The Indian telecom market came of age last year, growing into one of the world’s fastest growing and most competitive markets. But intense competition in the wireless-dominated country also forced operators to lower tariffs to the very brink of sustainability. As a result, 2010 will see operators pursuing new revenue-generating opportunities, as well as more drastic measures such as mergers and IPOs.
Here are our predictions for this pivotal year.
1. Tariff stability: Operators are unlikely to further decrease cellular voice tariffs. Pricing has bottomed out, and incumbents have responded with per-second voice and per-character SMS billing. With ARPU already falling below $2, any further cuts will be unsustainable. But if the DoT proceeds with its plan to reduce the interconnect fee by Rs0.05 per minute or higher tariffs may be lowered by a commensurate amount, as operators pass the savings on to consumers.
2. Early M&A: The over-saturated telecom market will begin to consolidate, with at least three significant mergers taking place before 1H11. Regulators will move to facilitate this, and have legislation in place by mid-2010. One likely merger candidate is Idea Cellular.
3. 3G and BWA further delayed: Despite press reports to the contrary, operators will not even launch 3G and BWA services until the very end of 2010. Government agencies are ill-prepared, and the ministry of defense and the DoT have been warring over the control of spectrum. The compromise of releasing spectrum blocks on a staggered basis will leave most potential players – particularly international telcos – dissatisfied, limiting the success of the auction.
4. MNP will not make a splash: The thrice-delayed mobile number portability regulations will take effect in April, but will turn out to be a non-event. There is more than enough competition on the ground, with 12-13 licensees per circle.
5. Data Bundling: The year could see the introduction of the fist voice/data bundling options from the Big Five operators. The current data market is profitable enough not to need this, but the vacuum left by the 3G delays could spark competitive pressure to expand the 2.5G data market.
6. Smartphones hit the mainstream: As prices drop and more features get packed into phones at less ASP, data-capable phones will become ubiquitous. Operators should move to flat rate GPRS packs and expand the range of VAS on offer. This will cause an increase in data traffic and better ARPUs. Our recommendation: offer bundled handsets from this year for a 12 month contract on phones priced at Rs 8000 ($173) and higher. Indian versions of app stores will come of age, but monetization will remain questionable unless a viable push-ad solution can be found.
7. Tower IPOs: Reliance will float its tower business via an IPO, with another tower operator possibly following suit. Reliance and others have raised valuations sky-high, and it is time to start sharing some of that wealth with the masses.
8. Managed Services – no looking back here: Managed Services will grow and spill over into the mainstream, becoming the default model of all telecom operators. Hosted services and bundled options might become common by year-end. Operator-managed services partnerships will become a driving force in multi-location enterprises, with telcos playing key roles in enterprise purchases of high-end IP PBX equipment.
9. Wimax/BWA opportunity: India will remain under-served by fixed broadband access, offering Wimax/BWA technologies a rich market opportunity. But unless spectrum and regulatory agencies deliver on their promises, this opportunity could get frittered away into fragments: some taken by data cards, some by fixed wireless, others by DSL. Administrative and licensing issues could delay adoption of wireless broadband, with only partial Wimax deployments and limited trials expected for this year.
10. Wi-Fi and Enterprise: While the industry has been focusing its attention on competing mobile broadband technologies, Wi-Fi has been quietly gaining traction as a complementing feed-in technology for both wired and wireless broadband networks. In some cases, it remains the only solution for wireless broadband. Wi-Fi support will become a lot more prevalent, supported by default in homes and enterprises and on netbooks and handheld phones. Indian Wi-Fi networks will come of age this year as they expand.
Enterprise business apps, such as unified communications, need a champion that can offer nation-wide service suites in hosted mode, and at very attractive prices. Avaya and Cisco are best-positioned to capitalize on this opportunity.
Sridhar Pai is CEO of Banglore-based Tonse Telecom
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