Chall
Overview
The mobile subscriber base in India expanded to
670.6 million in August 2010 with the addition of 18.2 million new users during
the month. Indian telecom is the fastest growing industry next only to IT
industry. It has been demonstrating strong growth due to the Government support
in the form of many regulatory and policy changes during the last 15 years. The
industry has always surpassed the expectations of government targets
particularly in the area of tele-density which has reached 59% now. The key
regulatory and policy changes which created positive impact on the industry
are
- Switching
over from fixed license fee to Revenue sharing,
- Introduction
of third and fourth operator,
- Introduction
of calling party pays regime
- Introduction
of universal access license,
- Changes
in access deficit charges
- Issue
of license to new operators and
- Transparent
3G spectrum auction policy
Even though there is an increased clarity on the
direction of regulation and policy, some of the policies have gone against the
interests of the incumbent operators and created a major financial crisis. For
example, the policy changes like issue of new licenses to new mobile operators
led to a large number of players entering the telecom market and ending up in
over capacity led hyper competition. The industry is currently facing slow down
in revenue growth and huge pressure on profit margin.
Executive Summary
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Key challenges faced by Industry
Revenue
growth
There are 15 telecom operators in the country
today. In each circle there are around 9-10 operators competing for the same
revenue pie which is not growing. Lower tariff and high introductory offers
which the industry saw during 2009 resulted in multiple SIM ownership and
reduced realization per minute of use. The new operators who entered the
market during 2009 offered subscriptions at throw away prices loaded with free
talk time. The incumbent operators are also forced to get into this tariff war
and this converted the existing paying minutes to non paying minutes and slowed
down the revenue growth of the sector. The revenue growth during the calendar
year 2009 was just 12% as compared to 22% during the previous year 2008.
Subscriber
growth
India will continue to be the fastest growing
telecom market in the world in terms of total number of new subscriber
additions. However the industry's focus has now shifted from customer market
share (CMS) to revenue market share (RMS). This is because the multiplicity of
SIM ownership has made the subscriber numbers meaningless to gauge the strength
of the business. The dual sim is
contributing to 30%-35% of the new additions. There is a huge disparity between
the CMS and RMS as the higher CMS has not led to higher RMS for some of the
operators. This is because of the huge inactive subscriber base and the low
ARPU from the newly added subscribers. While the industry will continue to
achieve the subscriber growth mile stones, reaching these subscribers
profitably will be a major challenge. The operators need to work on new
business models and radically change the products to improve the
profitability.
Profit Margin
The telecom operators are trying to overcome the
profit margin pressures by reducing the operating costs through business
process outsourcing, infrastructure sharing, IT outsourcing
and revenue assurance
Number of operators
The total number of operator now stands at 15.
With several operators operating at tariffs lower than cost, the eventual
consolidation of the operators is inevitable and expected very soon. Some of
the new operators have already approached the government for surrendering their
licenses and seeking refund of license fee paid. However, the telecom industry
provides lucrative long term opportunities for strong operators with deep
pockets.
3G roll out
The launch of 3G operations require huge funds
for spectrum fee and also for network roll out. The other challenges are
rolling out new 3G value added services and ensuring availability of 3G
handsets at affordable prices. The 3G roll out will pose major challenge to the
non 3G operators. There is a possibility some of these operators may lose their
high end customers to the 3G operators. 3G launch is expected during Q3
end mainly in big cities.
Rural
penetration
The urban market in India is highly saturated.
Rural coverage will be the key to operator's growth strategy. Rural
tele-density is still under 25% with significant growth potential whereas the
urban tele density has already crossed 100%. The government has set a target of
40% for rural tele-density by 2014. But the factors which are restricting rapid
roll out in rural areas are the low ARPU customers and high cost of maintaining
the network at these places. The challenge for the operators is to search for
new cost effective ways to roll out network in rural areas by choosing
appropriate technology and leverage on the use of available infrastructure to
reduce cost and time of network roll out.
MNP
The Government has announced that Mobile number
portability will be implemented on 1st November 2010. The industry is expecting
a huge churn of subscribers from the weak operators to major operators who
offer better services. There is an opportunity for the new operators who are
looking forward to grab the high end subscribers from the established
operators. This move is bound to be beneficial to the operators who offer
congestion free network and excellent customer service.
Security
clearance for procurement of telecom equipment
The Government has not given the clearance for
procuring equipments particularly from the Chinese manufacturers due to
security reasons. This has impacted the network roll out in the country. As per
Dot directive prior approval is required before procurement of any telecom
equipment / software. This created a situation where the telecom operators have
not been able to import network equipment since 3rd Dec 2009.
Review
of spectrum management and license terms and conditions
The recent success of 3G and BWA spectrum
auction has encouraged the Dot to review the existing 2G spectrum allocation
policy. It has suggested that the existing operators who have excess spectrum,
need to pay for additional spectrum charges at the 3G rates. As this will
result in huge payout for most of the established operators they have not
agreed to this proposal.
Re
verification of mobile subscribers
The Home ministry has issued
instructions to all the operators that they should ensure proper address and
identity proof for all their subscribers particularly in the case of prepaid.
In a recent survey conducted in Mumbai by the police it was reported that
approximately 60% of the addresses of prepaid customers are incorrect. The
Government feels that there is a major security threat as in many cases it is
observed that the prepaid cards were procured by terrorists and criminals with
fake name and address. To comply with the recent directive, the operators have
been asked to carry out a re-verification of all their mobile subscribers
incurring huge cost in this process.
MVNO
The policy on MVNO is not yet announced by the
government. Even though MVNO will provide additional revenue stream to the
existing MNO, by buying the excess capacity, they pose a threat to the MNO if
MVNOs end up grabbing high end customers from them.
Network
Network operations are usually designed to
address frequent disruptions caused by equipment failures. Sometimes the
telecom companies do not address the catastrophe level incident like fire,
earth quake etc. This is because in telecom, the network equipments
are located across the country and at multi-occupancy premises which are shared
with third parties. All of these factors have an impact on fire, security
and health and safety issues which are required to be managed to ensure that
there is no interruption to the service.
The network roll out is a big challenge and time
consuming and involve huge capital expenditure. The telecom industry is capital
intensive as the industry needs to continuously adapt itself to the latest
technology. The recent media reports on radiation from the mobile phone towers
and the municipal permission issues is creating serious disturbance to the
operations and services to the customers when the sites are sealed by the
authorities or by court. The COAI and AUPSI are jointly addressing this issue.
Data
segment
In India the voice contributes to 80% of the
total revenue and the balance 20% is contributed by data. In matured markets
like Japan the data contributes to 50% of the revenue. As the voice
calling rates are falling every day due to intensive competition, focusing on
data revenue is the only option left with the telecom companies to maintain and
grow revenue.
Prepaid
services in J&K and North East
The prepaid services were terminated by Dot
during September 2009 which was subsequently allowed in January 2010 on
condition that all prepaid subscribers will be reverified by the operators.
For new customers the guidelines have been further strengthened. Prepaid
services in J&K and North East and Assam are renewed on yearly basis.
TRAI
directive on value added services
TRAI issued a directive on 27th April 2009 that
all value added services like caller ring back tune etc can be offered to a
customer only after receiving a confirmatory SMS from him. This order was
modified later which allowed the subscription of VAS by pressing * and 9 on the
handset thereby making double electronic confirmation.
How
to overcome these challenges
Customer Needs/Drivers Analysis
Telecom industry should conduct
secondary research and conducts primary research to develop both quantitative
and qualitative understandings of customer expectations and needs/attributes
supporting product and service offers, company interactions and through this
determines those key customer events that affect customer satisfaction. By
identifying the Key Drivers of customer satisfaction, purchase intent, contract
renewal, and willingness to recommend organization should analyze differences
in importance attributes based on customer segments and other customer
demographics.
After assessing major industry drivers and constraints as
they affect the value chain, organization should internally evaluate various
vendor solutions, platforms and product capabilities. The Ecosystem analysis
will focus on evaluating key technologies and required capabilities across a
“solution stack” and customer lifecycle or value chain metaphor, evaluate the
eco-system requirements to support expected solutions, platforms or offers.
Implement that in your core strategy and execute it.
Technical and Operational Assessment
Telecom should assess the various functional and technical
areas, identify the inventory of business performance gaps, and through
structured analysis convert these into a set of strategic improvement
opportunities, define a set of business requirements and a high-level future
state business architecture. Telecom Industry should also gather quantitative
data and qualitative inputs to support the development of a very high-level
business implementation plan using a multi-factor evaluation methodology to
determine an acceptable level of implementation difficulty for the client.
Telecom industry should develop the Operational Model
leveraging the detail around key operational design requirements, determining
what can be leveraged internally and what external partner needs are required.
Often, the effort includes determining the detailed go-to-market service
delivery planning requirements focused on the key elements of marketing
strategy, channel, customer, operational support and billing systems (OSS/BSS).
The completed Operational Model should determine key mega-processes and metrics,
defined key functional team competencies and capabilities, develop high-level
FTE forecast and identified internal, new hire or vendor decisions.
After determining what will be the necessary core
capabilities of any program (product release, network build-out, etc.)Telecom
should develop the business case model to understand and evaluate financial
impacts usually in economic terms (e.g. higher ARPU, lower CPGA variables,
etc.) that are relevant to industry segment. The business case model includes
key revenue and cost fact and assumption sets modeled into income statements
and cash flows detailing revenue, opex, capex, peak funding, etc; the model may
also be developed with various sensitivity analysis and scenarios such as
‘High’/’Low’ testing or tornado analysis.
Partnership Strategy and Analysis
Telecom should develop an effective and collaborative
partner value chain across manufacturers, suppliers, distributors, and
resellers/dealers. The Partnership Strategy should be very deliberate and there
should be focused attempt to generate increased competitive advantage through
the development of an effective and relevant partner network – alliances as
well as channels. Understanding how independent businesses within the partner
network generate profits which can further provide insights into what is likely
to motivate them. Telecom companies should determine what sources of
competitive advantage have been ‘left on the table’ by competitors and what
value partners can gain from a Partnership Strategy.
Glossary
MVNO: Mobile Virtual Network Operator
CPGA: Cost per gross addition
MNP: Mobile Number Portability
SIM: Subscriber Identification Module
VAS : Value Added Service
COAI : Cellular Operator Association of India
AUSPI : Association of Unified Telecom Service Providers of India
TRAI : Telecom Regulatory Authority of India
3G : 3rd Generation Network
ARPU : Average Revenue per user
OSS : operating support systems
BSS : Billing Support Systems
enges to Telecom Industry in India
and
How to overcome them with Help of IT
Business & IT Consulting
Submitted to
Surinder Batra
PGDM
(Part Time)
Institute
of Management Technology
Ghaziabad
Challenges to Telecom Industry in India
and
How to overcome them with Help of IT
Business & IT Consulting
Submitted to
Surinder Batra
PGDM
(Part Time)
Institute
of Management Technology
Ghaziabad
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