Smart Strategies For Telco Growth

The telecom industry is in a crisis. The cancellation of 122 2G licenses earlier this year coupled with severe competition and tough margins has made quite a dent in the profits of telecom service providers. While the first phase of growth was mainly driven by low tariffs in voice, the current market dynamics point that voice revenues are southward bound.

The dwindling revenues of the top telecom players like Bharti Airtel Ltd., Vodafone India and Idea Cellular Ltd. clearly indicate that the recent regulatory developments and competition has created massive growth challenges. But is there a remedy? What are the steps that operators should take to tackle these challenges? What can operators do to change an adversity to an advantage?

According to analysts, it is the innovation, expansion and focus in the non-core areas that will help the telcos to improve the profits and hence a clear strategy needs to be in place to identify those key growth areas and business models. Since the urban market has already reached a saturation point and rural market yet to be explored fully, it is critical to identify the strategies to make a good business case.

Heres a look at some of the key trends where the operators can innovate and leverage the opportunities to grow their market share:

Leverage the 3G
Since the voice revenues are coming down, the telcos need to focus on data to drive their revenues. While the launch of 3G failed to generate much momentum due to high tariffs and poor network, the recent move by operators to reduce the 3G price offerings have signaled a positive response from users.

Even though the numbers are not that impressive (as the country boasts just over 10 million 3G subscribers currently), experts believe that the services need to be packaged in a way that could compel users to subscribe to the service and use it for better. 3G has not given the kind of return the operators were expecting. Even though the cost has come down, it needs to further reduce. Moreover, the attractive promotional schemes need to be launched for tier 2 and tier 3 cities. Telecom stakeholders need to create awareness amongst masses about the 3G services, says Rahul Gupta, an independent telecom market research analyst.

Creating a VAS ecosystem
The Value Added Services (VAS) market has shown a promising growth during the past few months. There has been an increased uptake of entertainment services like astrology, music, ringtones, sports, stock and weather updates, which has encouraged many VAS companies to invest and come up with relevant and exciting services.

However, experts believe that there are still plenty of challenges that the industry is facing. There is no great emphasis towards providing utility-based VAS services and the lack of relevant content is another major hurdle. "Despite the availability of cheap 3G handsets, the hurdles upfront for a consumer to switch to 3G services are countless. This ranges from the unavailability of a consistent 3G network, even in the metros like Mumbai, to an absence of local content in a diverse country like India. So it is early to say that MVAS will compel a 2G user to subscribe to 3G," says Abhishek Pathak, Regional Head, Mobile Marketing and Advertising, One97.

Another big challenge the industry faces is poor revenue share model between operators and VAS service providers, a factor that restricts the growth in the country. Currently the operators in India get around 70 percent of revenue from the profits from a VAS based service, while the VAS player gets the rest of it. However in most of the advanced countries it is the opposite. Therefore, here, the ecosystem cannot be developed. You need to encourage the VAS players to build a strong ecosystem by giving them equal share in profits, says Gupta.

Enterprise Services
Realizing the pressure on current margins, the operators are increasingly exploring other avenues to improve their revenues. One such area is expanding services in enterprise space.

The telecom operators Bharti Airtel and Vodafone have already expanded their B2B divisions and other are also following the suite. The prices to consumers are going down, but the costs [of offering those services] are not coming down, so what are the other avenues to increase the revenue? The intent is to add more solutions to meet the needs of the businesses across verticals such as IT, ITES, Government, FMCG, BFSI and Media, says Najib Khan, Chief Marketing Officer (Enterprise services), Bharti Airtel, earlier this year, in an interaction with Light Reading India

However the key question is do they have the required expertise to compete with traditional IT integrators players like IBM Corp. and Wipro Ltd.?

According to the experts the nature of Indian enterprises are very different and is largely dominated by SMB (Small and Medium Enterprises). Secondly, operators have already lost a considerable time in tapping the enterprise segment and hence its important that they should have a clear road-map and strategy in place to address that segment."It is not going to be easy to compete with traditional players who have expertise in this space. This may be a good revenue opportunity for telcos but they need to have a clear understanding of the market. Also, what is required is a good marketing push to tap this sector. Some telcos are definitely good at it," comments Deepak Kumar, an independent telecom research consultant.

Expansion strategies
The expansion strategies of service providers in the local and global markets will also hold key to the next phase of telecom growth.According to the industry experts, all the expansion related strategies have to be carefully planned, considering the short term and long term profitability goals. The domestic operators like Bharti have been pretty aggressive in terms of their expansion and launch strategies, which could give them a long term stability in the market. Even though Bharti launched its Africa operations in 2010 and became the world's fifth-biggest mobile phone operator by subscribers, it is yet to book profits from the African operations.

Jatinder Singh, Principal Correspondent, Light Reading India