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Mohammad Chowdhury
Mohammad Chowdhury
I offer unfettered insights into the world of Asia Pac and India telecom

Those of us who studied economics at school would have learnt that industries have to reach a “minimum efficient scale” of production before they can turn a sustainable profit.  Until such an output level is reached, the fixed costs of running the business will not be covered sufficiently well enough to return a positive cash flow.  Scale economics showed us that a factory needs to be large enough to integrate many production features into one supply chain, and that its market needs to be scaled to justify the investment to put such a factory together in the first place.

Specialists had their place in this world too – to make niche contributions for a fractional share of the value.  The lion’s share was destined for global companies selling to world markets.  British Airways, Singapore Airlines and Emirates ran global operations with billions of dollars in revenue (USD 17Bn, USD 14Bn, USD 22Bn respectively in the most recent financial year), whereas travel agents were localised players making USD 10-20 per ticket sold.  How big business works with specialists across the value chain was governed by the laws of the production function: Industrial Economics 101.  But do these pillars of industrial economics still hold true?

No.

Expedia, the world’s online largest travel agency, reported revenues of just over USD 4bn in 2012.  Cleartrip, one of India’s fastest growing online booking agencies, claims to book 500,000 travel events per month with revenue of some INR 300 Cr monthly.

Expedia’s growth from being a division of Microsoft in 1996 to a global business which has included hotels.com and Trip Advisor in its stable (the latter was divested), is astonishing (see table).  The business has grown through the customer reach and access provided by the internet, powered through two types of acquisitions: businesses with customer reach in various markets, and businesses with technology or functional specialism in the travel business.  In 2010, Expedia acquired a mobile app business, providing the platform needed to engage deeper with individual customers on a daily basis to attend to their travel needs.  As a result, in less than twenty years, a player in one segment of the travel industry value chain has now globalised its niche role to become bigger than most of the world’s airlines.  For Expedia’s loyal customers, it is now more relevant to solving their travel challenges than any global airline or hotel chain.

expedia

The real-time and virtual connectedness between people and things that digital enables today is creating new ways for people and assets to create value and reach customers never accessed before.  This is turning the basic tenets of scale economics on its head.  There are two reasons why this is happening.

1. Due to better connectedness, tiny businesses can now reach global markets
Thanks to digital, distribution less and less requires global presence as a necessary condition for viability.  Small companies can now reach millions of customers through a mixture of e-commerce portals, social media, channel and solution partners.  Previously restricted to local markets, especially in the services world, geographically small companies can now go anywhere.

A made-to-measure shoe maker in Pune can now sell his merchandise to customers across India via Flipkart.  The portal can provide a link to the shoemaker’s website, where the customer can scan and upload a tracing of their foot size after selecting from samples of leather, soles and shoe designs and lace colours.  This can be done without the need for the shoemaker to spend more money on advertising, sales or distribution, or even for the customer or shoe maker to speak to each other.  So even though the shoe maker only owns the production segment of the shoe market value chain, he can still play national or even global.

Similarly, a highly-rated restaurant in Bandra features high on Trip Advisor’s city guide for Mumbai, meaning that thousands of hungry Mumbaikars will see the reviews and frequent the eatery on the basis of peer customers’ reviews.  In this case, the restaurant gains visibility through social media which simulates word-of-mouth feedback on the destination and replaces the need for the restaurant to spend more on advertising.  So even though the restaurant is a small establishment without the scale to advertise in the city press, the digital world ensures that it becomes visible to thousands of people specifically looking for a place to eat.

2. Digital technologies mean the production function can be more dispersed and collaborative
An international language school based in London providing Hindi classes worldwide discovers through an e-learning portal that there is an expert in Lucknow whose work is relevant to the latest module the school is looking to develop.  Using online collaboration tools, the school works with the translator to source audio, visual and written learning materials which are then edited and digitally integrated into a global publishing portal and resold all over the world.   A bone specialist working at a Bangalore clinic is now retained by a medical tourism company in Delhi to review X-ray images sourced from its customers.  The specialist reviews an image from a pathology lab in Assam, while having a video call to discuss the results with the patient.  Payment for the specialist services are completed through a mobile payments service once the face-to-face consultation call is over.

Even though specialists (whether linguist or osteopath) are remote from the customer, they can be discovered, supply their services and charge remotely.  The emergence of revenue models to sustain the linguist in Lucknow or the osteopath in Bangalore through remote use of their skills creates new businesses which have never existed on this scale before.

The digital phenomenon is having a democratising impact on business because it levels out a playing field once surrendered to big business, but now giving hope to SMEs to play seriously in global markets.

Make in India is looking to the next group of small businesses to scale up and reach the world market: Digital is turning scale economics on its head and has the potential to make that happen.

Sources: Expedia

tele_spectrumImage: Shutterstock

India’s latest telecom spectrum auctions concluded this week with a record spend of INR 1.09 lakh crore (USD 17.7bn). This amount surpasses even the bonanza seen in the 3G and BWA auctions of 2010, and all auctions since. The sums spent also surpass the Government’s expectation before the auctions began. The biggest three players, Airtel, Vodafone and Idea, have spent significantly more on the auction than their share of market revenue. This points to a market being hastened more towards consolidation. I continue to expect a long term position where there will be 5-6 players nationally of which 3-4 will be heavy data players and 2-3 will be cost leaders in voice. This compares to some 8-10 operators per circle today.

Here are my main takeaways from the auction:

  • Top 3 have retained the best access to data growth – they secured and extended all their 900 MHz spectrum. These players spent 77% of the total auction proceeds against their 70% of revenue share: the premium paid reflects their focus to position for the best growth the market can offer.
  • Fierce bidding has pushed the smaller operators more towards the voice opportunity – none of the smaller players acquired prized spectrum bands and overall they spent 18% of the proceeds versus their 30% of market revenue share.
  • The spend pattern at this auction hastens consolidation by one more step as it makes the longevity of some players in the market more questionable – it seems we are still on course to a 5-6 player national market.
  • India is being primed for a major data uptake – 80mln smart phones are being sold per annum and operators (Vodafone and Airtel in particular) have been investing in better network coverage, quality and speed.
  • Idea is gradually building its high quality spectrum base: despite being the 3rd biggest player, it spent more than anyone else, strategically extending 900 MHz into its key circle Maharashtra
  • Tariff hikes may be needed: the record expenditure of USD 17.7bn may require tariff hikes to enable operators to sustain margins and/or maintain their debt levels.
  • The auction proceeds present a boon for the Government budget, but such bonanzas are unlikely to be repeated often and so from a fiscal perspective the gain should not be over emphasised.

Sources: Fitch; Economic Times; Medianama

digitally_connected_vehicleIn their offices in London this week the GSMA confirmed to me that this year’s Mobile World Congress (MWC) was the biggest ever, attracting around 90,000 visitors to the 4-day global extravaganza for the mobile communications industry held in Barcelona from 2 to 5 March. For the second year running we were treated to a keynote address by Mark Zuckerberg, underlining the importance of the relationship between social media, apps providers and mobile telecoms. Zuckerberg didn’t quite have the cache of 2014 when Facebook had announced the acquisition of WhatsApp just before MWC.

This year, once again, we saw less talk on mobility and more on how the Internet of Things (IoT) will be mobile-enabled and transformational, confirming how the mobile industry has entered a new phase of evolution where it will be closely intertwined with many other industries.

Every stand at MWC had an IoT or Digital theme. The GSMA’s “Connected City” included several connected cars, a virtual reality connected home and a 5G super-fast connectivity zone hosted by Korea Telecom. I loved the Fiat 500 [picture above] fitted with an Alcatel Lucent powered communications system which allows a caller to share their location details directly onto the car’s navigation screen, making it super easy to pinpoint where people are when you are trying to meet or collect them. AT&T Mobility had a broad display of the latest connected gadgets including a virtual reality view of the connected home. Not only does the gadgetry on show allow people to experience the technology now being made available, but they importantly provide an opportunity to the corporate to showcase how strategy and business development is being shaped on the ground.

I was less impressed by the “connected toothbrush”, which at US$ 300 doesn’t seem to offer much by way of connected functionality: the brush has a mobile-enabled sensor that sends a signal to your mobile phone if you are pressing too hard on your teeth while you brush. Otherwise, the phone screen will show a diagram of a mouth showing each quadrant, encouraging you to brush the recommended 30 seconds in each (but since the diagram is generic and static, it is not sensing how long you actually brush). But like many products on show, the toothbrush is an experimental product that will no doubt evolve.  Two elements would make the toothbrush more compelling to me:
1. An in-built camera which shows images of your teeth where you are brushing, enabling you to see what you rarely do – which is where to focus the brushing more to be effective; and
2. A purchasing model whereby the brush is not retailed directly to the customer, but somehow paid for through the dental insurer such that the insurer subsidises the brush in order to use it as a tool to reduce its outgoings on treatment. Such a model could be a win-win for toothbrush manufacturer, dental insurer, and most importantly, result in healthier teeth for users.

If the brush had the camera, I’d be prepared to pay US$ 100 for it, with a co-pay of US$ 200 from my dental insurer, agreeing to them being able to monitor whether I am using it or not.

digital_connectivity

And so the Congress boldly revealed early stabs into monetisation, and many prototype ideas which need more development. The most monetisable ideas remain in the domain of transportation, where there were countless vehicles showing digital connectivity that drives lower insurance premiums, better safety or more convenience, all features which somebody will pay for.

In the near term, emerging markets such as India could benefit in three ways from the IoT-enabled world:

1. At the bottom end, India and other developing countries could benefit from leap-frogging more services to be provided without the need to build more and more physical infrastructure
2. India could become the engine room of the IoT-enabled world, a centre where digitally-enabled services the world over are supported through analytics and storage
3. India’s cities could become more manageable, safer and more efficiently run as they benefit from traffic management, energy consumption reduction (such as smart street lights that dim when there is no traffic), road death reduction and better efficiency in using water.

The Digital India story must be brought to life with a clearer vision around what the IoT-enabled world can do for India, and what India can do to enable IoT across the world.

smartphone
Image: Shutterstock

In India, talk about Digital India and Smart Cities is quite the rage. But as with many transformational propositions, there is much hype but limited discussion about how will digital be seen and felt across the economy.

Understanding how digital will influence our economy is important, since digital is likely to enable much of the leap-frogging that India needs to do in order to catch up quicker with the world’s middle income economies. Here are a few examples below, which together pick up on four themes which underpin what digital means, namely Social media, Mobile, Analytics and Cloud (SMAC):

  • In Sales and Distribution, many parts of India are not served by good physical sales and distribution outlets and channels. Digital technologies which help companies connect their suppliers better by using analytics and cloud provide many options for businesses to reach customers over the web and mobile. This will help them both sell and deliver goods more efficiently.

    Relevant example: Flipkart, one of India’s most innovative eCommerce companies, is using analytics and cloud to organise its delivery chain better, and to connect electronic and physical channels in getting goods to the customer, cash on delivery.  Buying on Flipkart is conditioned by social media feeds about products and services.

  • In Retail, India lags in offering customers a truly engaging shopping experience, both in-store and off-site. Digital technologies such as analytics enable businesses to collect more and deeper information about a customer, including combining context from different sources to create a more enriched and insightful view. Mobile helps with data collection, and then helps the retailer connect more efficiently when the customer is on-site and when they are at home.

    Relevant example: Book My Show has made it easier to pick up tickets at venues and theatres without queuing, and the mobile application also enables the customer to view and choose entertainment options while at home or still at work.

  • In Healthcare and Learning, digital technologies which enable service providers to provide remote services (such as monitoring blood pressure via a monitor while the patient remains at home) will enable India to avoid billions of extra dollars in public infrastructure investment, while continuing to improve public attainment and welfare.

    Relevant example: BBC Janala is providing millions of Bangladeshis with customised English language learning over mobiles. This is substituting the need for expensive class attendance in often faraway towns at higher expense.

  • In Smart Cities, digital solutions will help police contain and reduce crime – through CCTV, video surveillance and other techniques which with predictive analytics will drive quicker action to where it is needed. Some solutions will use analytics and geo-positioning technology to give people up to the second transportation and traffic information. Yet more solutions will allow families to remain connected with each other through the day of moving about the city, and will enable people to control appliances and home and in the car from afar.

    Relevant example: Surat Municipal Corporation is connecting with citizens already on several fronts around public services, using social media to engage, as well as analytics.

    The above examples show exactly why definitions of digital are centred on Social, Mobile, Analytics and Cloud (SMAC):

  • Social: Customers, individuals or employees are using social media to express themselves and connect and exchange views, vote on each other’s choices and compare notes on all manner of things from work to school, from housing options to movies, and religious views to political opinions. Such social media are rapidly creating new platforms for expression and communication, giving businesses new opportunity to promote their products and engage, as well as protect the brand.
  • Mobile: Connected mobile devices can now connect people and things almost anywhere and anytime. This makes the customer a 24/7 phenomenon, reachable at any time and who can transact at any moment, infinitely broadening the opportunity as well as the threat from competition. With access to applications which reside on the cloud, almost every mobile device with internet access today has access to a huge amount of computing power.
  • Analytics: Behind the scenes, there is enough firepower now to analyse almost anything that generate data – not just in terms of patterns of usage and consumption, but also to predict relevance and behaviour based on collecting wider, more contextual data – often referred to as “Big” data.  Big data has not really scaled yet, but it is only a matter of a few years till it does.
  • Cloud: All of the above is now supported by huge and globally available computing power and storage capacity, meaning that individuals, enterprises, governments and connected things can all benefit from immediate access to a vast pool of technology.

The role of the mobile industry will be key, because almost all digital impacts will involve the flow of data and communications, between people and machines. There are some 5 billion mobile connections today, and the GSMA predicts there will be some 26 billion connected people and devices by the mid 2020s. Referred to as the “internet of things” or IoT, the mobile industry has an opportunity today to be at the centre of the connected world which goes well beyond people and into “things” everywhere. As the IoT takes off, communications technology will pervade more and more industries, through technologies such as Machine to Machine (M2M), enabling the sorts of digital transformation illustrated in the few examples above.

It is not just connectedness that matters, that is having a “dumb pipe”. No, it is actually the nature of connectedness that will be fundamental to how much impact can be created through digital. In tomorrow’s world, customers will be asking:

How robust is security when my information is going across all sorts of networks?

What is my latency for viewing video while the page uploads or the app updates?

Is my network coverage consistent enough to connect anywhere as we move around?

Is my network sufficiently integrated with GPS information so that I can isolate locations accurately and quickly?

Does my network provide adequate coverage today to connect non-mobile technologies, at high speed and with high quality?

Whoever coined the phrase “dumb pipe” did a disservice to the mobile industry, one it has been trying to shake off for a decade now. The above questions demand that in the digital world, networks and their operators have to be extremely intelligent (not dumb), capable of providing connectivity fit for the need. There is significant value in being able to do this, and it is up to operators to go out into the market and acquire the skills and capabilities to be able to tap this.

It is time to draw stumps on 2014 and enjoy the holidays. For those of us who have a fascination for cricket, like me, the break provides an opportunity to switch off from the daily grind of telecom and think about the upcoming cricket World Cup. Let’s imagine for a moment that the Telecom Regulatory Authority of India (TRAI) is suspended for a day and the job of the industry watchdog is given to the ICC panel of cricket umpires. What would be their verdict on a telecom user’s day-to-day experience?

You scampered out of the building to maintain a weak call signal, but the call dropped by the time you stepped out.

Umpire’s verdict: RUN OUT

You are in your car, driving through Mumbai, and your email freezes as your phone keeps toggling between 3G and EDGE.

Umpire’s verdict: TIMED OUT

You become so fatigued swiping the screen of your smartphone for weeks that you permanently injure your left forefinger. You have to go to a physio and downgrade to a basic text/voice phone before making any more calls.

Umpire’s verdict: Out, RETIRED HURT

During a kite-flying competition, an enthusiastic participant wraps his strings around a telecom tower and pulls all the equipment down.

Umpire’s verdict: Out, HIT WICKET

The four bars of signal on your phone rapidly slip to none as a truck carrying lead pipes stops in front of you at the traffic lights, blocking the line of sight to the nearest radio base station.

Umpire’s verdict: Out, OBSTRUCTING THE FIELD

You craftily try to use your wife’s phone as a Wi-Fi hotspot as your own data bill is too high, and both phones crash at once.

Umpire’s verdict: Out, HANDLED THE BALL, subject to a “hotspot” review

You again craftily use your wife’s phone as a hotspot, but she catches you in the act and swiftly dismisses you to go use your own balance.

Umpire’s verdict: Out, LBW. Umpire warns that you have reached the limit of two spouse handset transgressions for the week

The network signal is so fast that you don’t actually see the page load up when you click… err, yes, wishful thinking on this one!

Umpire’s verdict: Out BOWLED and OVER

You are so engrossed in the discussion as you pace about during a conference call that you unwittingly wander out of office, down the stairs, into the underground car park, out of network range, and get disconnected.

Umpire’s verdict: Out, STUMPED

There is a special ultra high speed 5G network trial going on at Delhi airport, but you fall asleep and completely miss out.

Umpire’s verdict: CAUGHT (napping)

You decide to have a New Year’s Day conference call with your team, but the call drops when the 11th person joins due to lack of system capacity.

Umpire’s verdict: INNINGS FORFEITED

You thought you’d topped up enough balance to last the day, but by afternoon, your phone isn’t connecting and you miss a number of important calls.

Umpire’s verdict: Lose the game due to a DUCKWORTH-LEWIS MISCALCULATION

Since you are the boss and nobody says anything to you, you start wearing a helmet during long phone calls.

Umpire’s verdict: You are worried about EMF RADIATION exposure

In this convergent world, we are getting up to telephonic activities that go well beyond the traditional scope of basic communication. If he observes us for a day, how would Sanjay Manjrekar and his crew at Star Sports commentate on what we do?

You jump into the car and drive to the DLF Cyber City mall to buy the latest Burberry iPhone cover, just before the store runs out of stock.

Commentary: Oh that was a superb COVER DRIVE, and well timed too

Wife and husband have a tussle over who will use the iPad during a fog-delayed journey to Delhi.

Commentary: What an amazing display of SHORT-ARMED JABS and PULLS as we cruise over the Himalayas

You use your phablet to adeptly bat away a mosquito that’s been buzzing around your ears while you try to have an afternoon snooze.

Commentary: A blistering SQUARE CUT

You use your phablet to bat away a mosquito that’s bothering you, but it’s too late as you’ve been bitten thrice already.

Commentary: An attempted LATE CUT, trifle too late unfortunately

You are driving across town in your car to visit your girlfriend and talk to her on the way without using a hands-free kit.

Shot: He tries the ON DRIVE with a dash of risk without the hands-free, but sublimely wristy gear change

You use your handset to brush biscuit crumbs off your lap following afternoon tea.

Commentary: LEG GLANCE for a single

You call your wife at 3 pm to let her know that you’ll be late for evening drinks.

Commentary: FORWARD DEFENSIVE

You forget to call your wife to let her know that you’ll miss drinks altogether, and text her at 10 pm to offer an unconditional apology.

Commentary: BACKWARD DEFENSIVE

After almost four years, I am calling time on India and moving out of Mumbai this year end. Thank you for reading my posts over the past few years–I am happy to say normal telecom services will continue in 2015, but expect a more international twist with delivery from offshore locations!

Here’s wishing you a Happy New Year and a prosperous 2015!

(Tweet me @mtchowdhury)

Photo: Dinuka Liyanawatte / Reuters

Photo: Dinuka Liyanawatte / Reuters

After completing immigration at Colombo International Arrivals, the officer will hand you back your passport along with a welcome pack consisting of a Sri Lanka tourist guide and a free prepaid SIM card.  In touch with this serendipitous island’s welcoming feel, the SIM card signals the promise of a telecom sector that must be vibrant, innovative and growing.

Alas, no.

In November, on a visit to Colombo, where I met several telecom CEOs and the sector regulatory authority, I realised that this small but sophisticated emerging market punches well below its weight. This is despite Sri Lanka having knowledgeable and hungry customers, businesses crying out for better communications, operators with talented staff and a handful of highly experienced CEOs.

The lethargy in the market is due to market structure—with the industry being crowded with too many operators—and partly because of under-priced services. India is not alone in South Asia in having a need for better telecom sector policy, but in India there is hope because it still offers another few years of raw growth opportunity. In Sri Lanka the structural problems need addressing.
Here is a snapshot of my two-day hypothesis on Sri Lanka and how it compares to the India perspective:

1. The mobile market is not big enough for five players over the long term

  • With over 100 percent penetration and a stable population of only 20 million, Sri Lanka’s telecom market is saturated and offers little prospect for growth, except in data. With not enough profit available for today’s five players, the result is market stagnation, underinvestment and a lack of exciting new services for customers and businesses.
  • From 2008 onwards, India saw something similar with 8-12 players per circle fighting in the market for new customers. From 2011, we then suffered a lack of investment, as the industry became too laden with debt and investor uncertainty following the 3G auctions and the Supreme Court cancellation of licenses in 2012.
  • For these countries, and Bangladesh too, sector overcrowding results from the lack of more thoughtful competition and licensing policy in the first place. Bangladesh has six operators, and arguably, should only have four. In all these markets, now that players are already in, it is M&A which will have to correct for market structure, which is why getting the M&A conditions right is so important.

2. Voice tariff rates are too low to support short-term profitability
In Sri Lanka, voice tariffs are too low to justify more investment in better quality services to customers, possibly the only way to differentiate voice services is to try and drive higher tariffs and more profitability. South Asia is a region beset with the lowest voice tariffs in the world. India has successfully managed to raise voice tariffs around 20-30 percent in the past two years without seeing any major fall in usage. It is less likely this will happen in Sri Lanka because the largest players might prefer to see low tariffs continue for a while to force consolidation.

3. There is too much pressure on data, which is already priced too low
Given the situation in voice, data is already burdened with having to be Sri Lanka’s saviour. However, data tariffs in Sri Lanka are among the lowest in the world too. With a data boom likely to hit soon as smartphones reach sub $40, this spells potential disaster for operators if data transmission costs sky rocket, while revenue grows only slowly.

As the data story develops, both India and Sri Lanka are seeing the emergence of alternative network strategies involving 3G, 4G, fibre and WiFi. Whilst voice strategy has been quite homogeneous, we should expect data strategies to differ significantly as each operator has different spectrum, different network partners and some also have fixed assets such as fiber. Sri Lankan operators do not experience the acute shortage of spectrum that Indian operators have to deal with. However, both countries lack a clear spectrum roadmap, and this doesn’t help investors’ ability to plan ahead.

4. Sri Lanka’s customers and economy stand to lose out in the long term
In Sri Lanka, a five-player market means smaller operators will always struggle to scale and the larger ones are likely to keep waiting for consolidation before they invest. This dynamic has created a stalemate in the industry. As a result, growth and competitiveness in Sri Lankan IT, technology, media and other industries touched by communications (eg health, finance, education) will be impacted and this will hamper economic growth, possibly resulting also in government revenue stagnation.

Even with poor policies, India can muddle back to superior growth rates in telecom due to the voice and data growth left in a large market. Renewed GDP growth may drive even more demand. But Sri Lanka doesn’t have these advantages to fall back on right now. So it has to grasp stagnation decisively through policies to kick-start growth in a saturated market. The government has to act through announcing a new sector vision and policy, take measures to encourage operator consolidation, drive infrastructure sharing harder and other measures to cut capital investment needs and encourage new services growth.  A return to dynamism in telecoms could also start playing a supporting role in Sri Lanka’s desire to be a technology and innovation hub too.

Right after taking power, Prime Minister Narendra Modi’s administration quickly raised the prominence of Smart Cities, announcing an ambitious vision to create a better quality of urban life by harnessing digital technologies. Whilst policy makers grapple with how realistic this vision is, many of us are already “smart” urbanistas, using applications and services to make our lives easier, more fun, informed, and connected.

But which is India’s smartest metropolis by use of city apps today?

I decided to find out by surfing on Google Play Store from my smart phone and looking at the number of apps (which include the city’s name in the title) available for download. I then looked at how many downloads there have been of the most popular app. A simple approach, Android-based only, and indicative rather than precise. I looked at 10 Indian cities, and, for interest, 10 global ones. Mumbai, Delhi and Bangalore were obvious choices, as is Kolkata given its mega-city status. I opted for Hyderabad and Pune, given both have strong connections to technology, and Ahemdabad given its status as the capital of forward-looking Gujarat, home to many of India’s smart city ambitions. I then selected some wild cards in Chandigarh and Lucknow, and Agra as it has such a strong tourism pull.

And the India winner is… Mumbai!  Noted below are the scores for the top 8 from my India analysis, and the top 8 globally.

mumbai

Here are a few key observations:
1.    On Google Play Store there are no less than 225 applications available which include the word “Mumbai” in the title.

2.    The number 1 rated app for Mumbai, a bus timetable, has had 1 million downloads.  Equivalent to over 5% of the population, this is impressive.

3.    On a trawl through major cities of the world, including New York and London, I found not one has more downloads than Mumbai.  With 187 apps, Dubai has less apps on offer than Mumbai or Delhi.

4.    Mumbai’s figures confirm how the city’s mobile users have more in common with a European city than the rest of India.

5.    While major Indian cities are on par with more developed countries, other regional cities lag behind: Dhaka, Karachi and Yangon combined have only as many apps as Pune.

6.    Despite the numbers, Indian city apps are generally logistics-based, relating to bus times and train times. By contrast, World city apps seem to be more qualitative, focusing on tourist advice and travel services. By contrast, World city apps are more qualitative, focusing on tourist advice and travel services. Trip Advisor city guides dominate downloads in many cities, which is interesting.

Of course there is much more to a smart city than apps. In fact, apps indicate more about the smartness of its citizens, than the city itself. What it takes for a city to be smart relates much more to the fixed and mobile telecoms infrastructure, the overlaying information infrastructure, and the collaboration between private sector and public agencies. How likely it is that Indian cities can emerge as smarter cities is something I will write about shortly.

This country has for centuries lived with a stark division between the haves and the have-nots. Access to telecom has been no exception, though the line of division has shifted: whilst almost all of us have the ability to access basic voice services today, most are still without easy access to the internet. The 900 million mobile-haves of India are still chiefly data-have-nots. In a world where economic advantage and social connectivity requires data access, the have-nots stand to lose. They are in danger of falling foul of what is commonly referred to as the digital divide.

Cometh the need, cometh a smart phone revolution which promises to wipe away much of the digital division that stands shakily before us. Smart phones are set to become the new tool for democratisation. Much has already been achieved: the price point of smart phones has dropped dramatically from around INR 10,000 a couple of years’ ago for a reasonable smart phone to around INR 5,000 today, and high-speed networks are available in more places than before, and most importantly, people are beginning to use services.  A few more developments are being seen too:

  • The INR 2,500 smart phone is coming.  Neighbouring Bangladesh already retails such keenly priced handsets, fully 3G capable, Chinese manufactured and locally assembled.  Do not think that the Indian handset market has hit its price point low – there is still quite some way to go.
  • eCommerce for buying phones.  High-end phones are usually purchased in stores but amazingly, mid-segment smart phone buyers have recently taken to the internet for buying phones.  This is surprising given the general lack of interest in eCommerce from spenders who do not have ubiquitous internet access or payment methods.  Players such as Xiaomi are offering phones in India online for a much lower price than shop retail, cutting out expensive middlemen and agents, and providing what the Indian consumer wants: features and capability.  So our value conscious buyers suddenly don’t see the internet as an obstacle to ignore but as an enabler to get involved with.
  • 2G is the new 3G: Most rural parts of India have not seen 3G rolled out as yet.  But in some areas, 2G phones continue to sell well, with new models better equipped with browsing compression technology that lets them operate pretty well on data.  Given that 3G (or 4G) will not cover rural areas thoroughly for years to come, there is a prospect of the emergence of the smart 2G phone which can provide an acceptable user experience on data.  The ultimate contradiction in terms: the 2G smart phone!
  • Easier surfing for basic phones: When it comes to democratisation of internet access in developing countries, Google are evidently not ready to relax having announced Android One recently.  This week came the announcement of a new browsing and search feature designed to work fast on basic phones by cutting out alot of the data-heavy detail that the standard Google search incorporates.
  • What’sApp is driving high speed data demand because of video: Have you done it yet?  Sharing video clips with friends and family over WhatsApp?  Many of us seem to have discovered this trick, having given up with email with heavy attachments, and avoiding the perils of too much sharing if we use Facebook or other social media.  In India, What’sApp is already chipping away at SMS usage but it is now giving operators the headache of consuming more network bandwidth than an instant messaging service normally would.
  • The emergence of mGovernance services for making public services more accessible and transparent:  The Municipality of Surat has launched a mobile-accessible portal which allows citizens to access various public services (such as information, bill payment) through their handset.  This is just one example of a mushrooming of public services being made available through mobile, spanning from utility bill payment to reporting potholes in roads.  mGovernance, once it matures, will be the arena where mobile-enabled democratisation really takes off.  Give it five years of mushrooming, and then another three to five years of scaling of a few services which will really have the potential of changing people’s daily lives.

 

The result: as much as 20% of all data usage is now generated from India’s rural areas, where data is picking up, and a city such as Mumbai now has a higher level of data penetration than many European cities.

 

India’s democratisation project continues.  After the spinning wheel, the railway and the printing press, the smart phone is the latest tool which will help it take the next bold steps.

(A note of thanks is due to Abhinav Jha for his contributions to this post).

Follow me @mtchowdhury

 

phones

India’s telecom industry hit a first last week when Google selected this market for the worldwide launch of Android One, the new mass market smart phone manufactured in three versions by Micromax, Karbonn and Spice. Given that both Google and Apple usually choose the US for global launches, this is a great distinction for India. The internet giant chose wisely: India is one of the world’s largest and fastest growing smart phone markets, expecting to ship 80 million units this year alone. Within this 80m, the segment that Android One attracts at a INR 7,000 price tag will be significant, and so a decent share of that could result in anywhere between 2m to 5m units in a year. No market on earth betters that sort of volume potential today.

Priced at around INR 7,000, Android One targets the volume sweet spot in India by positioning it to drive a wedge between the low and mid-tier smart phone segments.  The device has been priced comfortably below the INR 10,000+ segment which remains a stretch for SEC C or D Indians who desire a smart phone experience, yet at the same same time it is priced higher than entry-level feature phones many of which have been tried and may not be chosen again when it is time to replace them. My team’s recent survey of consumer value (http://read.pwc.com/i/229869) shows that over 50% of users of basic phones today plan to spend between INR 3,000 to 10,000 on their next phone, and this goes further to indicate that the Indian consumer’s aspiration for more is fighting with her/his unending desire for value through feature-richness. If aspiration wins and the buyer believes Android One delivers more, then we can expect the device to outperform in gaining market share.

Android One runs on the KitKat 4.4 operating system which incorporates features such as an ability to store You Tube videos to be watched offline, automatic updates of apps and security features directly managed by Google onto the phone, as well as compression technology to go lighter on data consumption when browsing. These features create a phone that is likely to offer competition to higher priced models offered by other, established smart phone manufacturers. There is already talk of Android One threatening the market position of smart phone leaders Samsung or Apple, though I believe this is premature, given the space between their premium models and this one.  Rather, the Android One entry emphasises the question about whether the top-end leaders should be trying to move into this price segment as well. The sense is that Samsung will try, but Apple will continue its focus on the top-end, on tablets and in bolstering its apps and music ecosystem.

The compression technology in-built to the phone is a real plus. A mobile operator some years ago launched a project to install “Opera mini” compression browsing onto live handsets. However, the project to upgrade existing phones “over the air” proved to be more complex than expected, and the venture petered out within a few months. Better to install compression ability in the factory, which is what will happen with Android One. It will be interesting to see if operators are enthusiastic about this feature.

The facility to be able to watch YouTube videos offline targets new data users who are cost-conscious about data usage costs. A user can download a YouTube video over a WiFi connection and then watch it later with data switched off, meaning that streaming costs are avoided and also that the quality of picture is better. Too many users have been underwhelmed by slow video (due to poor 3G-connectivity and congestion) and high costs as data keeps purring away in the background.

What remains to be seen is if the Android One phone is able to guide the user to switch off auto updates on apps, so that data packages are used up more slowly, and whether it does live up to the promise of “smart switching” between WiFi and mobile networks, something that my Android phone features, but in my case, never seems to actually work. We also need to see whether the three manufacturers can properly differentiate their phones from each other beyond simply aesthetics.

To woo India’s value-obsessed buyer, Android has to offer simplicity, quality and ease of use to our millions of mid-low tier phone users. YouTube could become a “killer app” if film clips and cricket can be watched easily offline. If so, then Android One could not only play in the volume sweet spot, but could actually capture a better than par market share of it.

Follow me @mtchowdhury

smar_phoneLast year I blogged about Asia’s final frontier in telecom. This week I had the privilege of visiting Yangon and meeting some of the movers and shakers of the telecom industry in Myanmar. Since last year, the ambitious and recently reformist ASEAN republic has licensed two international operators, Telenor of Norway and Ooredoo of Qatar, to build out mobile networks, as well as entered into agreements with other investors to put money and know-how into developing the industry.

Myanmar is the 73rd country I have worked in, and from what I saw this week, it promises to be one of the most illuminating. The country’s senior policymakers, as a group, are quietly shaping the emergence of an economy which was largely forgotten by the rest of the world until a decade ago, evidently with a sharp appreciation for what needs to be done to keep growth on track. What is Myanmar doing right in telecom, and what can we learn in India from this?

  • A unified vision for growth: There is unanimity in different quarters of Government in expressing what Myanmar’s telecom sector has to do to enable economic growth and social inclusion. In India, partly due to having the complexity of state versus union, the debate around what telecom’s role has not always been so straightforward. In particular, there has been a hot debate around whether the sector should be a source of growth, or a source of funds for the Government budget. This battle has never been resolved satisfactorily and until revenue takes a back seat, the industry will remain at crossroads as to whether it is a goose that lays golden eggs, or a golden rainbow that shows us a path to faster industrial growth.
  • A policy and regulatory framework that remains simple: I am impressed by how simply policy makers and strategists in Myanmar can articulate the policy framework. Granted, Myanmar is in the early days of liberalisation and the real policy challenges will only emerge in a few years’ time. By contrast in India, 20 years after liberalisation, the industry’s policies appear confused and inconsistent.  Anybody looking afresh at the current spectrum allocations in India would struggle to understand the rationale for why players have the present mix of 800MHz, 900 MHz, 1800 MHz and 2100 MHz spectrum, in different quantities by circle.Part of the complexity comes from having circle-circle allocations. The situation today is also the result of incremental steps to allocate spectrum over many years without the benefit of a long term spectrum plan. This incrementalism has in the past been driven by anecdotal and expedient interventions to balance out one unfair outcome with a corresponding compensation. In total this has resulted in a messy outcome. I saw the same in Egypt, another country where telecom regulation was intensely deal-based and lacked long-term strategy. In recent years the Indian regulatory authorities have tried to iron out some of these complexities, but it will take a generation of licensing to finish the job, and we still lack a long-term spectrum plan for India that shows how the industry will attain the spectrum it will need to meet demand.
  • A single market: India being such a vast sub-continent, it is never going to be a single market. By contrast, Myanmar is a market of 50+ million people, regulated as one with a single regulatory framework and single licensing nationally, with spectrum allocations which are in line with this. There is also, from a market point of view, a single language group across the population. Whilst India does not simulate this, there is merit in considering how certain sub-markets could be encouraged to be more national/sector-wide. The biggest opportunity lies in data services. Local developers in India struggle to find the market big enough to write apps for, and would see more potential if they could do business with the industry together rather than each operator one by one. And if there is more innovation to encourage multiple vernaculars to access common services (eg. through voice commands) then India’s many geographies might be more easily looked at as a whole market.
  • Reasonable pricing: So far, Myanmar has not seen a major price war for voice services. It is extremely early days, with only one of the newly licensed operators having launched so far, and therefore its not yet seeing the dynamics of a three-player market yet. 3-player markets are notoriously known for leading to much more drastic price changes than duopolies. But the signals suggest we will not see a mad cap price war in Myanmar in the near future, and this bodes well for ensuring a reasonable balance between protecting consumer choice, value and rights, as well as encouraging prosperity for an industry that will need to invest significant sums to build infrastructure. In India, the operators have been bankrupted through high spectrum charges and low operating margins (and a lack of spectrum), resulting in a slower build out than could be expected in rural areas, and worse quality of service in urban.

Of course there is perhaps more that Myanmar can learn from India’s experience, too.  For starters, India is the one emerging market in telecoms that has seen the most innovation when it comes to marketing – both pricing for services as well as analytics to drive better customer segmentation and targeting. No other country can boast a better handle of micro-segmenting customers and targeting them with offers. And India can claim to be the country that invented “sachet pricing” for telecom, borrowing shampoo pricing techniques to bring the option for consumers to buy their telecoms services in tiny chunks at a time.

Myanmar has probably more to observe in India than vice versa, but it would do no harm for our policy makers to see what’s happening over in Nay Pi Daw from time to time, to remind themselves of the days when life was simple and the plan was clear.

 
 
Mohammad Chowdhury
Mohammad Chowdhury is a Telecoms adviser. Until recently he was Telecom, Media and Technology Industry Leader at PwC India where he was s senior Partner and a member of the global executive team. He moved to India in 2011 following senior roles in Vodafone, IBM and previously PwC where he started his career on the graduate scheme for economists. From London, Mohammad ran Vodafone Group strategy across emerging markets, and from Cairo served on Vodafone Egypt's executive team just before the Arab Spring. At IBM, he set up the corporation's first telecom solution centre in Bangalore, and at PwC directed the firm's account at the World Bank in Washington, D.C., and the firm's telecoms privatisation work in Eastern Europe, Middle East and Africa. Mohammad served as an adviser to telecom sector reform in Saudi Arabia, Zimbabwe, Ethiopia, Slovakia, Poland and Slovenia. He is quoted regularly by the Financial Times, Wall Street Journal, BBC, TV-18 and NDTV.

Mohammad has worked in 76 countries, lived in 7 and speaks 6 languages. He has a BA in Politics, Philosophy and Economics from Oxford University, an MPhil in Economics from Cambridge University, and strategy training from Harvard Business School. He was born in London, has family origins in Bangladesh, and is married with two sons. Mohammad will move from Mumbai to take up a new role in the PwC global network in 2015.
 
 
 
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February 22, 2015 07:35 am by Mohammad
Thanks Rohit, very relevant and interesting points. The concept of network slicing is certainly a subject that needs to be better understood in context of future spectrum requirements for the IoT world. Thanks for reading!
February 12, 2015 10:37 am by Rohit Agarwal
As usual its an interesting article Mohammad. The 5G network that is being envisioned is expected to provide the same. The operators will have a chance to create Network Slices and provide the services based on the usage requirements. SDN & NFV will further enable the operators to provide servic...
January 08, 2015 19:32 pm by Mohammad Chowdhury
Thanks!
December 31, 2014 06:34 am by Ritesh
Best of luck Mohammad. And wish you a very joyful and prosperous 2015. .
November 22, 2014 17:15 pm by OnePlus One Launches Exclusively On Amazon India
[...] pointed out by Forbes earlier during the year, the Indian smartphone market is growing by almost 300% every [...]