Emerging Technologies in TELECOM

Growth encourages more growth. This has been the typical phenomenon for telecom industry. Recently I came across few of the emerging technologies which I thought to share with all.

Wireless charging is one such technology. It is being said that companies like Samsung and HTC have already started using this feature in their handsets. This wireless charging includes two charging units-the transfer unit and the receiving unit. The transferring unit uses non-radiative magnetic field to get charged and charge the transfer to the receiving unit. However the distance of this kind of power transmission is limited and some amount of energy is even lost during transmission.

Augmented Reality is to enhance the computer generated sensory inputs by sound and graphics. It can add value to the reality by adding details and presenting those details to the end customer. It had a market size of 2 million dollars in 2010 and is expected to reach 2 billion dollars by 2015.It can be particularly very helpful for the medical field and space field.

Dash 7 is an emerging Radio Frequency Identification (RFID) designed for security and asset monitoring applications. DASH7 is an open source wireless sensor networking standard for wireless sensor networking which operates in the 433 MHz unlicensed ISM band. DASH7 provides multi-year battery life, range of up to 2 Km, indoor location with 1 meter accuracy, low latency for connecting with moving things, a very small open source protocol stack, AES 128-bit public key encryption support and data transfer of up to 200 Kbit/second. It can penetrate deep into water and concrete. It is a complement to Near field Communication (NFC) technology.

Location Based Services is another emerging field and is one of the largest enterprise revenue generating applications along with AR and Games. It involves finding the location of the mobile device .The various technologies used for LBS are Cell ID, Enhanced Cell ID, GPS etc. LBS could be used in:

·         Maps and Navigation like maps, routing etc

·         Tracking Services like Vehicle Tracking, Friends and family finder etc

·         Information Services like yellow pages, city guides etc

·         Application like social networking, context advertising etc

Neelima Agrawal

SITM (Class of 2013)

Telco & Cable - VYING for the same pie

No other industry touches as many technology-related business sectors as telecommunications. Telecom is also deeply intertwined with entertainment of all types, including cable TV systems, since cable companies are now aggressively offering local exchange service and high-speed Internet access. The relationship between the telecom and cable sectors has become even more complex as telcos are now selling TV via IP (Internet protocol) services, competing directly against cable.

With the hypercompetitive Indian telecom market the only aim is growth in number of new subscribers, less churn & increase in ARPU. The mandatory digitization of the Cable TV sector has opened avenues for the establishment of an ‘All Digital Ecosystem’ and has led us to the era of ‘Convergence’.

Technological convergence will affect not only technological developments and solutions but it will move beyond its technological nature towards markets, industries and corporations. It will shift and/or remove barriers between markets and industries. This will result in an increasing trend of mergers and acquisitions among corporations within the telecom & media related industries.

Several major factors are creating changes in the telecommunications sector today, including:

1.   A shift in business and commercial telephones to VOIP (Voice over Internet Protocol) services, that is, telephone via the Internet.

2.    A shift in residential and personal telephone use from wired services to wireless.

3.    Intense competition between cable and wired services providers.

4.    Steady increases in Internet usage for communications of all types.

5.    The continuing evolution of advanced wireless technologies.

Through the convergence of telecommunications, media & entertainment and IT, the way in which consumers experience (home) entertainment will change from 'push' to 'pull' or from 'availability based' to 'on demand'. People will be able to access the content (digital text, audio, video,) where and whenever they want it. Smart, (in-home) applications will propose relevant content in real-time to users based on their activities and preferences.

Telecom Industry in India

The  Indian  mobile  industry  has  been  successful  in providing affordable telecom services, thereby empowering the common man and has also driven wider economic  growth  across  the  country  and  contributed  to government finances.

India has the world's second-largest mobile phone users with over 929.37 million as of May 2012. It has the world's fourth-largest Internet users with over 121 million as of December 2011.

India has come to be regarded as the world's most competitive and one of the fastest growing telecom markets.

Cable TV Industry in India

Indian TV Distribution industry, world’s second largest with 105 million cable & satellite (C&S) homes, is set for a makeover as the long-awaited ‘digitization’ becomes a reality. As of 2009, there are 22 million digital homes with 18 million of these on the DTH platform.

Cable players are now equipped to utilize and operate set-top-boxes (STBs) and would look to lock-in customers, given the threat from DTH.

The total digital homes tally is set to rise by 4x to 86 million by 2015E, and address the biggest concern of ‘under-reporting’ in its wake. In the backdrop, the expectation is of a 6.5x increase in the organized pie to Rs.340 billion even on a modest 14.5% CAGR in industry revenues to Rs.480 billion by 2015.

India’s digital C&S base is set to expand to 86m by 2015E with 48 million DTH (18 million as of 2009) and 38 million digital cable (4 million) homes. Digitization is no longer a ‘choice’ for cable operators and assumes a sense of urgency in the face of increasing threat from DTH

Also Indian C&S market paralysed by rampant under-declaration and poor yields. While cable industry did not deliver on digitization expectations in the past three years, DTH garnered 18 million subscribers (subs) as of 2009.

SHRIKKANTH GOPALAN

CLASS OF 2013

THE TAX CONUNDRUM

Is Vodafone’s victory a setback for the Indian government?

Ø What happened?

In February 2007, Vodafone acquired 67% stake in Hutchison Essar Ltd (HEL) for around INR 575 billion (1$ = INR 50). The Income Tax (IT) department issued a show cause notice in September 2007 for trying to avoid tax payment to which Vodafone filled a petition in Bombay High Court in October the same year. In the course of next two years the battle just got more intense and on September 8, 2010 the Bombay High Court ruled in favor of the IT department and subsequently Vodafone was asked to pay to IT department INR 11,297 Crores. Not willing to throw in the towel, on September 14, 2010 the British Telecom giant went to the Supreme Court, the apex body of India’s judicial system. In the mean time the High Court’s order was implemented where in INR 2500 crores had to be deposited to the IT department and INR 8500 crores in bank guarantee by the telecom operator.

Finally on January 20, 2012, the curtains came down on the four year old case where in the apex court ruled in favor of Vodafone and asked the IT department to return the INR 2500 crores deposited with two months along with an interest payment of 4%. The Chief Justice also asked the Supreme Court to return the INR 8500 crores in bank guarantee with four weeks.

Ø  The Acquisition aspect.

Brief

Hutchison Telecom International Limited (HTIL) is leading provider of telecommunications services worldwide. It is based out of HongKong. HTIL offers services in other countries also (Indonesia, Vietnam, SriLanka, Thailand, Israel).

Now any large enterprise would typically consists of subsidiary corporations. The purpose is to have a better view of the enterprise both for the management as well as for the lenders.

Actual Deal

Vodafone International Holding BV acquired 100% share in CGP holdings limited based in Cayman from Hutchison Telecommunications International Holdings Limited, a BVI company. The Cayman Islands based company owned more than 50% in HEL.

Ø  Tax laws in India.

Brief

The Indian Income Tax Department in governed by the Central Board of Direct Taxes (CBDT). CBDT is one of the arms of Department of Revenue under the Ministry of Finance, Government of India.

Sections

Whenever there is a transfer of capital assets, it results in capital gains. A capital asset is defined under Section 2(14) of IT act 1961. Capital asset is a property of any kind, including assets that are movable or immovable, tangible or intangible, fixed or circulating, but excluding trading stock held for the purpose of realizing a financial or economic return.

Section 195 of IT act’s objective is to avoid a loss of revenue to exchequer as a result of tax liability in the hands of a foreign resident. So deduct tax from the source itself instead of chasing the foreign nationals.

Section 163 (1) (c) states that the income whether received in India or outside India, that income is liable to be taxable in India provided that it is attributable to operations carried out in India.

Section 9 (1) states that all income accruing to a non-resident from a business connection in India shall be deemed to have arisen in India and therefore subject to tax in India.

Ø  Supreme Court reasoning

The Supreme Court has noted that the transaction between HTIL and Vodafone International holdings was an offshore transaction between two non-resident entities and therefore does not come under the jurisdiction of the tax authorities in India.

The Revenue Department initially filed the case against Vodafone with respect section 195 of the IT act. But section 195 of IT act clearly says that tax is payable only when a payment is made from a resident to another non-resident entities. As stated above the transaction is between two non-resident entities and thus section 195 does not apply for this transaction.

Section 9 (1) of IT act does not state about that indirect transfer of capital assets. This is exactly what has happened in this offshore transaction and thus this section could not be applicable for tax deduction. Section 163 (1) also could not be invoke as the court categorically stated that there is no transfer of capital assets situated in India. The apex court has reiterated the fact that it is just transfer of shares and not capital assets and such transactions can’t be taxed under existing tax laws. The court also held that the offshore transaction was a structured foreign direct investment (FDI).

The court also took cognizance of the fact that the Direct Taxes Code (DTC) bill proposes the taxation of offshore share transactions, even from indirect transfer of a capital asset situated in India. The above proposal is stated in Section 5 (1) (d) which says “the income shall be deemed to accrue in India, if it accrues, whether directly or indirectly, through or from the transfer of a capital asset situated in India.” There are further provisions about the gains arising out of transfer of capital assets in the DTC.

The Supreme Court also came out with pretty strong worded statements like “Capital punishment meted out for capital investments”. So clearly the court was clear in its reading of the laws as it is.

Ø  Implications.

The Supreme Court has again showcased that the judicial systems in India are still alive and kicking. The verdict came in as a shock/surprise to a majority of the people. This proves that there is fairness in the judicial system of our country.

Well the government has some serious thinking to do in terms of the revenue outflow. The government, already reeling under tremendous pressure from the fiscal side, will certainly feel the heat. This verdict has also driven home the point about bringing in transparency in the tax laws of our country.

But not all has gone bad. This verdict will boost the foreign investor’s confidence level sky high and encourage investment (I mean FDI and not FII). The loss of revenue for the government now may be insignificant when compared to the long term gains arising due to increased investment inflow into the country. As the 2008 subprime crisis has show, FII and portfolio investments can be trusted at our own peril. FDI inflows will have a more stabilizing effect on our economy. With the dark and gloomy clouds of recession still hovering over the developed economies, the time is just ripe for India to take the big leap.

Well GOI is keen on bringing those offshore deals similar to the Vodafone one into the tax net. GOI has also made it clear that the amendment to the tax laws was just a question of time. why would the government like to forego indirect transfers worth around Rs. 35000 crores. Only time will tell the foreign investors sentiment on this issue.

L.KISHAN CHAND
Class of 2013

NASSCOM LEADERSHIP FORUM

The NASSCOM leadership forum was held in Mumbai from February 14^th to 16^th. The forum had around 25 country representations, with 1,600 delegates in attendance in over 45 sessions.

The event had four major themes.

a)    Hyper specialization and need for specialized talent.

b)    Global Uncertainties.

c)    Leadership in uncertain times.

d)    Emerging opportunities.

Key Highlights

1. Tapping the US health market.

• Law being passed in the US to comply with WHO – to migrate to ICD-10 from ICD-9.
• Opportunities similar to the “Y2K” era.

2. Cloud Support.

3. Global sourcing.

4. India’s dream UID project.

5. This summit was used by international agencies as platform to attract India investment. 

• The targets were not only the top IT companies but also the mid size companies of the range $40 million – $750 million.

6. Surprise Visitor.

• Automobile maker Ford showcased its open source app development platform OpenXC at the forum. Ford plans to provide IT-solutions such as voice controls in entry level and mid-segment cars.

7. Next $100 billion coming from the Small and medium IT firms.

8. Nasscom is working with the Ministry of IT to bring out a framework for government IT contracts; there were 15 large and 75 small companies and Nasscom is trying to create a market space for the small companies.

9. Demands

• Removal of MAT.
• Change – the requirement of developing 25 acres of land even in small towns.

OTHER SPEAKERS

• Abishek Bachhan – Cross generational leadership.
• Shekhar Kapoor – Rise of Blogistan.
• Richard Hadlee – Technology & innovation, on & off the pitch.
• Pranav Mistry – Invisible Computing.

VIEWPOINT

The stand out point to be considered in the forum was that the growth pattern will have to change. What has brought the IT industry so far may not be the blueprint for the path ahead.

Top industry echelons at the forum said the way forward will have to be led by the tier-2 and tier-3 companies. With the global scenario still unclear, newer pastures have to be discovered.

Indeed, we Indians should be proud of the IT/ITeS industry with revenues expected to touch $100 billion this fiscal, making India as a Knowledge power house. The exports accounted for nearly $69 billion and the domestic market accounted for $32 billion in the current fiscal. But the point to be noted is that the SMEs in IT sector contribute only $2 billion which is very meager compared to $100 billion. Out of the total export share around 80% is contributed by the top 200 IT companies while the rest is contributed by around 2200 SMEs. This is what the forum addressed.

The International conference IndiaSoft, the flagship event of the Electronics and Computer Software Export Promotion Council (ESC), which will be held in Hyderabad between March 21 and 23, 2012 can be used as platform by the SMEs to showcase their capabilities and win orders. The best part is that the focus is on the emerging countries as part of the IndiaSoft conference.

The government ( read Home Minister) has at the forum requested the IT companies to look inwards and explore how IT can solve the bottlenecks related to government services provided to the poor. Aadhar, is one such example.

There is the rhetoric that one should help rural India so that it can also reap the benefits of liberalization and globalization. Well it is a known fact that many MNCs like Unilever, P&G, Haier, Telecom MNCs are doing extremely well in India because of the huge population base in rural India. I doubt these MNCs had the idea of rebuilding India. The point is that the rural market must be seen as a profitable market. The rural markets fill up the space left behind by the current urban market. So our own companies (read IT companies) should also look at rural India not in terms of poverty and indebtedness but as profitable segments. IT can be a real game changer if properly channeled in our country.

L.KISHAN CHAND
Class of 2013

Yearly Review of Telecommunication Industry

Telecommunication Industry in the year gone by (2011)

1. MNP – This facility enabled the mobile users to retain their numbers while changing from one mobile network operator to another. For now only intra circle MNP is allowed at porting fees of Rs.19. It was initially implemented in Haryana circle on 25 Nov, 2010 and was than rolled out for Pan India on 20 Jan, 2011. Total MNP requests stood at 231.66 lakh subscriber till the end of October, 2011. Idea leads the porting in requests whereas Reliance CDMA faced the largest number of porting out requests till 31 Oct, 2011.

2. NTP – In a move toward consolidating the telecom industry in India, TRAI recommended a draft of the National telecom policy, 2011 to the Dot. It was revealed in Oct, 2011 and Government plans to implement it by Jun, 2012. Draft covers current area of concerns faced by telecommunication industry related to Roaming charges, Spectrum usage, Convergence, Broadband, exit policy, mergers & acquisitions etc. Draft also showed that Indian telecom industry has matured enough to move into a next level.

3. Rise and fall of 3G network - First six months of 2011 saw the launch of 3G services in India by private operators. State owned MTNL and BSNL had already launched 3G in selected cities by 2009. But it was in starting of 2011 which saw a rise in use of 3G services. But as per speculation, sale of the 3G services didn’t grew much due to many concerns like high prices, poor network, roaming issues etc among the customer. Till date operators are still fighting against roaming policies set by DoT for 3G. DoT has debarred them from forming a coalition among them for providing roaming services in India. The collective $14.6 billion investment in licence by the operators just managed to get a subscriber base of around 17 million by Oct, 2011.

4. Growth of Smartphones – Smartphone market saw a tremendous growth in Indian. As against 2.5 million units in 2010, sale of Smartphones is set to touch 8.5 million units till the end of 2011. Samsung finally overtook the Finnish giant Nokia in Indian Smartphones market in end of December. The proportion of Smartphones as a percentage of total mobile handset shipment also increased up to 6%. 

5. Death of the iLeader – 5 Oct, 2011 witnessed death of legendary techno leader Steve Jobs, the master mind behind Apple’s iphone, iPad, iPod, iMac, iTunes, He died at the age of 56. He had co-founded Apple computers in 1976 along with his friend Steve Wozniak. Steve Jobs had earlier announced on 24 Aug, 2011 to step down as Apple’s CEO. Apple is currently the largest company in terms of market capitalization. 

6. BWA auctioning in India – In 2011 finally India’s auctioning for broadband wireless access (BWA) took place. On 11 Jun, 2011 this auctioning saw government cloaking a total of Rs 38,000 Crore. Only Reliance Infotel won the bid for Pan India licence, giving away Rs 12,850 Crore to the government. They are set to launch Long Term Evolution (LTE) based high speed 4G wireless broadband services in India in second half of 2012. Whereas other companies like Aircel won bid for 8 circles, Bharti Airtel and Qualcomm won for 4 circles, Tikona for 5 circles and Augere for 1 circle.

7. Near Field Communication technology (NFC) – It has become one the most talked about application in current scenario. It is a set of standards for mobiles and similar devices to establish a radio communication with each other by touching them together or bringing them to proximity. Though 2011 saw a start in trend of NFC based Smartphones in India, it is forecasted that NFC technology would have risen to 96.9 million units worldwide in 2011.  NFC technology will also help in rolling up the mobile banking sector in India.

8. National Optical Fibre Network (NOFN) project – Department of telecommunication approved the NOFN project. Telecom commission cleared the 20,000 Crore project on 22 Jul, 2011 with a vision to connect all the panchayats of the country by optical network in the next 3 years. It will help in increasing the broadband penetration in India which was at a very low figure of 12.98 million by the end of October 2011. This project will be funded by the USO fund. This fund currently has a balance of around Rs.16,000 Crore, with Rs.6000 Crore getting added every year from the operators in India.

9. The cable Television networks (regulation) amendment bill,2011 – This bill was passed by both Rajya Sabha and Lok Sabha in December, 2011.The bill has mandated that all cable companies should  convert their analog system to digital in four metros by 31 Mar 2012. Big cities with a population greater than one million should be digitalized by 31 Mar 2013 and the whole country by 31 Dec 2014. In addition to 500 million cable TV viewers who will experience better audio and video quality, this bill is also going to benefit other stakeholders like MSOs, Broadcasters and Govt. Customers will also be able to pick and pay for the channels they choose to watch. Services like Video on demand and rise in number of channels will improve the cable network.   

10. 2G scam – The 2G scam was the most talked about topic in the telecommunication industry in 2011. The scandal which is still under scanner involved many big politicians, Bureaucrats, Corporate Executives, Corporations and media people. High profile people like A. Raja- former cabinet telecom minister, M.K. Kanimozi – former Rajya Sabha member,  Siddharth Behura – former telecom secretary, Sanjay Chandra –MD Unitech, Shahid Balwa  - promoter Swann telecom were accused of wrongdoing. They were charged for illegally undercharging mobile telephone companies for frequency allocation licenses. A CAG report calculates the loss due to this scam to be around Rs.1,70,000 crore.

Telecommunication Industry in the year ahead (2012)

The year gone by (2011) has been an eventful year for the Indian economy. India has witnessed high inflation and slowing growth leading to a situation called as ‘stagflation’.

Well the same can be said about the telecom sector. The industry has been grappling with slow growth in terms less number of subscribers being added every month and high interest rates on the money borrowed for the 3G auctions. This has forced the operators to hike the fares. This in a way has signaled that the honeymoon for the Indian public at large is coming to an end and also represents the transition the telecom sector is going through.

Considering what has happened in 2011, we would like to give a snapshot of what is in store in 2012 and where telecom in India is heading.

1. Launch of 4G services - In 2011, 3G, although an anticlimax (as per the figures), made an impact on the people of our country and the policy makers. The forthcoming year may have something very stimulating i.e. faster broad band technology. Players like Reliance Industries (RIL), Airtel, and Tikona are pushing to launch 4G services in India. Tikona is gearing up to launch 4G with TD-LTE.

The point to be noted is that 4G will be launched at the same time as the rest of the world. Now since huge investments have been made in other technologies like 3G, Edge etc it would be interesting to see whether 4G will go along with other technologies or not.

2. Ecosystem - The smart phones are dominating world handset market today. So the launch of 4G services would require handsets to support the services. Getting the handsets in time will be a humongous task. The users will also have to adjust to the new services. After having seen a poor response for 3G, uptake of 4G services is bound to poor/limited to urban areas.Those operators with 3G spectrum can always go back to the earlier technologies like 2G, 2.5G. Those with BWA spectrum don’t enjoy such luxury. So rolling out 4G services would indeed be a challenge which the operators will have to face.

3. Mergers & Acquisitions - The players have been clamoring for a liberal M&A guidelines for the consolidation of the industry, which would definitely bring some sanity for the top players. With the Telecom Commission accepting the norms by TRAI, we should expect reasonable amount of M&A activities to kick start. SAR Group, makers of Wynncom brand of mobile phones, took controlling stake in the Indian arm of U.K.-based Fly Mobiles. The story is same as that of the operators. With intense competition (1.5 crores units per month) and many serious small time players, that makes it perfect for consolidation in the handset market too.

4. Mbps vs. MoU - ARPU has nosedived to less than Rs.100. For long the operators earned their lion’s share from voice and miniscule share from data. With voice revenue falling, data has to be the next cash cow for the operators. Since the launch of 3G services didn’t make the intended impact, it will be interesting to see how the operators will use 4G to make an impact on the data services front. Mbps will be battling out with MoU (minutes of usage) side by side.

5. Ambanis rendezvous - With RIL evincing interest in utilizing the infrastructure of RCom for the 4G services offered, the Ambani brothers can look to dominate the telecom market with RCom in 2G and 3G and RIL into 4G.

6. Roaming - The draft NTP2011 proposes to remove roaming charges. This was greeted with displeasure as roaming charges constitute 8% to 10% of the total revenue. TRAI has been engaged in talks with its foreign counterparts to lower the international roaming charges. Given that India now attracts more tourists, lower roaming charges will benefit the foreigners and TRAI would expect a quid pro quo for the Indian operators. It will be interesting to see how money counter will be affected as a result of the above policy.

7. Information Technology in Telecom - The Telecom sector, despite all its travails, is expected to lead the way in terms of potential growth. IT spending in India is projected to total $79.8 billion in 2012, a 9% increase over 2011. The telecom market is the largest IT segment in India with IT spending forecast expected touch around $55 billion in 2012. Even though IT analysts see a flat growth in 2012 for IT sector, Telecom market offers an opportunity to make hay in 2012. IT is the primary driver of business growth and the telecom ecosystem would want to use IT more now than ever before to enhance its business performance.

8. Cloud Connect - Like 3G, cloud was also a household term in 2011. Any discussion about telecom would not be complete without reference to cloud services. It is expected that the 4G services deployment will utilize the cloud for offering various services. It is also expected to bring in agility for Indian enterprises especially the SMEs. “India get your business online” an initiative by Google, aims to achieve agility and cost reduction for the enterprises.

9. Digital Cable - The Cable Television Networks (Regulation) Amendment Bill 2011 was passed on December 13th, 2011. Albeit such a move was expected long time ago still it brought out the smiles. The bill has some provisions though which has evoked mixed reactions from the industry. Digital translates to more channels, more advertisements leading to incremental revenue for the stakeholders involved. As a whole this bill is bound to bring in high quality video content (VOD) directly to the homes of the people thereby enriching their viewing experience. Cable can now look at cloud to offer new services and to cater to newer devices. However issues related to cost and revenue model will take centre stage in the upcoming year.

10. Migration to IPv6 - The business view toward IPv6 is very simple: Connectivity for future IP customers. With the government deciding March 2012 as the deadline for all government offices to be IPv6 compatible, it is going to a tough task to accomplish the same. Operators can use the IPv6 platform for differentiation in this hyper competitive market. The major concern, even though deadlines have been set, is the timing of release and its effect on the industry as whole. Location based services may take a hit as all LBS services are based on IPv4 databases.

Telecom sector, once the sunrise sector of our country, is going through tough times. Expectations in 2012 aren’t too great but opportunities do exist. The operators will have to reinvent the operating model in order to make the data services click. Consolidation in the industry is for sure to change the dynamics of the telecom industry in near future. Let’s, with bated breath, wait and watch.

L.KISHAN CHAND

&

VISHAL

(Class of 2013)

Marketing strategies of Indian Handset (mobile equipment) manufacturers - to compete against Nokia, Samsung, etc.

The Indian mobile phone revolution is incomplete without the mention of local handset companies, which are responsible in a big way for taking feature-rich phones to the masses. Companies such as Micromax, Lava, Lemon Mobiles, Karbonn etc. India’s mobile handset as a whole has grown by 15% to Rs. 33171 crores. Top 10 manufacturers have contributed Rs. 23603 crores or 70% of the total revenues.

Top 10 mobile handset manufacturers by revenues in 2010-11:

Manufacturer	Revenues in crores (INR)
Nokia	12,929
Samsung	5,720
Micromax	2,289
RIM	1,950
LG	1,210
G’Five	1,326
Karbonn	1,004
Spice	920
Maxx Mobiles	745
Sony Ericsson	690

So, the time when only Nokia, Samsung (International player) ruled the market has gone, now they are finding it hard to compete in the continuously growing dynamic market. And on the other hand the new Indian manufacturer like Micromax, Karbonn, Spice, Maxx mobiles are eating up the share of the market at the quick pace reporting robust sales.

Marketing strategies opted by Indian handset manufacturers:

Low Price: The simplest market winning strategy is to offer the latest technologies at comparatively lower price. The general behavior of Indian consumer show that, they prefer less known brand to a big player provided they carry the latest technology at lower price. The Indian handset manufacturer utilizes this strategy to their best. The aspiring and primitives are enticed by brands which provide value for money offering and also have rich mobile experience.

Multiple Sim Slots: The steep growth of local mobile phones is almost entirely on the back of so-called dual-sim phones (even triple-sim), which allowed thrifty consumers to have two numbers on single device and effectively exploit plunging tariffs in a cut-throat mobile services market.  In India, mobile plans are mostly prepaid and, thanks to an ongoing price war, among the cheapest in the world and getting cheaper. Consumers constantly shop for deals and often wind up with three or more accounts—nearly 100 million Indians have multiple cell numbers, estimates investment bank Macquarie. To switch among numbers, cell phone owners used to have to swap SIM cards, which is eliminated with multiple sim phones.

Research and Development: In the global scenario companies spend billions of dollars in their research and development and it is no hidden fact that overall performance of tech companies is directly correlated to their R&D investment.

With a well-defined product vision and an R&D set-up to support it, Indian handset manufacturer successfully generated innovative handsets that can revolutionize the telecom consumer space. Due to thorough understanding of the Indian market as well as consumers local manufacturer are coming up with innovative handsets to compete in the market. Local companies are flooding the Indian market with multiple options aimed at different consumer segments. Some of them are:-

ü  Single click access to popular social networking sites like Facebook and Twitter.

ü  Low priced phone with QWERTY keypad.

ü  Low priced phone with touch screen

ü  The 30 day standby battery life on mobile sets was a big success especially in the rural areas where power failures are common.

ü  Handsets with switching networks option (GSM-CDMA)

ü  Mobile handsets with 3D motion gaming technology – this has been targeted at the youth taking into account the growing gaming culture.

Branding: Branding is to differentiate from other sellers. Local manufacturer uses the all possible medium to advertise their products like:

ü  Many brands sponsor big sports events like I.P.L, IIFA, Cricket World Cup to attract youths.

ü  Use print media and Social networking site.

ü  Use catchy advertisements by showcasing celebrities as Akshay Kumar is brand ambassador of micromax.

To sum it up local manufacturers have won the initial battle by registering their brand on the on the minds of consumer but they still have a long way to go, they have to gain the trust of consumer by providing innovative products with superior quality and at competitive price.

Written by :  Ankur Bhalla
                    MBA TM (I)
                        SITM

FALLING ARPU – WHAT IS THE SOLUTION?

Once the poster boy of India’s economic growth, the Telecom Industry is now at the crossroads. From the highs of late 1990s till around 2008, the telecom sector has fallen victim to its own success. The “subscriber linked criteria” for gaining more and more spectrum has been a boon as well as a bane for the Industry.

In the first decade of the 21^st century, there was tremendous growth, with high revenues and profits. It was no coincidence that when India was clocking high GDP growth rates the telecom industry was also growing beyond one could imagine. But that very criterion is hitting back. After adding so many subscribers, a saturation level has been reached. For the new acquisitions, prices had to be lowered to such levels not seen anywhere else in the world. There were literally prices wars. The problem was that in order to acquire/poach new subscribers, the tariffs were lowered in a hope that it will translate into more talking time which was not the case though. COAI commissioned a study from PwC on the Indian Telecom Industry scenario. The report says that the minutes of usage (MoU) per user have fallen from 465 (2007) to 369 (2011). So this has actually had a negative effect on the revenues due to falling tariffs. Now even the number of subscribers added (2011) has been witnessing a sharp decline compared to the previous years. In July 2011, new subscribers added were only around 7.6 million, the lowest since June 2007.

In addition, the industry had to also bear the cost of implementing Mobile Number Portability — estimated to be around Rs 500 crore, and an equal amount is expected to be invested to satisfy the Government's security concerns. Now there are so many players in the industry, huge pressure on the margins affecting the big players as well as the small players, falling MoU, network congestion, falling ARPU etc. The challenges faced are unique and has many facets. Add to that the biggest concern is that the growth story has not completed a full circle wherein the telecom revolution has not yet touched the lives of more than half the population of our country. The question is what can be done to revive the industry?

1)    First of all this requires the operators and regulators working together.

The industry is banking on the New Telecom Policy to be unveiled later this year. As per the PwC report, the operators in India pay 19-28% of their annual revenues to the government in the form of licence fees, spectrum charges and service taxes. The Government earned Rs 1.36 lakh crore from the telecom sector in 2010, compared to Rs 9,100 crore in 2004. The NTP-2011 can be framed in such a way to reduce the taxes and levies, so that the operating costs come down. This does not impact ARPU directly but will have an effect on the cost per user (margins) which will in turn change the way operators plan their investment for example setting up of rural infrastructure which is in tune with the government’s theme of inclusive growth.

2)    Low spectrum prices.

The recently concluded auctions of 3G spectrum and BWA have put tremendous pressure on the profit margins. The government earned nearly Rs 68,000 Crores from the 3G auction and Rs 38,000 Crores from BWA auction. As per the current regulations one Telco cannot have a stake of more than 10% in another Telco. If this clause can be removed or in other words if the market structure for mergers and acquisitions can be liberalized, it would lead to consolidation in the industry thereby cooling off the price wars. As I am penning down this article, TRAI is acting on an exit policy for those operators who have either met the roll out obligations or not received the spectrum. This will lead to an increase in the spectrum bank of DOT. The demand supply market forces will make sure that the spectrum prices will come down. This decision is endorsed by the government as in the current year’s budget; it has estimated the non-tax revenues as Rs 13,000 Crores. So the exit policy is a success, nearly 200 MHz of spectrum will be available for sale and hopes to cover the non-tax revenue component.

3)    Increase Data services and customer quality experience.

India’s internet and broad band penetration is very low at 1.6% and 0.9% respectively. This presents immense potential for the telcos. This will definitely require investments but as mentioned above if the government policies are amended, this will translate into more funds available for the telcos. The point to be noted is the cascading effects of government’s intervention. Also as per a report by research firm IRMB, customer pays on an average Rs 389/month, for mobile net services, which is good news for the telcos as ARPU is declining rapidly. Instead of concentrating on increasing the subscriber base, the telcos can focus on increasing the quality of services. It is more of convenience and satisfaction to the customers, making them habitual of the services and eventually driving usage.

As we have seen above, government’s policies and interventions are paramount for the revival of the Telecom Industry. If the government promises to do what it always claims to be as a “business enabler”, then the stage will be set for another round of telecom revolution.


L.KISHAN CHAND
Class of 2013