Mohammad Chowdhury
I offer unfettered insights into the world of Indian telecom

Sorry, you’ve just been disintermediated!

In a recent blog post  I asked whether Indian telcos would be exposed to the same disruptive challenges as telcos in Western economies.  Fashionably referred to as “disintermediation”, this is when a new business cuts into your market and takes away some or all of the value you currently derive from it.

Example?  I download a song today from my friendly telco apps store, accessed via my mobile phone.  I pay for the music by having the purchase price deducted from my pre-paid account.  My mobile service provider forwards the due portion of my payment to the music vendor, and keeps the rest for itself to cover its costs and retain a revenue share upside on top.  Now a new development takes place that “disintermediates” the mobile operator’s value chain: I obtain a credit card and buy an iPhone.  I link my credit card to my iPhone account online and start buying music from iTunes.  Every time I buy music Apple charges my credit card, pays off the music vendor, and keeps the rest for itself.  Suddenly the mobile service provider has been disintermediated, and gains nothing from this particular revenue source.

While disintermediation is already a major concern for mobile operators in the West, there are two reasons why it is not likely to be an immediate threat in India:

  1. Electronic Funds Transfer (through a credit or debit card) is still limited to a small segment of high earning, banked users who primarily transact physically or over fixed internet connections.  According to Hindustan Times, there are only some 20m credit cards in use in India. The quantum of EFT spend over mobile is extremely low.  Whilst the mobile spend is growing rapidly in percentage terms, the relative amounts are small compared to the size of the overall telecoms wallet.  Until more people in India have and use EFT, any disintermediation will remain limited.
  2. While mCommerce takes place without EFT being possible, most of it is paid for by debiting a user’s pre-paid account and therefore the value passes through the mobile operator’s books.  With pre-paid remaining in prevalence, mobile subscribers conveniently rely on debiting their pre-paid balance to pay for additional mobile-enabled services such as music, ringtones, information services, and so on.  As long as mCommerce flows through the mobile operators’ books, they will not be disintermediated.  On the contrary, in fact operators are central to enabling the revenue to be earned at all, and usually share in it through a pre-agreed revenue share formula.

Even though disintermediation may initially have a soft landing in India, it will ultimately come at a high price.  The rise of smart phones in India will coincide with the rise in banking access and EFT and by 2017 we can expect both to be scaling rapidly.  This means that all of a sudden there could be an increase in mCommerce which takes place outside the operator’s billing system.  Added to that, India is now a big market, being the world’s 10th largest economy by nominal GDP and with telecom industry revenues (circa $25bn) as large as that of Germany or the UK.  Even though there is limited mCommerce activity today, the Indian market will soon increasingly interest major internet players with mobile commerce divisions.

Operators have the potential to play a sustained role by being “smarter” pipes:

  1. Enriching network features to act on users’ behaviour and location-based preferences in real-time
  2. Extending current analytics capability to present attractive pricing and packaging options to users across a range of goods and services beyond telecoms
  3. Enhancing the user’s information and data security during their online activity, to prevent fraud and enable greater degrees of anonymity and safety
  4. Collaborating across mCommerce platforms and business models used by individual operators (for example, in some cases allowing customers on one network access to  services provided by another)

To provide this type of value within five years, the industry has to start here and now.

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Sam Narayanan
Excellent article. Keep it up, i have been an ardent fan of reading your blogs time to time. Thanks
Mohammad Chowdhury
Mohammad Chowdhury is PwC India's Telecom, Media and Technology Industry Leader and a member of the global executive team. He moved to India 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 global 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 and restructuring work in Eastern Europe, Middle East and Africa. Mohammad served as the lead adviser to telecom sector reform in countries as diverse as Saudi Arabia, Zimbabwe, Ethiopia, Slovakia and Slovenia. He is a leading commentator for the Financial Times, BBC, TV-18, NDTV and other media.

Mohammad has worked in 72 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 executive training in strategy from Harvard Business School. He was born in London, has family origins in Bangladesh, and lives in Mumbai with his wife and five-year old son.
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July 09, 2013 08:15 am by Sam Narayanan
Excellent article. Keep it up, i have been an ardent fan of reading your blogs time to time. Thanks