Saturday, September 13, 2008

In the news: Bharti Airtel to setup telecom innovation fund

Bharti Airtel, India's leading telco has announced of the setting up of a telecom innovation fund worth Rs.200 crores to seed telecom startups. This is a smart move by the telco viewed with the new telecom developments - 3G rollout, coming of MVNOs and entry of foreign telcos. Bharti Airtel can leverage its licenses, infrastructure assets and pan-India coverage to provide a good platform for telecom startups in turn augmenting its own revenues both organically and inorganically. This first ever telecom innovation fund would be watched closely and its success can spawn other such funds too.

What are the factors that has given this positive spin to telecom entrepreneurship? Here are at least two. Apple with its 3G iphone has left some interesting functinality out and its Appmart platform has encouraged a new industry around it. Nokia's takeover of Symbian has made the OS opensource in effect driving lots of app contenders to develop software and content for its platform. Google though late with its Android platform would not be far behind with its release and would also interest independent software developers to develop for the platform. Telecom startups can make use of such information to target their share of user's wallet

Monday, September 8, 2008

Indian 3G spectrum auction process begins Monday

     Image Courtesy :
The process of allocating 3G spectrum to telcos is to kickstart on Monday with the pre-bid conference to select the overseer of the e-auctions for the 3G spectrum for both GSM and CDMA services. 3G spectrum winners will be known by early October. The auctions are expected to raise U.S.$ 10 billion or more of revenue for the government which would make the telecom department one the the biggest profit centers for the government.

Now what is to be seen keenly is how the telcos - both domestic and foreign take to the e-auction. There have been misgivings about competing in the 2G space from foreign bidders. The DOT had changed the rules so that foreign telcos could merge or buy stake in local players on entering the Indian market and this ought to assuage their feelings.

One more aspect to be watched is the final cost of the 3G spectrum and its effect on the 3G rollout. A high floor price would push the final prices so high that bidders would use up their revenue on the licenses and would have to wait for deploying the network infrastructure - the next step for telcos. This has happened in EU markets most notably in UK. In spite of the delay in launch of 3G services, 3G penetration had picked up fairly well. In the Indian scenario such a thing though wished by telcos might not be so easy. This would need very competitive end-user tariffs and very impressive differentiated services. This would call for huge spends upfront before a good monetization trend sets in. Setting an optimum floor price would hence be the challenge for the telecom ministry.

The challenge for TRAI would be to oversee proper timely rollout of 3G services in all circles with undue delays by the telcos. TRAI would also have to keenly look at how and what kind of recommendations are to made on the MVNO policy. This would also be critical as many foreign players might prefer to enter the market as MVNOs in order to avoid high license fees. TRAI's recommendations would some day tell on the rate of penetration of 3G services in India.

The challenge for the telcos would be about offereing high quality differentiated services and  make enough money to reinvest in their new new 3G networks. In this respect the telcos would also need to fix attractive tariffs that would work for them too. Another aspect telcos would be focussing on is MVP - mobile number portability - which might necessitate a rethink of telcos' strategies about retaining and growing subscriber bases.

The challenge for the user is to embrace 3G technology without falling for hype and demand high quality services from the telcos by rewarding the best offering and not to look at price alone.

Monday, September 1, 2008

Cheap(er) SMS - Why we need it

Cheap SMS is a possible thing for telcos. I mean cheaper SMS than the current rates. Current rates of national SMS are at Rs.1 per SMS. Considering that there are 160 characters in an SMS this works out to 7490 SMS per 1 MB. At Rs.1 per SMS this would be Rs.7490 per MB of SMS. At Rs.0.5 per SMS this would be Rs.3745 per MB of SMS.

160characters per SMS
140bytes per SMS
7490SMS per 1 MB
7490Rs. for 1 MB of SMS at Rs.1 per SMS
3745Rs. for 1 MB of SMS at Rs.0.5 per SMS

Now compare this with voice calls.

13.2kbps for a voice call
33bytes per frame of 20ms
1650bytes per 1 sec of voice call
99000bytes per 1 minute of national long distance call
10.6national long distance calls per 1 MB
10.6Rs. per 1 MB of national long distance calls at Rs.1 per call

The price of SMS is found to be 350 to 700 times costlier than voice calls. Why this is so? If we go back in memory, mobile calls were also ruling very high. There were times when an outgoing call costed Rs.16 and an incoming call Rs.8. Across the markets this was the general trend when telecom watchdog bodies brought about directives and enabled legislation to reduce the tariffs of mobile calls. For doing this the watchdog bodies called mobile telephony a "basic service" and asked the governments to reduce their various charges towards the basic service and also pressured the telcos to reduce their tariff. SMS, as opposed the basic service of mobile telephony, is called a "value added service" (VAS) and the efforts of the watchdog bodies were not so strong for value added services. Though SMS prices have come down, they have not matched the voice service and we continue to pay very high prices for small pieces of the bandwidth offered by SMS.

Why cannot SMS prices be lower? The keyword here is value added services. If SMS can be reclassified as a basic service, telcos would be forced to reduce the SMS tariffs inline with voice services. SMS can well be classified as a basic service as users have started to use the service for basic needs like finding the best prices for their produce to getting storm warnings. There can also be texting providers similar to long distance providers to open up the market. You can already purchase bulk SMS from a variety of sources. However, a service like SMS should also have eat-as-much-as-you-can flat rate tariffs like web tariffs. This would be the ideal situation for the market.

In the cusp of 2G and 3G services now, it is time we had better SMS at cheaper rates. With 3G there will be many opportunities for pursuing new value added services. SMS can be kept basic.