TTSL has become the first private operator in the Country to launch the premium 3G services. Now comes the hard part. Leaving aside our normal critique itch, we give one mite credit to TTSL for the spirit of risk taking.
Irrespective of Deepak’s confidence, it is a fact that the investment in 3G has taken a huge swipe off their balance sheet with around Rs.45 billion taken through debt (rest through internal accruals); and analysts haven’t exactly been bullish on prospects for 3G. A competing Reliance telecom official forwards B&E a Goldman Sachs report that predicts, “With no single operator winning a pan-India 3G license, we believe operators would struggle to extract scale benefits in 3G rollout.” Evidently, it would be tougher once the competition sets in. Also, TTSL has been bullish in Circle B during bidding, which is a low value circle. Its major loss in the bidding process was Mumbai, which is one of its key markets. Analysts speculate that operators could face customer churn in the markets where they operate and haven’t won licenses; losing them to the ones who can offer 3G in that circle. High value customers are the ones no player can afford to lose at the moment.
But criticism aside (as we promised earlier), the good news for TTSL, and even other mobile operators, is that Indian consumers have started showing signs of richer data services consumption. As per the Telecom Regulatory Authority of India (TRAI), a little more than 15% of the revenue is coming from VAS. SMS, which was contributing around 70-80% of the VAS revenue, has come down significantly to 40%. The revenue contribution for voice has also come down to 58%. So data services are improving in value. Neeraj Jain, Director KPMG Advisory tells B&E that 3G would be a 80-90 million subscriber and Rs.600-700 billion opportunity by 2015. He adds, “We expect private players to contribute aggressively to the creation of the 3G eco-system both from the perspective of the applications eco-system as well as handsets through bundling.”
However, it would not be a cakewalk on the VAS front. TTSL’s ARPU has also touched rock bottom after the introduction of per second billing. Improving that would be a difficult challenge, considering India remains a price sensitive market. Moreover, half of the TTSL’s subscriber base is still on the CDMA platform. Ironically, CDMA users have low ARPU of around Rs.75. Such users are least likely to use premium 3G services. Adding to the woes, most CDMA phones are basic handsets and are incompatible with next generation services. Thus, it would keep a large number of subscribers at bay from 3G. A little over 21% of TTSL’s subscriber base lives in rural India. They are low ARPU customers, so 3G could be a long shot.
TTSL would be considered successful if it manages to bring 10% of its high end user base on the 3G network in the next few periods. Japan’s NTT DoCoMo’s partnership with TTSL would be an invaluable advantage over competition. And why? While the company has 26% stake in TTSL and was globally to launch 3G services in October 2001, with almost 98% of Docomo’s subscriber base in Japan on 3G, it’ll be hard for competitors to match the learning curve. Also, Tata DOCOMO will have access to NTT DOCOMO’s differentiated products such as i-mode, m-wallet and many similar products for Indian customers. But per capita income of Japan is much higher in comparison. On an average, a Japanese earns $39,727 every year, while his counterpart in India earns around $1,134.
As TTSL goes about its 3G launch, these will be a few key points to ponder. They would get a reprieve from spectrum issues in their chosen circles, but returns on 3G investment would require them to outdo competition in both value and price. Besides, they will have to use it as a source of competitive advantage to gain high value customers in the 9 circles. Volume is the name of the game at present, which will have to reflect in bottomlines sooner rather than later. That’s the nature of the damned race!
But criticism aside (as we promised earlier), the good news for TTSL, and even other mobile operators, is that Indian consumers have started showing signs of richer data services consumption. As per the Telecom Regulatory Authority of India (TRAI), a little more than 15% of the revenue is coming from VAS. SMS, which was contributing around 70-80% of the VAS revenue, has come down significantly to 40%. The revenue contribution for voice has also come down to 58%. So data services are improving in value. Neeraj Jain, Director KPMG Advisory tells B&E that 3G would be a 80-90 million subscriber and Rs.600-700 billion opportunity by 2015. He adds, “We expect private players to contribute aggressively to the creation of the 3G eco-system both from the perspective of the applications eco-system as well as handsets through bundling.”
However, it would not be a cakewalk on the VAS front. TTSL’s ARPU has also touched rock bottom after the introduction of per second billing. Improving that would be a difficult challenge, considering India remains a price sensitive market. Moreover, half of the TTSL’s subscriber base is still on the CDMA platform. Ironically, CDMA users have low ARPU of around Rs.75. Such users are least likely to use premium 3G services. Adding to the woes, most CDMA phones are basic handsets and are incompatible with next generation services. Thus, it would keep a large number of subscribers at bay from 3G. A little over 21% of TTSL’s subscriber base lives in rural India. They are low ARPU customers, so 3G could be a long shot.
TTSL would be considered successful if it manages to bring 10% of its high end user base on the 3G network in the next few periods. Japan’s NTT DoCoMo’s partnership with TTSL would be an invaluable advantage over competition. And why? While the company has 26% stake in TTSL and was globally to launch 3G services in October 2001, with almost 98% of Docomo’s subscriber base in Japan on 3G, it’ll be hard for competitors to match the learning curve. Also, Tata DOCOMO will have access to NTT DOCOMO’s differentiated products such as i-mode, m-wallet and many similar products for Indian customers. But per capita income of Japan is much higher in comparison. On an average, a Japanese earns $39,727 every year, while his counterpart in India earns around $1,134.
As TTSL goes about its 3G launch, these will be a few key points to ponder. They would get a reprieve from spectrum issues in their chosen circles, but returns on 3G investment would require them to outdo competition in both value and price. Besides, they will have to use it as a source of competitive advantage to gain high value customers in the 9 circles. Volume is the name of the game at present, which will have to reflect in bottomlines sooner rather than later. That’s the nature of the damned race!
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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