Bharti+MTN: One Hurdle Too Many?

Bharti's renewed attempt at creating an Indo-African telecoms giant appears poised to face several roadblocks, some due to the inherent differences, and some due to the externalities surrounding such large deals. While Bharti has seen strong, in fact tremendous growth, in India, the company is limited in its geographic presence across the globe. MTN, on the other hand, has seen growth outside its home market of South Africa. However, there exist significant differences between the kind of markets that Bharti and MTN serve. India is a low ARPU, high usage market while markets where MTN operates typically are low ARPU, low usage. Competitive dynamics are yet to kick in pricing of services which continues to remain high in multiple African markets. While prices are expected to fall down in the coming years, however, increasing reach to the low-income rural communities will be a significant strain on their balance sheet. 

The contours of the how the deal will likely be structured, although this could change, also point at significant complexity. Bharti is looking at raising close to $4 bn in debt. Given the fact that 3G spectrum auctions in India are round the corner, and Bharti's necessity to participate heavily in them, Bharti could end up facing an uphill task in raising funds. 

And lastly, a key point in the whole proposed merger, and which was largely responsible for the breakdown of talks last year, is the nationalist feelings that are stoked through such large cross-border deals. Opposition could arise from labor unrest. Regulation in many emerging markets in Africa as well appears to be dictated by nationalist feelings, particularly in matters involving international operators. France Telecom's problems in Egypt, and, Vodafone's troubles with the local regulator in South Africa suggest caution.

In a nutshell, the path to a combined MTN-Bharti is riddled with potholes, however, the prospect of a combined entity having over 200 Mn subscribers appears too enticing for not overcoming these challenges.

Whose content is it anyway?

Hulu's snagging up of Disney network as an equity partner begs that question. Whose content is considered more exclusive, more desirable, and consequently, more monetizable?

While youtube has always led the numbers game, in terms of all kinds of user-driven metrics, however, Hulu appears to be fast catching up on the more-important financial metric of bringing in monies. While ever-rising traffic at Youtube only leads Google to mounting operational expenses in terms of hosting and streaming costs, the converse appears to be true at Hulu. With all of its content monetizable, without legal baggage, Hulu offers advertisers a far more compelling proposition, and naturally, has been on a high. It doesn't help that under 10% (far less than this by other estimates) of videos at youtube are deemed monetizable.

What does this show? Well, for starters, that content continues to be king. And that's the good news.However, that doesn't mean that there is no space for user-generated content and scope for commercial exploitation of the same. UGC has been a hallmark of web 2.0 and will continue to remain so. However, online video sites as well as media players have to look beyond a model where there's a straight-forward content-advertiser relation. The Hulu model, for instance, seems atavistic for reasons more than one. It continues to build on the traditional advertiser-content owner angle and basically extends that practice from the Television on to the web. While the system in itself is a fine example of how the web can create all-round value, for all parties involved, yet, through its inherent reliance on large content companies, it fails to recognize the power of the web.

Youtube showcases all that is representative of the future state of the web, albeit at a staggering cost, and how UGC will continue to be one of the key producers of content. However, it has to make out a compelling case for a model where UGC can harmoniously exist along with professionally-produced content. The media players, and the UGC community, have to recognize the fact that compelling UGC has almost always come out of a right mix of both forms of content, and to that extent, neither is dispensable nor can be wished away and same goes for legalese involved in it all. All stakeholders involved need to recognize and appreciate the contribution of each of the parties involved, and build ad-supported/subscription models that are more reflective of the changed realities. Until that happens, it is going to remain a messy road for Youtube, while others such as Hulu will continue converting the web into a Television.

The Monetization Conundrum

The music industry has been, for quite a while, exhibiting the head-stuck-in-sand syndrome. Despite the continuous fall in CD sales [pdf] music labels still love to go around suing individuals and trying to sign up more and more artists in their restrictive agreements. Labels refuse to recognize the fact that physical music is in a state of irreversible decline. Advent of platforms such as iTunes that encouraged uptake of snacking appear to have done little to wake up the labels out of their stupor. On the contrary, the recent price rise, to put it properly-the introduction of variable pricing, in the iTunes store reflects the desperation of the labels to try and make up for "lost" revenue. The spate of announcements that major labels have been doing on collaborating with all and the sundry reflect their attempts at trying to milk the last penny out of all their content repertoire. However, the sad part is that most labels are still trying to outrun the pace of evolution of digital music. In doing so, they have been focussed on monetizing new media in a classic old media format, only difference being they now tend to do it with more partners and in more geographies. This is the easy way out that they are taking due to their reticence to adopt to digital media in its truest form and create innovative business models that ensure they gain a fair value for what is undeniably their copyright. 

This problem of monetizing content in the digital media space is something that is coming to haunt content owners of all hues and types. However, there do appear to be early signs of content owners working with partners to create innovative business models. The Amazon Kindle, of course, represents an emerging and successful way of monetizing and creating newer markets for content that was increasingly being seen as dying. Similarly, Vodafone Spain, along with Real Networks has come up with a reasonably priced flat-rate data plan which allows consumers to download unlimited tracks, from all the major labels limited by DRM though. Rising penetration of mobile devices, coupled with high speed mobile networks, offer a compelling proposition for bundled offerings such as these. With mobile operators as well looking for newer revenue streams, given their declining voice revenues, partnerships are waiting to be frozen. 

Content owners will have to look beyond existing ways of monetizing their assets if they are to truly participate and profit from the digital wave. However, in their short-sightedness in looking only at the next quarter's result, they are increasingly getting further and further away from their core consumer. And this is a void that is now up for grabs from players across the spectrum !

The App Store Gold Rush

Describing the current flurry of announcements around app stores as anything but a gold rush would be an understatement. Driven by the wild (?) success that the Apple app store has seen, operators, online players, and device manufacturers are making a beeline to courting developers with promises of riches unseen ! With majors such as Nokia, Microsoft, RIM, Vodafone, Verizon, France Telecom, and China Mobile committing to either launch app stores and/or greater co-operation with developers, competition for the consumer's discretionary spending on mobile apps/content is only set to increase. And not to forget, the ubiquitous Google, with its Android Market, which appears to be seeing strong traction with the first wave of customers. However, lost in all this cacophony is the increasing fragmentation that is likely to set in once all these app stores are launched. While Apple has had a strong success with its version, however, a large portion of that success can be easily traced to the limited portfolio of its devices (all of two-iphone and ipod touch), however, the same cannot be said for other app store operators. Numbers are being bandied about on how Apple's store crossed, in two years, the number of apps that Microsoft took over 9 years to build. What is clearly overlooked in this apples and oranges comparison is how apps built for a windows Mobile platform are meant to work on a much wider range of handset portfolio. Ensuring mass customization by using a narrow range of devices, as in the case of Apple, significantly reduces development, porting, and testing costs for a developer.

While development costs are one aspect of the complexity that having multiple platforms entails, a larger problem would be to encourage adoption beyond the early adopters and uber geeks, for creating an efficient billing platform is certainly no stroll in the park. Most of these app stores have exhibited an intention of cutting off the mobile operator from the picture, thereby complicating the billing mechanisms, and consequently risk alienating significant portion of the user base that would prefer the convenience of tying all mobile-based purchases to the carrier bill. And this is where mobile operators believe they can drive home their advantage. The announcements from China Mobile and Verizon need to be seen in this light. AT&T as well appears to be taking early steps with its App Beta program. In Europe, Orange too appears to be hitching the app store bandwagon.

The success that Apple has seen can be clearly traced to the virtually complete control that it has of the value chain; right from the device to the software, to the iTunes interface, to the payment mechanism, and in some cases, down to the operator (thro' exclusive agreements) ! However, the same is not really viable/practicable for any of the other new entrants. Fragmentation is a reality that they have to adapt to. And consequently, they might never be in the same league of the Apple app store. And more importantly, whether they like it or not, it will indeed be very challenging for either content companies or device vendors to create alternate mobile payment gateways bypassing the carrier billing.

The app store phenomenon will likely act as the final nail in the coffin for operator walled gardens. It remains to be seen how operators ensure they can find their collective bearings and work towards creating an ecosystem that offers value to the customer and monies to their pockets !

3G in India-A Non Starter?

That India's 3G spectrum auctions have been jinxed right from the start has been more than clear, given the clear timeline of regulatory delays. The DoT and TRAI, aided by the finance ministry, have contributed more than their part in ensuring consumers in India are denied 3G services.   Nevertheless, operators have been patiently waiting for the spectrum matter to be cleared, and tap on to the data-starved Indian consumer. Indeed, some have even expressed the intent to enter the Indian market using the 3G route ! However, the acute spectrum crunch in most major cities of India, and consumer reticence towards using high-priced data services are very much likely to act as a dampener. Add to this, the fact that operators have not really encouraged consumer friendly tariff plans when it comes to data and you have a picture that is definitely not encouraging for uptake of 3G based services. Operators such as Reliance and Tata Teleservices recently launched their wireless broadband services based on EVDO revA (grey area when it comes to its classification/spectrum usage). And the prices belie any real interest in encouraging uptake. With prices hovering around Rs.1,200/- for an unlimited connection, and fair usage caps coming in at a paltry 10GB, uptake is quite likely to be muted. Given India's abysmal broadband penetration, and with limited visibility on local loop unbundling, one would have thought the mobile operators would have been a bit more aggressive on pricing their mobile broadband services. That ain't to be, sadly though ! 

The intriguing part is the pricing strategy adopted by the two state owned incumbents, BSNL and MTNL.  MTNL's pricing at Rs.5/MB and BSNL's Rs.3/MB on 3G spectrum that they have already been granted displays limited understanding of the potential and of their first-mover advantage of this space. By pricing next generation services out of reach of most potential consumers, operators continue to display their disconnect with the consumer on data services. While most operators have successfully demonstrated the demand that could be generated by offering affordable voice services, sadly, when it comes to data, they don't appear to be inclined to do so, atleast, as yet! It is probably no wonder, that reports in media suggest a very poor uptake for the 3G services that have already been launched by BSNL/MTNL. Operators need to appreciate the scale of the opportunity that delivering mobile broadband and data services offers in India. However, it appears very likely that operator focus will continue to remain on voice for the immediate future, given the galloping growth rates. Nevertheless, with voice pricing set to be commoditized pretty soon, operators would do well to start paying more attention to data services.

The Beginning of the End

Prophetic as it may seem, the official launch of Sistema-Shyam's mobile service in India, under the MTS brand, indeed appears to portend the beginning of a slowdown in the great Indian mobile story that has thus far been steaming ahead. With Sistema being the first of five new entrants to get off the ground, along with expansion from incumbents, the word competition just got a whole new meaning. Also, with the subscriber base likely to rise strongly over the next two years, and slowing down therefrom, the battle for top-line and bottom-line growth is only likely to get more intense, pushing back payback periods. 

Sistema appears to have recognized the new imperatives of the market and the impact that it is likely to have. Their break-even, which they have hinted at seven years, suggests the same. More than the increase in competition, it will be interesting to see how some of these global majors bring their expertise and strategies into the Indian market. MTS has been following a micro-segmentation strategy of its consumers based on demographic and behavioral patterns, and to add, with reasonably strong success. Operators in India, have thus far been using one-size-fits-all solutions. With it's low cost and segmented strategy, it will be quite interesting to see the strategy that MTS adopts and incumbent operator response to it. Early indicators of MTS' strategy appear to be seen in the variety of special value vouchers that it has already launched. Likewise, it will also be interesting to see how Telenor, with its GSM focus and strong experience in other emerging markets, plays out in the Indian context. Moving beyond current land-grab strategies will prove the litmus test for incumbents, and new entrants sure will play their part in playing spoilsport for the incumbents.

MVNOs-New Models, Old Problems

Yet another MVNO is launching in the US next week. And this one hopes to achieve success with a twin combo of VoIP and flat rate plans and completes the combination with a prepaid plan. Zer01 Mobile hopes to achieve what multiple others have tried and failed at. Run a successful MVNO! The model, as in the case of multiple other MVNOs is quite interesting. The company claims to have developed it's own applications for most of the current smart phones, and all calls are routed through VoIP by it's application that is closely integrated with the handset dialpad.  The company's business model appears to be intriguing in ways more than one. They claim to have their own IP backbone, and rely on roaming agreements with AT&T and T-Mobile. And incredibly enough, also claim to have fine-tuned their VoIP platform to even work on GPRS & EDGE networks!! Remains to be seen if they actually go beyond their closed beta and launch commercially. Success, however, is an altogether different ball-game. 

High costs of subscriber acquisition coupled with extremely ambitious targets have seen many an MVNO burn cash like there's no tomorrow. Indeed, apart from Virgin Mobile in the UK, there aren't too many successful MVNOs across the world. Of course, there are some of the smaller, interesting and arguably successful examples across some of the Benelux countries, and then there's the new kid on the block, Blyk. 

India's experiment with MVNOs, although still caught in regulatory and inter-departmental conflict, will be quite interesting to see. With limited uptake of data services, and a larger problem surrounding scarcity of spectrum, it will surely take some serious thinking to break the MVNO conundrum !

Indian Media Factbook 2009

Came across this comprehensive report on performance of various segments of Indian media in 2008. 

The Mudra Media Factbook 29 01 2009

View more presentations from slashvelandy.

Voicing its way ahead

It appears any and all news in the online world in the recent past has been doomed to be focussed on the GoogApp duo ! Be it Apple' announcement on its new iPhone OS or Google's launch of a souped up Grand Central or the more controversial move to have behavioral targeting in adsense !   

Google's frontal move into voice appears, as always, ominous to the telcos that have hitherto survived in locking out users in closed environments. Google's attempts to open this ecosystem up, with all its efforts on spectrum/platforms/handsets, whilst having minimal immediate real impact, are however forcing telcos to go in directions that they have resisted up until now. Whilst Google has thus far restricted itself to what can best be described as Guerilla tactics in targeting telcos, Google Voice goes a step forward and takes the competition right into the backyard of the operators. With free domestic calls in the US, and low rate international calling, Google appears to be looking at a revenue stream that goes beyond its staple diet of search advertising. Of course, directory services will likely be a focus and be tightly integrated with Google Voice. However, I am more inclined to look at this launch as an acknowledgment of the fact that establishing platforms and ensuring Android based handset uptake grows is an uphill task. In its home market, Google is yet to tie up with the top two operators for the Android platform. And with the global handset market showing clear signs of losing steam, mobile advertising could take that much more time in becoming mainstream. And it is in this backdrop that Google's launch of Google Voice appears all the more interesting. Instead of building an ecosystem that is favorable to its core business from ground up, Google appears to have realized the advantages of taking a multi-pronged approach that effectively uses their repertoire of acquisitions.   

Telcos will definitely not be pleased with Google's latest move. However, there's little that they could do, other than accept the fact that their distance from the consumer is rapidly increasing. Being a dumb pipe now appears to be thrust upon them, even when it comes to delivering their core service, voice!  And while the extent of upside for Google is debatable, what appears certain is the downside for telcos that competition of this nature is likely to bring to the overall telco industry.

Handsets: The GoogApp effect

The handset industry has seen better times; it has seen worse times. These are changing times indeed for handset manufacturers around the world. The entry of iconic industrial design-driven companies such as Apple, and the (omni-present) Google into the mobile platform arena, have sure shaken many a top 5 player out of their growth slumber. Nokia's decision to buy out the remaining portion of Symbian that it did not own, and SE's decision to stop development of UIQ, ain't the result of a sudden change of heart towards open source. Rather, they reflect a measured response to Google's launching of Android and how Apple appears to be attracting an increasing number of developers, in spite of all its opaqueness on app selection. And with Google having created enough noise about open ecosystems, and the like, and mainstream and digital media eating out of Google's-PR laced hands, carriers and handset vendors could do little other than play to the gallery.

While most players are now coming to terms with the importance of UI and industrial design, however, what they have not factored in is the current economic slowdown, and how companies like Apple can impact their sales of high-end devices. Gartner's numbers for Q3'08 show the rapid rise of Apple even in a deteriorating economic environment. With close to 13% market share, to say that Apple has disproved many a traditional theory about handset sales is an understatement. Handset manufacturers, and carriers alike, have consistently espoused the need to have a wide portfolio; a portfolio that offers something for everyone. What they haven't realized over the years, and what Apple has, is the market opportunity for a device that offers a little bit of everything, but in a far more evolved manner than anyone else. Consequently, vendors have spent billions in building portfolios of devices at various price/feature points. Apple came in and disproved the portfolio theory with just one model (two, if you consider the 8GB and 16GB as separate models). Similar is the story when it comes to applications for the smart phone. Traditionally, carriers have exercised a strangle-hold on application availability for the smart phone. And they have ensured that developers are frustrated with the slow pace of approval (justified in part by the large portfolio that carriers need to test). And in this juncture comes Apple's App Store, offering a clear 70% revenue to the app owner, and a device that's currently selling like hot cakes. No wonder, App store has already seen over 300 M downloads in just over five months !

While handset sales across the world are slowing down inevitably in the face of retreating consumer demand, companies like Apple are proving that a compelling product can work against the macroeconomic forces. The iPhone may still flounder, after the initial fascination for the device worn out, however, what is here to stay are some of the lessons that they have brought out in the open...