Of blood baths and paid baths:

There are more than 13 existing telecom players in 23 circles of India where the penetration in urban areas is more than 75% and in rural areas is about 12%. India, till last year, had one of the lowest tariffs in the world. Since Tata DoCoMo launched its per-second billing, all other service providers followed suit resulting in price war causing red line on the balance-sheet of already loss making telcos. Now, India has the lowest tariffs in the world with more to follow to attract customers.

The Indian market is one of the fastest growing telecom markets with 500 millions subscribers and yet a huge untapped population base. With paucity of infrastructure, telcos are increasing the customer base with future in mind. No problem till now but it starts when increasing customer base becomes the only objective with no regard for short term profitability or even sustainability. Just 2 or 4 major players in GSM and CDMA segment, things were on a tight rope for these telcos. But with aggressive new players wanting to make an impact, existing players are feeling the heat. New entrants will lose money as they fight for share, but that is something that happens to new entrants in most businesses. The smarter new entrants will likely share infrastructure and outsource most of their operations—both trends that the first generation of Indian telcos discovered only earlier this decade.

Thus with time (may be a couple of years), “voice” service by telcos will become a “commodity”. All prices will be on similar terms, distribution will be similar, and all telcos are going to increase promotion with time. Thus new entrants and existing players will have to come up with value-additions for customer delight and ways to find customer retention with the launch of Mobile Number Portability (MNP).

Value-added services (VAS) will form the core part of this strategy but it will all depend on the pricing model in this case. If the 3G auction results in players spending huge amounts of money to the government, the prices of VAS would be high thus causing a hindrance to its mass usage. The revenues for the players will not accrue resulting in more time for turning the tide towards profitability.

Thus a time will come when “voice” will be given free of cost and with the telcos charging for the VASs. It wouldn’t be a surprise of sorts and wouldn’t even be a bad economic decision since it follows on the models of other great companies such as McDonalds which does not make money on its burgers but makes them on French fires and the soft drinks, Multiplexes which do not make money on the ticketing sales for the movies but makes them on the popcorn, soft drink and the other food items available for the customer, NEWS Channels or newspapers do not make money on subscription but makes them on the ad sales.

Bottomline, a time will come when the telcos will be hoping to make money by giving the soap away and charging for the bath.

NTT DoCoMo- A world leader has arrived in India:

Last week saw the world leader of technology entering Indian telecom space. NTT DoCoMo Inc, a Japanese telecom giant joined hands with Tata Teleservices Ltd (TTSL). and has been given the license to launch GSM services in 19 of the 22 circles.

This will provide expertise to TTSL in the GSM Segment which will herald a new beginning for India. A true world leader in 3G technology has indeed arrived in India and this is sure to give sleepless nights to some of the executives at other telecom companies in India.

The 3G strength of DoCoMo which is readying itself for 4G in their Home country will help TTSL in its GSM endeavour and give a Philip to its under performing CDMA segment. With the spectrum allocation for 3G more than 3 months away due to the matter being transferred to the empowered group of ministers (eGoM), the time delay is inevitable. The formalities itself will take up this time. Then you have the base auction price to be decided and the allocation of how much spectrum to whom. Spectrum is a national asset and can be used only once. Thus arriving at the right valuation is most necessary and critical for Indian treasury.

When the spectrum is finally allotted, TTSL will surely get a head start over other telecom service providers in terms of technology, content and speed which are most essential for delivery of good Value-Added Services. It can also help in terms of promotional campaign to take on Vodafone which is aggressively pursuing the VAS segment. People would believe the promotion since they appreciate and are in awe of the technology expertise of Japanese companies.

The recession in the last10-22 months has not affected the growth of the telecom sector. The prime reason being the vast potential present. Only the metros and some major towns are congested with majority of players operating and virtually all people having a cell phone. The tier II cities and towns and rural areas are yet to be penetrated intensively. Thus the telecom sector has continued to grow with Bharti Airtel leading the pack with 100 million cutovers touched last month.

The entry of DoCoMo isn’t at all surprising. More players will enter India as the foreign direct investment (FDI) restrictions are relaxed in due course of time. There is talk of Etisalat (UAE giant), and AT&T (the US giant) entering India soon. Even Indian business houses are applying for spectrum to jump on this bandwagon such as DLF, Videocon, Shyam telecom, and some yet to be announced names.

With the increase in players vying for the same pie, naturally the competition would increase resulting in price wars. This augurs well for the Indian customer.