Connecting with success
Many SMEs are keen on getting aboard the telecom bandwagon. What are the challenges? What are the opportunities? This analysis tries to get some answers The India telecom story has just started to unfold and the future looks exciting. Having already achieved the distinction of boasting the lowest call rates, the fastest growth in number of subscribers, the fastest sales of million mobile phones, the cheapest mobile handset and the world's most affordable colour phone, India offers an unprecedented opportunity for telecom service operators, infrastructure vendors, manufacturers and associated services companies. The rapid rise of this sector has presented several challenges to the SMEs who are riding high on the telecom wave. Evolution The process of opening up of the telecom sector to competition and private sector participation started in India in the 1990s. Telegraph services came to India in 1853: only 9 years after Samuel Morse invented the telegraph transmitter. Telecom services followed soon after Alexander Bell's invention in 1876. However, the progress in building up the network was extremely slow and there were hardly 80,000 telephone subscribers by the time India became independent in 1947. In 1981 there were barely 2 million telephone lines in India; the population in India, at that time, was 683 million people. The picture today is quite different. The total telecom base today is at 214 million, amongst top 5 in the world. Our wireless subscriber base is at 168 million which is again the third largest in the world despite the fact that our wireless penetration of 15% is lowest in the world. Our fixed line subscriber base is at 46 million and broadband subscriber base is at little over 2 million. With huge potential to grow in all segments, Indian telecom is well placed in the world telecom space. Telecom value chain With the increasing emergence and popularity of new convergent technologies like Voice Over Internet Protocol (VoIP), the Indian telecom landscape will undergo a change thereby impacting the existing revenue models. The value chain analysis indicates that our telecom sector is bound to move from a centralized structure to a distributed structure which will essentially mean that there will be a beeline of companies to provide aggregated services. Smaller, highly mobile start-ups need to leverage disruptive IP-based technologies and platforms to give the big companies a run for their money. Key opportunity areas for SMEs Voice (wire line) • Increasing wireless penetration is resulting in net line decrease • VoIP is displacing circuit switched for both initial deployment in developing markets and new entrants in mature markets. Broadband Wireless • Capital intensive network upgrades to launch of 3G services is next wave • Application and content development becoming hot sectors • Data and VAS has contributed to 9% of revenue in 2006 • Messaging and music (ringtones, downloads, etc.) to be key contributors. Data (wire line) • DSL has taken off in mature markets, nascent in India • Business (customer) services moving towards higher value-add services, e.g. VPN • Business bandwidth requirements have grown: Low-end 1.5M to High-end SANs. Cable TV • Incremental data business has made this more attractive in the specific metros with high TV penetration and consolidated operations, however, these markets are few • Convergence of Broadcast TV -Data - Voice • Digital broadcasting -the "3G"of Cable TV. Enterprise Services • Managed services area looks very attractive. Consulting on various aspects of telecom like Telecom Cost Management and the likes provides good opportunities • Enterprise Networking • Telecom Equipment Manufacturing (TEM) • India represents one of the fastest growing areas for handset and network equipment manufacturers • Handset Design offers good opportunity for growth. We estimate that in a competitive narrowband environment like a Dial up/ISP, the returns will be low, whereas in a regulated narrowband environment like fixed-Line voice the growth is low and limited. Broad band areas like VPN, DSL-ISP, Leased circuits and 3G offer not only high growth but very high returns too. Broadband business looks to offer the most attractive opportunity in the areas of mobile, proprietary and last mile infrastructure. With equipment prices already at the world's lowest it is a competitive market for handset makers too. Before plunging in SMEs need to appreciate the market dynamics before committing to a specific segment within the telecom sector. Our analysis indicates that competitive pressures will result in a split between network specialists and marketing (content) specialists. The critical success factors for network specialists will be scale and pricing while their content counterparts will have to focus primarily on branding. Consolidation will be on the cards as SMEs will find it difficult to keep up with the business requirements especially in the unregulated areas where over competition have driven down margins. Industry restructuring to specialize or to gain economies of scale will offer significant opportunity for investment. Broadband has emerged as the key driver of IP traffic growth. The regulated broadband sectors will offer the most potential viz. 3G. Asset sharing is likely to be the next big opportunity viz. Tower Sharing, Mobile Virtual Network Operator (MVNO). The tower business space needs to be watched very closely as a lot of activity is expected in the next 12 to 24 months. Way forward SMEs in telecom need to address three categories of issues; cannibalization of existing markets, significant overcapacity in commodity markets, and tapping the right opportunities. The future growth seems to be from the wireless based services. It is crucial for SMEs to ident