Wednesday, January 5, 2011

MNP not a game changer

In Indian, any survey of mobile users will show Vodafone to be an operator with one of the most, if not the most, loyal customer base. But one statistic shows just how relative that term -- customer loyalty -- is in the telecom industry. According to its British parent's annual report, for the quarter to September, Vodafone's Indian operations recorded an annualised 'customer churn' of 41%.

In other words, 41% of its 118 million subscribers will leave during the year! Dissatisfied, disillusioned, disinterested. Yet, its subscriber base is expected to grow because its subscriber gains outnumber its losses.
Other operators have a similar story to report in a market that is still untapped. And that's why, they say, they are not scared of number portability causing a Pied Piper-like exodus among their subscribers. They are not deterred by this new mechanism of consumer empowerment that, for just Rs 19, lets subscribers switch operators without changing their phone numbers.

"It will have very limited impact," predicts Kumar Ramanathan, CMO of Vodafone Essar. The first reading shows limited impact. In Haryana, which was the first state to offer portability from November 25, industry data for December 2010 shows that 1% of the state's 17 million subscribers opted for it. Annualised, that works out to 12%, which is a fourth or fifth of the churn operators have been living with.

So, they say, even when number portability rolls out in other circles they can live with it. "We are already in a high-churn environment," says Rajiv Bawa, executive V-P (corporate affairs) at Unitech Wireless, a joint venture between Norways's Telenor and India's Unitech.

Yet, behind that business-as-usual veneer, there's a hint of nervousness brought on by the other change gathering momentum in Indian telecom: 3G services, which turns a mobile phone into a TV and an Internet-fired computer, and delivers music, movies, TV, games, information and more seamlessly. "Number portability will not be the game-changer ; 3G will be, and it could lead to outcomes like portability," says Ramanathan.

Old divisions in the industry are being raked up again. GSM versus CDMA. The old guard versus the young upstarts. The 3G haves versus the 3G have-nots. It's a polarised debate, with operators aligning their views to their business strategy.

All these years, operators trained their energies on the 'pre-paid' segment, which accounts for 95% of the 700 million mobile subscribers in India. "A majority of pre-paid users are hardly interested in retaining their number," says Ramanathan.
Not only are pre-paid subscribers fickle, they don't even give operators big revenues.

Yet, operators woo them because are easy to add. In the way the business is run presently, numbers matter. Allocation of spectrum is linked to subscriber base. More subscribers translated into more spectrum — and higher share valuations.
So, the market saw crazy pre-paid plans, where operators essentially paid people to become subscribers.

For example, when it launched in September 2010, Etisalat charged zero rent and gave a subscriber 50 free minutes for three months. 'Use and throw' became the norm with pre-paid users who were price-conscious and didn't care about number retention. This was happening at the operator end.

At the handset end, an upstart manufacturer launched a device in 2008 that promoted this sort of user behaviour. The manufacturer was Micromax and the device was a dual-SIM handset. It was a huge hit. Other manufacturers followed. According to global market intelligence firm IDC, 40% of all handsets sold in India in the past year have been dual-SIMs. For example, Micromax, which has a 5% share, has 45 'active' models. "40 are dual-SIMs," says Rahul Sharma, executive and marketing director, Micromax.

"We've had 'virtual number portability' for the last eighteen months. With new entrants offering free talktime and other incentives for a limited period, customers take up the connection, use the freebie and throw the SIM," the CEO of a leading telco had earlier told ET.

Old operators see a churn of about 45%; some of the new entrants, 60%. "New operators are already dealing with high churn," says Unitech's Bawa. "Their challenge is to get chosen as a second or third SIM, stay in the phone, and over time, move up to primary SIM status."

Much of this churn is in the pre-paid segment, and so portability is expected to have only an incremental effect there. For example, in the quarter to September, Vodafone recorded an annualised churn of 42.4% in the pre-paid segment. By comparison, its churn in the postpaid segment was 23.2%.

With 3G and number portability, the churn in the post-paid segment might increase, which is what operators are concerned about. The postpaid segment is the bedrock of an operator's revenues. Although it accounts for about 5% of the subscriber base of a big operator, it brings in 20-25 % of revenues.

It's also the segment Indian operators have been taking for granted. For example, even as they slashed tariffs in the pre-paid segment to 30 paise a minute to add subscribers, operators haven't done the same for post-paid rentals.

The thinking is that, compared to their prepaid peers, the post-paid set show lower sensitivity to price and greater sensitivity to number retention. With portability, the number attachment is no longer a factor. "The barriers to change will be demolished," says Bawa. "Operators with legacy high-value customers will need to do more to keep them."Adds a recent report by Fitch Ratings: "Subscriber acquisition and retention costs may increase in the post-paid segment over the next 12 months."

However, a price war is not expected in postpaid. "The pre-paid tariff war was not beneficial to players and, hence, we may not see such an intense war in post-paid ," says Rahul Singh, telecom analyst, Standard Chartered Equity Research. "Post-paid customers are more sensitive to parameters like coverage, quality, 3G offerings and brand, rather than low tariffs."

Services will be the clincher especially with 3G services. "Postportability, the single differentiator will be extensive service delivery," says Rajat Mukarji, chief regulatory affairs officer at Idea Cellular.

At the basic level, better service will mean greater voice clarity, fewer call drops and a wider network. Theoretically, all else being equal between two networks, the one with fewer subscribers should give better call quality. That should put newer networks at an advantage.

However, it's not a pronounced advantage, according to the Telecom Regulatory Authority of India, which assesses the service quality of operators quarterly. Most licensees, even those with the busier networks, meet the rgeulator's service norms — for example, 95% success rate in call set-up , 95% of calls of good voice quality, billing complaints of less than 0.1% of pre-paid subscribers. So, there's only a limited case for post-paid subscribers to switch.

But the strength of value-added services provided by an operator could compel a switch. That means 3G. Vodafone's Ramanathan believes the portability impact will eventually gravitate to larger issues. "Companies with differentiated services like 3G in key circles, superior network and greater predictability of quality services will have an edge," he says. "Small players who didn't win any 3G spectrum will have less to offer in value-added services, and so may have limited bite."

When it comes to 3G services, it's the old, big operators that are the best placed. In the 3G spectrum auction held in 2010, seven operators that account for 98% of mobile revenues cornered the three slots available in each circle. So, if there's a push factor working against them because of their clogged networks, they can counter it with a pull factor in the form of 3G.

That's why analysts say portability won't lead to an exodus from old operators. "An increase in churn rate would be temporary. As the euphoria around portability wanes, we expect the longterm churn rate to stabilise at current levels for an operator offering 3G services," says a recent Crisil research report."

In these realignment however, there are three kinds of operators that are more vulnerable to losing subscribers, that too valuable ones, because of portability.

The first is post-paid subscribers of old operators that failed to gain size or traction. Such marginal operators failed to build a brand or go pan-India , or buy a 3G footprint. Their standing among their subscribers derives largely from their first-mover advantage. Since they were among the first operators to offer a mobile service, they roped in the high-spending subscribers.

A good example is Loop, which is present only in Mumbai (though it has inter-connect agreements with other operators) and has a modest 3 million subscribers. Loop was earlier BPL Mobile, which launched in the mid-nineties, when handsets were bricks and an outgoing call cost Rs 32 a minute.

Mobile telephony was the preserve of the rich. And once they chose an operator, many a times, they stuck on because they did not want to lose their number. Now, they can switch while retaining numbers.

The second likely loser is government-owned BSNL, another old player that started as a threat but was cut to size, at times by its own. Even though it is the fifth largest operator with 80 million subscribers, it is in decline. The competition is chipping away at its USP: reach beyond the metros. Unable to add lines, its capacity is strained.

The executive admits portability could deliver a body blow to the company. "BSNL could lose many customers who are unhappy with its quality of services and after-sales support," he says. Even its 3G services, which had a first-mover advantage, have made little impact. Launched in February 2009, 19 months ahead of others, it has managed just 2.1 million 3G subscribers.

Old CDMA operators, namely Reliance and Tata, are the third potential loser. Their subscribers too have been locked in — to an operator, a technology and a handset, along with a number. Liberated, the push factor might be greater for them.
Ramanathan of Vodafone, feels CDMA subscribers would like to break free of the relatively restricted world of their technology. "At least 80% of CDMA subscribers use operatorspecific devices, unlike GSM customers," he says. "Dissatisfied CDMA users well may exercise their freedom to migrate to GSM, which offers more flexibility, both in number of operators and highend devices."

A top Reliance executive who did not want to be identified disagreed with that reading. "CDMA customers keen to go to GSM will need to invest in a new GSM handset," he says. "This will be a natural barrier to churn."

Whether or not, Reliance manages to hold on its CDMA flock, one thing is for sure: for Indian subscribers, the freedom to choose has never been greater. This will nudge operators to acquire a greater customer orientation. Some operators are improving their network quality by putting more points of interconnect - locations where two networks link up and exchange traffic. Expect more group and family plans.

"The world over, number portability has yielded low to moderate results. "Adoption levels are modest," says BK Syngal, former chairman & managing director of VSNL. He cites a recent study by Telcordia, one of the two firms that facilitates portability, that says that the annual average port rate — percentage of subscribers who switched operators in a year — for 19 countries in 2007 was a modest 4.5%.

A Google Mobile Payment Service>>>

"You'll be able to walk in a store and do commerce," says Google's Eric Schmidt. "You'd bump for everything and eventually replace credit cards"



Google (GOOG) is considering building a payment and advertising service that would let users buy milk and bread by tapping or waving their mobile phones against a register at checkout, two people familiar with the plans say. The service may make its debut this year, say the two, who requested anonymity because the plans haven't been announced. It is based on near-field communication technology, which can beam and receive information wirelessly from 4 inches away.


Google joins a slew of companies that want in on the NFC market, which may account for a third of the $1.13 trillion in global mobile-payment transactions projected for 2014, according to IE Market Research. In November, Verizon Wireless, AT&T (T), and T-Mobile USA (DTEGY) formed a venture called Isis to offer an NFC-based service in 2012. Visa (V) is testing contactless payments and planning to roll them out commercially in mid-2011, says Bill Gajda, Visa's head of mobile innovation.


"It's a land grab," says Jaymee Johnson, a spokesman for Isis. "Folks are sort of jockeying for position." "


Open to Partnerships


EBay's (EBAY) PayPal may start a commercial NFC service in the second half of 2011, says Laura Chambers, senior director of PayPal Mobile. The system would also power peer-to-peer NFC transactions. For example, a restaurant patron might beam his share of the bill to his dining companion's phone. PayPal is open to partnering on NFC payments with companies such as Google, Chambers says.


Speaking about NFC at a technology conference in November, Google Chief Executive Eric Schmidt said, "You'll be able to walk in a store and do commerce. You'd bump for everything and eventually replace credit cards." Andy Rubin, Google's vice-president for engineering, declined to comment on future services and products.


A single NFC chip on a mobile phone would hold a consumer's financial account information, gift cards, store loyalty cards, and coupon subscriptions, say the people familiar with Google's plans. Users may also be able to make online purchases from their phones. By scanning a movie poster, for instance, a consumer might read reviews and use the Google service to purchase tickets.


"NFC could displace the cash register," says Charles Walton, chief operating officer for NFC chipmaker Inside Secure. "This is going to come superfast."


New Version of Android


Google may be in a good position to disrupt the payments industry because merchants and consumers already use its technology widely. Some 300,000 people activate phones daily that use its Android software. On Dec. 6, Google released its newest version of Android, called Gingerbread, which has some NFC features, such as reading information from NFC tags. More functionality "will come out pretty quickly," says Google's Rubin. On the market since Dec. 16, the NFC-enabled Nexus S phone, developed with Samsung Electronics, will serve as a test for a Google payment and ad service, says one of the people knowledgeable about Google.


Last year, Google bought Zetawire, a Canadian startup with a patent on a way to combine a phone-based wallet with a reward-and-loyalty system. Google Ventures, the company's venture capital arm, also invested in Corduro, a closely held developer of mobile-payment solutions in Southlake, Tex.


Google is ramping up efforts to seed merchants nationwide with NFC tags, which can be read by NFC-enabled phones. Since mid-December, it has handed out hundreds of NFC kits—including window tags and fortune cookies to give to customers—to businesses in Portland, Ore., where Google is testing a project called Hotpot.


 


What the Oregon Test Shows


When scanning an NFC-enabled window decal with an Android-based NFC phone, a user can see the business's work hours, check out reviews, rate the business, and get advice from Google on other local businesses. "It's something that helps local businesses," says Sara Heise, an event planner at Voodoo Doughnut, one of the businesses taking part in the Portland test. "It'll allow us to interact with our customers more, especially the younger, texting generation."


To promote the technology and local advertising, Google gave out 22,000 T-shirts at a Portland Trail Blazers basketball game. "We are going to start expanding into more and more cities in the near future," says Lior Ron, group product manager for Hotpot. "We want to make it national."


Global shipments of NFC phones will jump to 220.1 million units in 2014, up from 52.6 million in 2010, according to consultant ISuppli in El Segundo, Calif.


Last year, iPhone maker Apple (AAPL) hired Benjamin Vigier, an expert on NFC technology. The company also filed for a patent on a way to transmit payments from one cell phone to another using NFC. Apple spokeswoman Natalie Kerris didn't return a request for comment. Research In Motion (RIMM), which makes the BlackBerry, filed for a patent on a system that makes NFC payments more secure. RIM spokeswoman Marisa Conway didn't immediately return a request for comment.


An NFC payment and ad service may let Google grab a bigger piece of the U.S. mobile-ad business. The company ended 2010 with 59 percent of the $877 million market, according to an estimate by research firm IDC in Framingham, Mass. "Google is a very innovative company," says Johnson at Isis. "They'll continue to push the envelope and have a number of potential roles to play." :By Kharif


 


Top Five Venture Capital Investments In 2010

The verdict is clear. Technology and IT sector continue to be an all time favourite of venture capital firms, if the list of top VC investments in 2010 is a pointer.
Two of the top five companies attracting venture capital funding raised money in their follow-on  deals (Series C & D) and three of them were related to IT sector, according to data from VCCedge. All the big VC deals were in the USD 10-million plus range.
Check out which firms raised the most and what makes them tick:-
iYogi: Raising more money from existing investors is one thing and making shareholders cough up more in the same year twice is quite a feat. The remote consumer technology support company iYogi raised $30 million for its series-D round of funding, two weeks ago, led by Sequoia Capital India. Early this year, it had raised $15 million in series C funding from Draper Fisher Jurvetson (that also participated in latest round) earlier this year. The Gurgaon-headquartered firm that is planning an IPO in 2011 (that could even come up through a US listing) will use the new funds raised to expand services outside the existing consumer market and the Windows Operating  System platform.
Aryaka Networks: The US-based provider of the world’s first cloud-based application acceleration and WAN optimization solution raised $14 million including Series A funding from Nexus Venture Partners, Trinity Ventures, Mohr Davidow Ventures and Stanford University. The two-year-old firm headed by Ajit Gupta (owner of Speedera Network which was acquired by Akamai for more than $500 million) is banking on growing demand for WAN Optimization that is
projected to reach $4.27 billion globally by 2014.
Agni Property: Many private equity firms have burnt fingers with investment in real estate space but some VC firms pulled a smart one to get an exposure to the sector without picking up the riskier side of the business. Real estate transaction services firm Agni Property Group raised $12 million from Silicon Valley based venture capital firm Foundation Capital and India based Helion Venture Partners. Delhi-based Agni Property Group partners with property developers in various cities for selling mainly new properties and charges a commission on the asset value of the property. With the new cash it also plans to enter broker housing finance for buyers as an extension of its existing business.
Webaroo Technology India: A group company of Webaroo Inc (an offline mobile search service provider in the US) that runs SMS GupShup, a mobile group SMS service platform, raised $12 million in Series D round led by US-based Globespan Capital Partners besides participation of existing investors Charles River Ventures and Helion Venture Partners. It plans to utilise the money for global expansion, starting with emerging markets that have a high mobile adoption. It also intends to roll out new features such as mobile CRM solutions for small  businesses and corporate brands.  Two years ago it had raised $11 million in Series A funding from Helion Ventures and Charles River Ventures. It says it has over 2 million SMS communities in categories ranging from finance, entertainment, business, news, education, spiritual and health and claims it accounts for 5% of all text messages sent in India.
NetAmbit InfoSource & e-Services: India’s largest financial third party products distribution company, NetAmbit InfoSource & e-Services Pvt. Ltd., raised Rs 50 crore ($11 million) in a second round of funding led by Helion Venture Partners earlier this year to fuel its growth. Bessemer, which invested in the company in 2007, has also participated in this round by investing Rs 10 crore. The firm acquired in personal finance portal Rupeetalk.com, which is backed by early stage investor Seedfund, in December 2 10. The deal would help NetAmbit start internet enabled model to generate and complete leads. NetAmbit has grown from just 13 to 140 locations between FY06 & FY09 and increased the amount of business sourced by 12x in the past 3 years.
By: Madhav Chanchani