With unprecedented penetration of smartphones across users of all socio-economic strata, demand for mobile data is ever growing all over the world. Telecom service providers around the globe are bracing up to come up in terms with this trend and improve their offerings in terms of network quality and pricing. Airtel's new The Smartphone Network campaign asserts the fact that even operators are aware about the significance of data being the next big growth driver and unless they maintain an edge, they run the risk of losing high value subscribers. Through this post which is based on reports published by well known international firms, we try to help you envision the way ahead for operators.
Growing Technology and Customer Creativity
Global management consulting firm and business strategy advisor Boston Consulting Group's (BCG) 2013 report on a new approach to network rollouts states that worldwide mobile data traffic is expected to increase 13-fold by 2017. In a playbook published a year later, BCG cites that value creation for telcos is increasingly concentrated within a small percentage of subscribers. In Southeast Asian markets, for example, 20 to 22 percent of subscribers contribute 64 to 68 percent of revenue.
Over-the-top (OTT) services offer free or inexpensive alternatives to traditional voice and messaging, and more and more consumers are using them. According to the market research firm Telegeography, Skype added 54 billion minutes of international voice - BCG, June 2014
Customers who traditionally relied on calls shifted to SMS and finally to data based services like Facebook to convey important achievements. In terms of costs one Facebook update < 150 SMS < 150 calls, needless to mention the time saved! Along with creative and cost conscious consumers, new players always gave a tough fight to incumbents with rock bottom prices and lots of freebies. BCG notes that whatever action a service provider takes to get ahead, it gets quickly replicated by others. We have seen this happen in India with every operator - be it the per second tariffs, hike and reduction in tariffs, my plan like offerings and more. BCG also notes that unlimited data plans are passe and telcos are increasingly offering tiered buckets of data.
All the above facts underline the fact that telcos must invest at a faster rate to rollout next generation networks and at the same time maintain their bottom line.
The Growth Strategy
Cutting the way to growth - drastically lowering tariffs, reducing headcount etc. can't be sustainable. Therefore, telcos need to be innovative and optimize the streams which generate revenue for them. Here are some approaches for that (some are being followed in some or the other form):
- Network Sharing has been a focus of most Indian operators for some years now. Reliance Jio which is expected to start services is already following this approach.
- Bundling: There are “only two ways to make money in business: One is to bundle; the other is unbundle” - venture capitalist and Internet pioneer Marc Andreessen. This is exactly what telcos have started doing. A close look at the evolution of rate cutters would bring up interesting facts. Earlier they were limited to either voice or SMS or data. Now it is a world of combos!
- Operator billing in a nation like India can be a hit as people are reluctant to divulge credit/debit card information online. This can also help the unbanked masses.
- Non-Traditional Approach to Network rollouts - Mobile network rollouts may not be the ultimate solution after all! In the 2013 BCG report mentioned above, it was stated that traditional network rollout methods—with upgrades deployed on a national, one-size-fits-all basis—make investments costlier and less effective than they could be. BCG recommends a non-traditional approach which they term Integrated Broadband Solution that stresses—and facilitates—three crucial elements: geographically targeted rollouts, integration between fixed and mobile networks, and investments that are scaled to match local business opportunities. Fiber to the home, for example, fares best in high-density, affluent areas but is hard-pressed to turn a profit in more spread-out regions. This probably explains why big cities like Hyderabad, Bangalore have a plethora of optic fiber based internet service providers at very affordable prices. In terms of operating costs, for example, fixed networks can deliver capacity far more economically than mobile networks—between 15 and 40 times cheaper, according to various industry estimates.
- Least-Cost Networks: In the playbook aimed at Developing Market Mobility Carriers (DMMCs), BCG recommends network upgrades and innovative user experiences targeted to high-value customers. By accelerating deployments in what they term as least-cost networks targeted to high-value customers operators can realize a three-year growth rate of earnings before interest, taxes, depreciation, and amortization (EBITDA) that is at least 3 to 6 percentage points higher than current levels. Operators moving from 3G single-carrier technology to 4G, for example, experience a 17-fold increase in speed while reducing the cost per megabyte by a factor of 12.
- Better Data Pricing: BCG observes that in tiered approach followed by several operators, larger buckets tend to cost far less per megabyte than smaller buckets. That gives users an incentive to buy more than they need—a nice model for the moment, but one that could prove unprofitable as usage goes up. In their pathways conjoint model, BCG recommends that a better approach is to increase the number of data buckets offered and price them in a more linear fashion along with easy upgrade path. With every household having multiple gadgets, multidevice and multiuser plans seem logical.
Therefore, while possibilities are unlimited for both customers and operators, it is technology based innovation around the offerings and the Quality of Service which would be the key differentiators in the coming years.
Did you find this attempt by us interesting and useful? Would you like to see similar articles in the future? Do let us know through comments.
- How to Succeed in Business by Bundling – and Unbundling, Harvard Business Review, June 2014
- A New Approach to Network Rollouts: The Integrated Broadband Solution, The Boston Consulting Group, April 2013
- A Playbook for Developing-Market Mobility Carriers, The Boston Consulting Group, February 2014
- Pathways Conjoint: A New Approach to Pricing Mobile, The Boston Consulting Group, June 2014