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Thursday, October 29, 2009

MobileTerrif

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www.bsnlnewsbyashokhindocha.blogspot.com M-9426201999
Pay per character: tariff war in the mobile space

Vrinda Gupta / New Delhi October 28, 2009, 15:59 IST



Competition in the mobile space has brought down the pulse duration and the tariff per pulse from three minutes to one minute. Trai is talking about making pay-per-second tariff plans mandatory, while many telecom players have already started rolling out such plans. And now you pay for only for the characters you use in your sms!


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Where is this competition leading us? According to analysts, such intensive competition will have negative impact on profit margins. Stock markets too have reacted negatively to these developments. There is a lot of buzz in the market around the impending round of consolidation. There have been predictions that this competition will lead to increased M&A activity in the markets especially among the small, regional and new operators.

It is doubtful that there would be a large scale domestic consolidation in the Indian mobile space in near future (though there might be some activity where large operators gobble up smaller and regional players). There are many reasons for it. First, according to Trai guidelines, new operators cannot participate in M&A activity before completing three years of operations. Second, large operators are looking outside domestic markets where there is scope for replication of their ‘Indian model’ of cost reduction – outsourcing and infrastructure sharing. Third, the tariff competition though predatory will lead to larger subscriber base overall. Fourth, M&A is risky – majority of research about the impact of M&A on firm performance shows that M&A may not realise desired results. Fifth, there are other opportunities to increase profit margins – data and enterprise applications.

In saturated telecom markets such as the US and Europe, data forms a larger proportion of ARPU (Average Revenue per User) compared to voice and there are no reasons for India to be any different. In fact, the mobile industry has already seen a 153 per cent year-on-year increase in the number of subscribers using mobile to surf the internet in 2009. At present, telecom operators in India are concentrating on increasing voice subscribers; it is only a matter of time before operators shift focus to increasing their share of revenues from data traffic. In next couple of years, there is a higher possibility of increasing rationalisation of data tariffs to stimulate usage of internet on mobile phones and other value added services.

There is a general criticism of future viability of value added services in India due to the absence of ‘killer app’ and delay in the roll out of 3G licence. No doubt 3G technology would increase the scope of value added services that can be provided to subscribers, but telecom operators can increase their share of revenues from data through mobile internet till the time 3G services are rolled out. And as far as developing that killer app is concerned, customer segmentation, that is, services targeted towards a niche market, will be the key to the success of value added services.

Value added services targeted at the rural subscribers would be another important focus area in next 3–5 years. The challenges for mobile operators in rural areas would be similar to those in urban areas –- falling revenues from voice traffic and strained profit margins. Given the low income levels, high sensitivity to price and low rate of literacy, rural India would spend on services that would improve their prospects of increasing income in the future.

Telecom operators have started offering value added services for enterprises like mobile application tools, vehicle tracking solutions, meter reading solutions etc. This segment is still in a nascent stage as enterprises are concerned about the security aspects of these services. The take-up rate is slow at present but it presents huge possibilities for the telecom sector.

For now it is too early to expect consolidation in this industry as mobile operators will first exhaust other opportunities. Rather it is possible that value added service providers in India might see M&A activity in the near future rather than the telecom sector.

The author is Head of Operations and Economist, Global Research Services - Delhi, Watson Wyatt
www.bsnlnewsbyashokhindocha.blogspot.com M-9426201999

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