Business Today

Bare-knuckled wireless

Telecom business models get ready for an overhaul as pressures of maintaining margins - and, indeed, survival - mount.

Sunny Sen        Print Edition: March 20, 2011

Sigve Brekke is unusually jovial for a Norwegian but get him talking about his business in India and the transformation to a hardnosed, poker-faced chief executive is quick. "We are attackers but rather than attacking the incumbents, we are here to attack the industry," says the CEO of Uninor, an Indian venture controlled by Telenor, the sixth largest mobile phone services firm in the world.

It is not as if Brekke, 52, a veteran at running businesses in Asia, has a choice. As the 11th entrant in a market of 14 firms, Uninor, a quarter owned by realty company Unitech, has to grab share from others if it has to grow to be even a blip on the screen at its Oslo headquarters. Because its farthest competitor is ahead by a mile - about 130 million customers, really - in the mobile telephony game.

Uninor is going about its grab-India game with a mix-and-match pricing model for voice calls, unheard of until its launch in April 2010. A customer is billed under a "dynamic pricing" scheme depending on the location and time of day the call is made. Effectively, what he is charged is a function of voice traffic at the cellular tower serving him. The more the traffic, the higher the cost per minute, but Uninor promises up to 60 per cent saving compared to pricing plans of its rivals.

In a market of more than 700 million mobile phone connections and still growing the fastest in the world, Uninor's strategy is just another distraction in an industry being constantly buffeted by challenges to its core business model. Think slowing customer billings, rising costs of expanding networks, slitthroat competition... But, for the first time in several years, the troubles are adding up to a tipping point and forcing companies to change, or at least look closely at how they run their businesses.

What could emerge is a completely new business model with nifty ways of gaining market share and building profi ts around a bouquet of new offerings, while also fi ghting to lure customers and pare costs even more. Especially to companies that face almost on a weekly basis new pricing plans, new data services, proposals to share networks, regulatory changes like mobile number portability, and, of course, hungry new market entrants.

Atul Bindal, President, Airtel
It's been in the making for some time now, but the telecom industry swears that a data revolution is coming soon. The launch of highspeed data services through third generation, or 3G, mobile technology and broadband wireless access, or BWA, could not have come at a better time to provide the impetus to such ambitions.

Some point to how in developed markets, data revenues overtook voice revenues in 2009; among Indian mobile phone fi rms, data is still a meagre 10 per cent of revenues except for those with a focus on Internet access offerings such as Sistema Shyam Teleservices, which runs the MTS-branded service (see Data Upswing ) or Tata Teleservices Limited, or TTL.

"In Japan and Korea, some operators are deriving 30 to 50 per cent of their revenues from data services. In India, as the contribution is low, we expect 3G to provide a fi llip to our initiative," says Atul Bindal, President, Mobile Services at Bharti Airtel, India's top phone fi rm by revenues which saw a percentage point increase in its data revenues to touch 13 per cent last quarter. It has rolled out 3G services in Bangalore, Chennai and Coimbatore with plans to cover all the 13 circles, or service areas, it has 3G licences in.

Still, getting that wind under its wing will take some doing by Bindal's team. For one, tieups with others in this ecosystem. So, Bharti Airtel is partnering Nokia to bundle 3G services on the Finnish phone maker's smartphones expecting that this will further both companies' markets. "We have recognised that we have to increase beyond devices so we are taking data services of an operator and using the leverage of our retail reach to convert our customer for the operator," says Jasmeet Gandhi, Head of Services Marketing, Nokia India.

Services provider Aircel has tied up with Spectranet, a data service firm, to offer WiFi service across 50,000 hotspots in Delhi, Mumbai, Chennai, Bangalore and Hyderabad. Aircel has also tied up with INQ, a phone maker, to preload social media applications on phones bundled with the service.

Many more such tie-ups will come up, says Arun K. Khanna, Chairman, Olive Telecommunication, which introduced the fi rst Indian 3G tablet. "To boost data services and reach out to consumers, carriers will have to bundle devices to make a difference," he insists.

But, not only do such tie-upsx predicate complex revenue sharing deals so that both sides benefi t, operators are also having to deal with entrants who have been on the data learning curve elsewhere in the world. Tata DOCOMO - joint venture between Tokyo-headquartered NTT DOCOMO and TTL - has already launched data applications such as music and live TV in India. These services are already a rage in Japan and make for almost half of the fi rm's revenues there. Details of this India drive were hard to come by. An e-mail to Tata DOCOMO for comment went unanswered. The Tatas refuse to respond to BT's queries as a company policy.

Tata DOCOMO has launched a personalised mobile application, Sparsh, to spread awareness on sexual health and reproduction, and, to be sure, more such applications are in the works. "Financial inclusion, health care and entertainment will happen. Interplay of industries with telecom is in the wings," says Hemant Joshi, a partner at consultancy fi rm Deloitte Haskins & Sells, not referring in particular to the Tata DOCOMO drive.

Data could be the driver to expand revenues in the years ahead, but operators are obsessive about reducing costs too. While they started sharing telecom towers to mount radios owned by one another six years ago, the new focus is on what the industry calls active network sharing - involving use of the same radio by multiple fi rms. Kanwalinder Singh, President, Qualcomm, India and South Asia, believes that outsourcing and leasing will be the "new normal".

The promise that sharing of radios can potentially halve capital spending in setting up networks and reduce operating expenses by 30 per cent becomes compelling at a time most firms are setting up their 3G networks. To get the new networks operational quickly, says Samaresh Parida, Director, Corporate Strategy at Vodafone Essar, such tie-ups are more of a necessity, not just a measure to save costs. Vodafone Essar is the Indian unit of the world's No. 1 mobile services fi rm by revenues.

Almost every fi rm is talking to every other fi rm. "We are talking to all the possible operators, but nothing has been fi nalised yet with options for payment - fl at fees or revenue sharing - being tossed around," says Gurdeep Kohli, Chief Operating Offi cer of Aircel. Even so, radio sharing will not be in crowded, urban areas given the scarcity of spectrum. Such efforts will scale up only in towns and villages.

Uninor, meanwhile, is sticking to its basics. Brekke, who wants to run his business like a low-cost airline, says he is keeping away from the frills of "fancy value-added services" that add on costs. He would rather spend that money on marketing and signing on new customers. Yet another indication of how the Indian telecom business model faces intense churn.

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