games, sports highlights and short video clips. Mobile gaming is another rising star in India’s fast-growing wireless business. By 2005, a survey of Brazil, Russia, India and China indicated that India ranked as the top mobile game market. The rollout of new handsets and networks in India could allow the local mobile gaming market to expand by as much as 700 percent by the year 2010. Mobile games play a key role in operators’ and content developers’ strategies to develop new, high-value wireless revenue streams, beyond basic voice services and simple text messaging. In 2004, the Indian mobile gaming market generated $26 million in revenue, and it was expected to increase to $336 million in annual revenue by 2009. For now, mobile gaming is evolving far faster in India than the online games market, which is expected to exceed $200 million in 2010. Industry Push for Value-Added Services High subscriber volumes require affordable handsets and low pricing of services. Accordingly, increases in penetration tend to go hand in hand with declines of the ARPU (average rate of revenue per user). Currently, the average ARPU is about $21 worldwide. While Australia has the highest ARPU ($33), India’s corresponding figure is just $8 (about Rs350), significantly below that of China ($12). As the mobile growth rate is now escalating, India’s ARPU may still decrease to $3-$5. In high-income nations, the introduction of the VAS market has typically contributed to rising ARPU. In India, this is much more difficult, due to the lower GDP per capita. Currently, the VAS market contributes some 10-13 percent of the total mobile An IIPM Intelligence Unit Publication STRATEGIC INNOVATORS 69
S T R A T E G I C I N S I G H T revenue, but it is expected to grow rapidly, at 30-40 percent annually. The challenge is to convert the simple SMS service to more sophisticated VAS services. In India as in many other nations, voice still generates almost 90 percent of revenue, while value-added services (VAS) do not yet add significantly to the balance sheet. Market players must find ways to offer a wider range of value-added services, starting with cricket-related content, latest news, Bollywood soundtracks, and video clips. “The mobile media is probably the biggest media opportunity of this century,” thinks Arun Gupta, CEO of Mauj Telecom. Last April, the Confederation of Indian Industry (CII) formed a Mobile Value Added Services (VAS) task force bringing together not just content providers and media companies, but network operators, handset manufacturers, and technology providers. Chaired by Vishal Gondal, CEO of Indiagames, the Mobile VAS group comprises a slate of industry leaders and foreign multinationals. In the future, he believes, this emerging mobile value chain community “will transform consumption patterns of media and entertainment.” The appetite for mobile entertainment is driven by the youth demographics (15-30 years). “Worldwide this age group contributes 75 percent of the mobile downloads and India is set to play a major force in this segment,” believes Bobby Bedi, Chairman of the CII National Entertainment Committee. One of the most critical challenges is the revenue-sharing model between the operators and content providers. Currently, the operators get 50 percent, the VAS vendors 25 percent, and content providers around 12-25 percent (maximum 35 percent) of the revenue realization. New models must provide adequate incentives to content providers – as exemplified by successful service innovators, such as NTT DoCoMo in Japan, and emerging leaders, such as China Mobile (Figure 7). India is well-positioned to launch such an effort - but it is an immense task. 3G & Spectrum Issues in India Today, the industry is characterized by the rapid decline of mobile tariffs, price erosion in handsets, and affordable services. At the same time, operators and vendors are transitioning to 3G networks, while struggling with a growing range of stationary broadband options (Wi-FI, VoIP), some of which are expected to pose substitution threats (WiMAX). These new networks and options are critical to operators and content providers because they enable more for less, i.e., greater and more diversified services for lower cost. Since 2001, worldwide mobile markets have witnessed early transition to multimedia cellular (3G, UMTS). Today, there are several international 3G standards. In the US, Qualcomm has pioneered CDMA. In Europe, a group of companies led by Nokia promote WCDMA. More recently, China has been pushing its TD-SCDMA. At the end of 2005, more than half of the 50 million 3G users were still in Japan and more than 40 percent were in Western Europe. The 3G penetration was barely 2.4 percent worldwide. The worldwide 3G subscriber base is expected to grow from 29.1 million in 2004 to 540 million in 2010. In high-income OECD economies, the benefits of 3G have been touted largely on the basis of advanced services. In China and India, the emphasis is heavily on cost advantages. Expected to be introduced in 2006, 3G has 4-5 times higher voice capacity than the current 2G services. 3G will also enhance India’s competitiveness in business process outsourcing (BPO) – via the expansion of broadband and IT. In spring, the Department of Telecommunications (DoT) in India released a set of new guidelines that increased the limit of spectrum each GSM and CDMA operator can claim, based on their subscriber base. The new approaches have been welcome, but also criticized for a piecemeal approach to such a vital issue as spectrum. As noted by Sridhar T. Pai, head of tonse telecom, “The impending spectral shortage has been a ticking explosive in the Indian telecom 70 STRATEGIC INNOVATORS An IIPM Intelligence Unit Publication
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