Between 2006 and 2009, the US mobile operator AT&T’s mobile data traffic grew by a whopping 4932%[1].  This was the period when the US witnessed its first real wave of smart phone uptake, with penetration jumping up from below 20% to around 40%.

There are three reasons why this coming of the “data wave” was actually not very good news for the industry.

Firstly, operators were offering “all you can eat” data packages to subscribers which meant that as usage grew faster than revenues.

Secondly, moving data packets over mobile networks was threatening to become costlier than the revenue itself.

Finally, lesser and lesser of what users were spending on web-enabled services were resulting in new revenue streams for the operator.

With data usage shooting up, but costs threatening to spiral and revenue growth getting limited, you can probably see why the industry got into a huddle about data profitability and growth.  Let’s go back to our US example to make sense of these three reasons:

1. The trap of “All-you-can-eat” unlimited data plans -  In the mid-2000s operators were eager to offer pricing plans which did not set any real limits (there were some, technically) to how much data you could use. Because of these unlimited data bundles, in the initial days of the mobile data surge users used more and more of data but operators didn’t get paid any more money.  This is why revenue growth lagged usage growth.
2. The threat of data spiraling transmission costs - In the mid 2000s many operators were fast-tracking the development of radio networks but neglecting fixed access solutions or near-field technologies such as Wi-Fi.  By the late 2000s, it was evident that a mainly radio-enabled strategy for connecting customers would never work in data as well as it had for voice.  Overwhelming traffic growth was going to result in huge capital costs (e.g. network) and operating costs (e.g. energy).  Operators suddenly remembered that Wi-Fi offered 10x the speeds of 3G at 70 percent lesser costs, and started thinking about how to give users a richer mobile data experience by seamlessly managing multiple devices across 3G, 4G, Wi-Fi and fixed networks. But that wouldn’t come easy, or fast.
3. The curse of becoming a “dumb pipe” – As if cost escalation wasn’t bad enough, operators were also wondering about how they could capture a reasonable share of the new revenue growth.  Data revenue was increasingly for “mobile internet” access, ie people paying a monthly or per megabyte fee for accessing the web.  But when users spent on web-enabled services (e.g. travel booking, buying books or music, etc), the operator was usually bypassed completely in such transactions. So while operators were building the networks that would enable growth, they feared the threat of being edged out of any share of that growth!  One indication of how they were being bypassed is that between 2006 and 2009, US operators’ share of all page views onto their own sites plummeted from 57% to 27%, and from a ranking of number 1 all the way down to number 10.

My prediction is that India will see a surge in smart phone uptake from around the end of 2015 onwards. Why?

Device price points, form factors and replacement cycles are all converging.  Mass uptake of services might follow a year or two after that (by the time applications providers and operators offer services which appeal to the mid-tier user).

So I’d say the industry has anywhere from two to four years in which to start the journey to a network transformation that enables Indian mobile data users to have a good data experience using handsets, laptops or tablets, whether at home, office or on the move.  To be successful, this strategy needs to manage costs and enhance customer experience.

One thing that AT&T and others did to stem the tide of cost growth as mobile data exploded was to introduce “tiered pricing”, linking customers’ per month tariffs to “slabs” of data usage rather than leaving it completely unlimited.  That’s a great way to prevent cost from spiraling at the outset, but a long term network strategy is needed to enable us to be free to do what we want, at the right price, and have a great experience.

Preparing a CEO briefing recently for a leader who wanted to understand how China and India stack up, it struck me that the two industries today share a common challenge.  Just look at the graph below, and you’ll see that both markets are at a point where the revenue growth rate has converged on the low-teens %, while subscriber growth is about to dip into single figures.

For the first time, both markets have an imperative to drive per subscriber revenue upwards to keep up with their shareholders’ growth expectations.  So, cutting beyond the clichés that often artificially couple these two economic giants together, now there may be real sense in Indian and Chinese telecom service providers engaging more purposefully in collaboration and innovation.

The fields of discussion should start with techniques to deminstrate to “mid-tier” users the benefits of mobile beyond simply making calls and sending texts.  Top-end users are already on board.  Whilst China has the advantage that much of its population read and write similar scripts, both markets have common challenges in driving data adoption, growing user confidence and awareness, giving more people value through mobile internet because fixed isn’t easily accessible, and giving people services which they really care about.

Example: both India and China have experimented with services aimed at farmers to provide crop and pricing information.  But mass uptake has been slowed down by an inability hitherto to aggregate and distil highly localised pricing information on a regular basis to subscribers in many locations.  Once the technology and process for data aggregation can be harnessed better wiih customer analytics, the value these pricing and crop information services provide could really shoot up.

Now look at the tables below and remember just how different the two countries are!

China’s economy and its telecom sector are roughly six times the size of India’s but more importantly, GDP/capita in China is four times as high.  While there is a common challenge of exciting the mid-tier, marketing officers in Shanghai and Beijing will have to create different sets of services and offerings compared to those in Gurgaon and Mumbai.   While there is clearly an opportunity for collaboration, success in each market will continue to require content and services which address the needs of users with different and distinct needs.

Similar, but different.

“Developing nations waste over 1.1 billion tonnes of food every year,” announced the GSMA at Mobile World Congress in Barcelona a fortnight ago.

The GSMA goes on to say that with the food that could be saved, we could feed a country the size of Kenya for an entire year.  Once you stop to think that this East African nation has a population of 43 million, this observation is indeed sobering.

I know, I know. You’re wondering why the GSMA – an association that represents the interests of mobile operators around the world – is talking about food wastage. Surely they’ve got other stuff to worry about, and food is somebody else’s problem?  Maybe the FAO, UNDP or the World Bank?  Somebody else’s problem it might be, but the GSMA realises that it represents an industry that could be part of the solution.  Through the use of better logistics and food distribution, the GSMA sees that mobile technology can result in more food getting to more people at the right time, without being wasted or needlessly stockpiled.

The “Connected Life” report (PDF Link) estimates that as the potential benefits of fleet telematics gain traction among fleet operators and owners (aided of course by basic awareness programs), food wastage during transport and storage could be reduced by 10–15 percent – the equivalent of 25 million tonnes a year. This much food is sufficient to feed over 40 million people a 2000-calorie diet, every year. A truck using vehicle telematics is expected to save the equivalent of 1 tonne of food a month through increased efficiencies and performance improvements that can be felt across the board.

The GSMA makes eight Connected Life statements in its report, showing just how pervasive mobile is going to be in our lives:

1. mHealth could save over 1 million lives in Sub-Saharan Africa over the next five years
2. mHealth could help cut healthcare costs in OECD countries by over 400 billion USD in 2017
3. mEducation could provide 180 million children in developing countries the opportunity to stay in school over the next five years
4. mEducation could help retain 1.8 million students in the education system across developed nations by 2017
5. Fleet telematics could prevent enough food wastage during transport to feed the population of Kenya every year by 2017
6. 1 in 9 lives lost in road accidents could be saved by mobile-enabled in-car emergency call services
7. Smart commute interventions could give back a week’s worth of time every year to every commuter
8. In major cities across the developed world, smart metering could reduce carbon emissions offset by over 1.2 billion trees

As an aside, it was my team at PwC that did all the research behind the Connected Life report.  The team is currently busy putting a set of specific set of statements together right now which will talk to the potential impacts of a ‘Connected Life’ in India.  For example, as many as 50m Indian children could get better access to educational materials through mEducation in the next 5 years, and 4m of these children could complete secondary education, who would otherwise not have.

Finally on a personal note, after a difficult two months in which we have lived through two family tragedies, I am back to blogging thanks in no small part to being showered with love from our friends and colleagues!  Thanks for your support

It is time to draw stumps for 2012, so let’s take a pause from telecom talk and get down to a comparison meriting far more serious analysis: How does our national game measure up to the country’s most talked about industry? Here’s a First XI of issues to settle the score.

1. Speed: With Zaheer Khan in decline and 3G and 4G both set to grow, telecom has the edge on cricket when it comes to service delivery at quick pace.

Verdict: Telecom wins on speed, by a yard.

2.  Customer experience: Chris Gayle, Kevin Pietersen and Virat Kohli have created “moments of truth” through Twenty20 that any telecom chief marketing officer would die for.  Telco retail outlets and call centres do not offer the customer a level of excitement or engagement close to the weeks of customer frenzy the IPL boys whip up every spring.

Verdict: Over and out, Cricket wins. 

3.  Rural: Just like in telecom, the recent India vs England Test series reveals that the pace is in the Metros and it is positively pedestrian in the boondocks. Metropolitan Mumbai was the only wicket that was remotely speedy and by contrast the 22 yards at small-town Nagpur were about as quick as writing SMS without predictive text.

Verdict: When it comes to rural, cricket and telecom are both way behind service in the metros. Match drawn.

4.  Coverage: In an attempt to stop leaking boundaries, MS Dhoni could benefit from lessons in coverage planning from an Indian telecom network planner. This is a rare breed of genius, expert at blanketing coverage gaps with barely any resources. Telecom has got 95% of us covered in India, but our fielders have some way to go to match that.

Verdict: Telecom wins on field coverage, and over the air for that matter.

5. Top order vs Top-tier:  Equipped with the latest handsets and tablets, India’s top tier mobile user racks up a good 300 minutes and more megabytes of usage every month.  This is well ahead of how long Gambhir and Sehwag have managed to occupy the crease in recent times.

Verdict: Telecom wins. Time for India’s openers to try new tablets.

6.  Middle order vs mid-tier: Unlike the mid-tier telecom user who has multiple SIM cards to switch operators day to day, churn levels are pretty low in India’s cricketing middle order. Laxman, Ganguly, Dravid and Tendulkar have loyally graced the team for the best part of two decades.

Verdict: Maybe telcos can “cap” their favourite customers to stop them from switching.
For retention ability, Cricket wins.  

7. Runs per over vs ARPU: With relentless intensity, Test and T20 formats are driving higher and higher runs per over. Thanks to Gilchrist and Sehwag, the days of 2.5 RPO in a Test match are all but history, and the figures now approach 4.0. Meanwhile, average revenue per user has been charting a continuous decline. If telcos could index-link ARPU to RPO, worries about revenue growth would become a thing of the past.

Verdict: Numbers don’t lie: Cricket wins.

8. Captain vs CEO:You can usually rely on Captain Cool to do the job for India, but he’s no match for India’s telecom CEO, who runs a complex business coupled with the daily overhang of a regulatory surprise or two that could cost billions of dollars.

Verdict: The keeper’s gloves are off. Telecom wins.

9. Run outs: In telecom, if you run out of credit, there’s never a kiosk far away where you can top up and carry on, whereas in cricket you are on your way back to the pavilion!

Verdict: The umpire’s finger is raised, and cricket is out!  Telecom wins.

10. Analytics: Could a telco’s customer segmentation model work out that Alastair Cook has averaged 65.62 with the bat since the beginning of the last Ashes series?  Sure it could, and some more too. Cricket boasts a deep and rather troubling segment of analytical hacks who will quote statistics to you from the Timeless Test of Durban in 1929, but a telco’s analytics engine should beat Wisden’s scorebook, any day.

Verdict: Following extensive analysis, telecom wins!

11. Bouncers vs bill shock: They both hurt, but which is worse: Chin music from Umesh Yadav & Co (or more like shin music, if we’re talking Nagpur wickets) or bill shock after an overseas holiday when you forgot to switch off data on your iPhone? Bouncers can you give you a bruising that will last a few days, but the pain of a Rs 50,000 bill scars some for life!

Verdict: Bruises are temporary, but bill shock can be permanent. Telecom, you lose!

12.   BCCI vs TRAI: Now that’s a 12^th Man showdown whose result nobody could predict!

Verdict: No third umpire and no DRS.  Match abandoned

Result: Cricket 4, Telecom 6, No result 2. Telecom wins!

What’s in your Issues XI?

Happy New Year!

Last month, India’s GSM operators lost nine million subscribers between them, bringing the total number down to 664 million from October’s 673 million. Bharti Airtel lost 2.8 million users, Vodafone 2.4 million, Idea Cellular 1.6 million, Aircel 1.5 million, and Uninor and Videocon 0.4 million each [1].

CDMA operators such as Reliance Communications and Tata Teleservices weathered similar losses, and overall the Indian mobile market has seen some 30 million disconnections in the last four months.

With 2012 already having been an annis horibilis for Indian telecom, are matters going from bad to worse now?  Have Indians had enough of mobile and started giving up on telecommunications altogether?

Subscriber numbers are dwindling because operators are doing some much-needed cleaning up of their subscriber bases. There are two reasons why they’re doing this now.

First, the government recently introduced new norms for subscriber verification, insisting that certain fields such as ‘name’ and ‘address’ must be properly verified before anybody can be given a connection. To comply with the new standards and avoid stiff penalties, operators have been clearing their registers of connections that don’t comply.  They have been introducing new processes to comply as well, and have hired thousands of sales staff onto their books to ensure that customer verification is done by employees and not agents.

Second, operators have been cleaning up their “VLRs” to ensure that more subscribers on the network are ‘live’. Each operator has a Virtual Location Register (or VLR, given telcophiles’ knack of inventing three-letter acronyms for anything that has an on button) which is a database that provides a count of all the SIM cards being serviced on an operator’s network.

Operators around the world have policies of disconnecting those SIMs on the VLR that have no activity over a period of time (say 90 days) and therefore the numbers reported in most markets are usually an accurate representation of the “real” number of users.

But we are unique in India and here the gap between reported and live connections has only grown: Today only 77 percent of the industry’s reported 900 million+ subscribers are “live.”  Now that operators have started culling out non-compliant and dormant accounts, subscriber numbers are going down.

In essence this is a good thing, and the reported decline will have no real impact on revenue or activity since the cull is mainly of dormant or erroneous accounts, and relatively few from active subscribers.

Newspapers claiming that operators “haven’t added a single subscriber” in October are erroneous.  The industry continues to add around 6 million new subscribers every month.  Things may be bad in Indian telecom, but not that bad after all.

With the possible exception of drama-seeking journalists, almost everybody will be hoping that 2013 is less turbulent than 2012 for India’s telecom sector. Operators, customers and the government – all lived dangerously this year: Some emerged unscathed, while others got well and truly burnt.

By the time the year is out, less than a dozen of India’s 15-odd mobile operators will have survived the regulatory and judicial assault that the industry has borne over the past 12 months. The Supreme Court judgement of February rang the death knell for several operators by cancelling their long-term rights to provide service in many or all of India’s 22 licensed service areas.

The judges may not have realised it; but this verdict was seminal because it precipitated the demise of hyper-competition in Indian telecom, heralding the arrival of a new chapter of stable, measured industry rivalry. During the next two years, we will see the emergence of an industry with 4-5 national operators and a number of niche players concentrating on particular geographies or customer groups.

For those that survive, only relentless transition to non-price based innovation, truly engaging customer service, and new levels of inter-circle operating efficiency will result in a continued march forward.

The days of winning in the market by building out towers and connecting customers in droves are over. But it is not evident whether operators have fully grasped the extent of transformation required and only some have the resources, skills and execution capability to make this happen.

It has been a year of living dangerously for India’s 900-plus million mobile telephony users, too. From the time of the SC judgements, it was clear that tariffs would have to rise because operators were simply not in a position to finance spectrum acquisition and refarming at the prices which were being talked about.

Some industry observers forecast 90 percent basic voice tariff increases. That would have resulted in an affordability reduction for low-end users in metros and rural areas, lower usage and possibly even a drop in penetration. But courtesy the dampened interest in the auctions last month, prices are set to remain stable, at least for now.

While the government called the shots throughout the year, ultimately the Finance Ministry has been 2012’s major casualty. The telecom authorities did alright – regulatory uncertainty reduced, industry growth prospects temporarily restored, and customers are still being empowered by the power of connectivity.

But the exchequer lost out: An auction billed to solve broader fiscal deficit issues raised only 23 percent of the theoretically expected proceeds (up to Rs 10,000 Crore).  Over-egging industrial policy to solve macro-economic objectives has never been successful, and hopefully this simple economic lesson has now been learnt for the benefit of future auctions.

2013 will only be better than 2012 if operators focus on rapid evolution and policymakers implement the confidence-building measures needed to restore growth.

What are your predictions for 2013? Before the year is out I’ll post my ‘Top 5 Trends’ to look out for. After a decade of hyper-growth in this industry, we can safely say that the party’s over, but the fun has just started!

As the 2G auctions commence this Diwali week, we should not expect too many fireworks.  For months both the GSM and CDMA players in the industry have pleaded that using the 3G auction outcomes of 2010 as a reference point to set 2G spectrum pricing today is not realistic.  Ultimately the reserve prices for next week’s auctions were set at 84% of the 2010 levels.  That translates to over INR 1500 per capita of population in Delhi, in a country where the average spend is only INR 100 per month.  Now the CDMA players have withdrawn from the auction completely.  And we can expect nothing more than a few flutters to top up spectrum in selected circles from the GSM players who remain.

So there is going to be no repeat of the staggering figures we saw at the 2010 auctions: $34bn spent chasing limited amounts of 3G spectrum by players who felt they absolutely had to have a piece of the action to be relevant for a data services revolution in India in the future.  There was so little on offer and so much to play for, that offering such high prices made rational sense at the time.

This time around, low auction participation may be a silver lining in the cloud of regulatory uncertainty that hovers above the industry, because there are three risks arising from spectrum costs going even higher for service providers.  First: any additional cost burden on operators will result in further price hike considerations.  This is because operators are not generating enough profits to absorb new cost increases.  Second: price hikes would result in some drop-off in usage for low-end, price sensitive users.  Finally: further margin decline for operators will result in more of a slowdown in conquering the final frontiers of Indian coverage – rural – where penetration is still sub 40%.

If you’re looking for fireworks this week – stick to the Diwali celebrations!  Happy Diwali!

After a brief lull which lasted for some months, the old chestnut of spectrum refarming has reappeared this week in India’s telecom radar. The question on most minds is this: Is refarming good or bad, and if it is good, what is the point of doing it?

In most countries, telecom regulatory authorities propose refarming at a point when they see a potential for more efficient use of spectrum compared to its present usage. This typically happens when an industry reaches an inflexion point in the shift of traffic from voice to data, and therefore wants the 900 MHz band to be dedicated to carrying data (which is more efficient than the 1800 MHz band, for instance).

The UK has recently introduced a policy of partial refarming of spectrum amongst its four telecom operators. Whenever refarming has happened in other countries, the programme normally had three features: A reason, consultation, and a phased implementation. These paradigms must apply equally to India to ensure a reasonable outcome.

In India at the moment, a compelling case for spectrum refarming hasn’t been put forward. It is not clear whether the 900 MHz space has to be vacated by its current occupants in order to make way for other uses. (It is also not clear what the other uses could be.)

More consultation would help: Usually regulators follow a process of allowing stakeholders (including operators) to engage in this over a period of time. And finally, refarming is done in stages spread out across a few years, instead of having large amounts of spectrum vacated all at once.

Full spectrum refarming as proposed by the Telecom Commission appears to be risky. Firstly, it could lead to higher prices and poorer quality of service, since operators will have to dismantle and rebuild their network at a high cost, and move traffic to the 1800 MHz band, which in many areas has weaker propagation qualities than the 900 MHz band.

We’re told by the industry that full spectrum refarming would lead to the replacement of the active equipment on about 287,000 sites across India; it would also require the construction of an additional 172,000 sites to service extra 1800MHz band needs. If we assume that these additional costs cannot be absorbed by telecom operators, which is likely given their low profitability, we could expect tariffs to go up. How much: Almost 27 paisa per minute!

In telecom there is a general belief that wireless spectral efficiency will keep increasing, but nowadays it seems we are always on the verge of a train crash. In India, the average mobile operator in Mumbai runs on 1/7th the spectrum available to an operator in London. And coming to our metros soon will be a world of multi-device connectedness, with buildings, cars and air-conditioners requiring M2M connectivity to tracking devices, mobile phones and GPS systems. So, the question is, will 1/7th be enough?

As the much awaited spectrum auctions approach, the conundrum of “2G or not 2G” begs an answer. Look out for three groups of players who will participate: the “licences cancelled” group, the “needs more capacity in metros” players, and the “India telecom market entrants”.

Operators who had licences cancelled will have to weigh up which local service area to repurchase spectrum rights in. This will be principally a function of the subscriber base the operator has, and where it sees the growth opportunity. Decisions will be tempered by affordability of spectrum, itself a function of access to debt or shareholder funding.

Capacity shortages will practically only apply to metros and therefore the question for this group will specifically be about their needs in Mumbai, Kolkata, Chennai or Delhi NCR. Granted, operators run their city networks on a relatively very economic use of 2G spectrum, but the real question is how much growth might they expect in voice and data traffic? Voice penetration has arguably close to peaked, with average metro mobile subscriber penetration well over 100% already in India. On the other hand, alot of the future growth expected in metros is in data, where the volumes could rise very quickly. Decisions will be made on the basis of how much 1800 MHz spectrum can do to solve the shortage: if the demand growth is in data, then 3G or LTE will be more useful in future, not 1800 MHz which has traditionally been more efficient for carrying voice.

Perhaps the most interesting question is whether new entrants will make a mark on the auctions. This is interesting because it will serve as a litmus test for India’s sustained appeal as an investment destination into an industry that has promised value to investors over the last decade. Capturing new value appears to be more challenging now than before, but on the other hand, opportunities in many other markets appear inferior. So even though India may be less attractive than it was a few years ago, new players may still be evaluating the opportunity to come in. Therefore expect any activity to come from players who are well established in their home markets but seek new growth, and are experienced enough to take on the challenge of building a business in a market full of surprises. And don’t discount the possibility of spectrum acquisition blended with M&A activity also.

Welcome to No Wires Attached: informed and pointed opinion on the world of telecom, plus the odd digression into other subjects, from time to time.