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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 Economic Times, August 21, 2007
– Kaustubh Dhavse, Program Mgr, ICT Practice, Frost & Sullivan, South Asia & Middle East
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
Data
and
and
VAS
content
has
development
contributed
to
9%
becoming
of
hot
revenue
sectors
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 identify how to quickly adapt to the ever changing scenario so that they
remain profitable. Content rich services like location based services using digital
maps, VPN, video conferencing and e-education seem to be a very logical next step
for growth. IP based technology will provide required cost economics and hence
business cases need to be build to utilize the same.
In conclusion, it can be argued that while the SMEs in telecom have demonstrated an
entrepreneurial flair in identifying an opportunity to enter a high growth industry
under favourable conditions, their continued success and growth is far from assured.
With the industry conditions changing from a buoyant wave of high growth to
relatively slow but purposeful growth, SMEs in telecom need to identify the right
opportunities.