Whither 3G and Broadband?

There have been several opinions, including a couple of editorials in the Mint , that have supported the doubling the reserve price in the 3G and BWA spectrum auctions in India. While the objective of maximizing Government revenues is generally admirable, this last minute googly and consequent confusion in the auction process will only reinforce the image of India as an uncertain investment destination.

It is indeed surprising that the issue of reserve price has been brought up now, after the auction Information Memorandum was released and the time-table announced. That the 3G reserve price would be about Rs 2000 crores was known for several months; indeed, the guidelines for auction of spectrum were announced over five months ago on 1 August 2008. Has the Ministry of Finance become aware of the "low" reserve price only now? In fact, it might be argued that since August 2008 the global (and Indian) economic environment has worsened, telecom valuations have taken a beating (down 30-50% during this period) and liquidity - even for good projects / investments has considerably dried up - therefore, the reserve price should be reduced in order to attract more bidders for the spectrum. Hong Kong did just that, and cut their BWA reserve price by 50% between October and November 2008!

Policy decisions in the telecom sector are being taken on the fly. New licences announced, terms & conditions changed, and scarce resources awarded without any sense of predictability. The number of players involved in this process are numerous, often leading to myopic and locally optimized decisions. The industry regulator has been relegated to a 'recommendator', whose opinions are occasionally sought and frequently rejected or modified. And, operators and investors indulge in guess-work and waste precious resources on creating regulatory arbitrage instead of focusing on developing new services or technologies.  

Coming back to the issue of the reserve price, what is the basis for somebody in the Government seeking a 100% increase? Why not 125% or 150% or 75%? It is the job of the regulator to study the economics of the business, analyze international benchmarks and assess current market conditions to determine the base price for a scarce asset. When was the last time TRAI was consulted to make such an assessment? What basis does someone else use to change the assessment made by an independent industry regulator? 

It would be an easy and safe decision to double the reserve price and / or delay the auction process by a couple of months. After all, nobody in the Government will lose their jobs or sleep over that. What it does to the business case of rolling out Broadband in India and consequently, overall value to the country is forgotten in the process. The tougher option is to find ways to encourage greater level of participation in the auction. A fair, transparent and well-managed auction will ensure that an appropriate market value for spectrum is determined for the first time in nearly 5 years. Opening up more spectrum slots for auction would have a multiplying effect on Government revenues as well as Broadband penetration. Clarifying some of the long pending (at DoT) regulatory issues like number portability, Internet Telephony, MVNO and calling cards would further enhance the "value" of the spectrum, particularly to new entrants and foreign operators.

New Year Wish for the Indian Telecom Sector

One thing that the telecom industry seeks in 2009 is the establishment of a predictable regulatory and policy environment. The Indian telecom sector has grown at breakneck speed in the last ten years since New Telecom Policy 99; we have achieved much more in the first decade of deregulation in the telecom sector than any other country has. The overall policy framework has supported entry of several new operators, a dramatic reduction of tariffs and consequently, an exponential growth in subscribers.

However, this rapid growth has also been accompanied by frequent changes in policies and regulations related to the conditions of entry of new players and operations of existing service providers. And in a number of cases, these changes have been preceded by or led to controversies and often, legal battles. Not only have they created confusion amongst operators and investors, but also failed to address the problems.

One of the oldest surviving issues is that of customer choice for long distance calling. In spite of a 2002 Telecom Regulation Authority of India (TRAI) directive to all operators to implement carrier access code within 3 to 18 months, customers are still awaiting this choice. And strangely enough, the TRAI dropped this Directive recently citing non-implementation as the reason! Those operators who invested in long distance licenses on the assumption of direct access to customers have had to since the reset of their business plans.

Similarly, about two years ago, the TRAI recommended the introduction of resellers in the International Private Leased Circuits segment; this licensing change was brought about purportedly to bring international bandwidth prices down significantly. Yet, not a single reseller has been licensed to date! Perhaps, there was no real or urgent need for the introduction of resellers, or customers have been deprived of more choice and lower prices.

Global benchmarks and experience suggest three major changes that can help create a more robust and predictable regulatory environment. Firstly, in order to truly implement the underlying purpose of bringing TRAI into existence, DoT must be mandated to accept and implement TRAI recommendations in totality and immediately. Worldwide, the policy and regulatory functions rest with one agency, thus leading to certainty of policy direction. There is no reason why only a handful of TRAI’s nearly 30 “recommendations” in 2008 should get accepted. 

Secondly, TRAI must be given powers to penalise errant operators. There have been several instances of non-implementation of Trai orders but the regulator has been unable to do much about this. Finally, TRAI should be staffed with professionals with technical, economic and regulatory skills, including those with international experience and private sector participation. Today, TRAI attracts only government officials on deputations or after retirement. Not only are they often conflicted, but also lack the appropriate capabilities to develop forward looking policies, proactively anticipating technology and market trends.

Investors, both international and Indian, have pumped in tens of billions of dollars into the vibrant telecom sector in the last few years. Gains due to exponential market growth have managed to compensate for the disadvantages of an uncertain regulatory environment. Over the next couple of years, in an uncertain economic condition and with relatively slower growth, predictability of the regulatory environment will be necessary to attract further investments.

(This article appeared in the Financial Express on 28 Dec, 2009.)

The Personal Web

A popular PC brand's tagline is, The Computer is Personal, Again... well, they could not have got it more wrong. Over the last few years, consumer behavior (demand) has shifted away from 'computing' to 'communication', 'collaboration' and 'entertainment'. The computer is, in fact, a relatively inferior device for most of the needs of today's generation. Its lack of portability / mobility and high power consumption make it a rather 'impersonal' device. 

Today, there is a surge in the device world - smartphones, mp3 players, LCD & plasma TVs, cameras are emerging as complements and in some cases, alternatives to PCs. While computer sales at about 200 million per annum are still amongst the highest in (hi-end) digital devices, more than 400mn other digital devices capable of entertainment, communication, content, etc. are being sold out there. Most of the consumers own more than one device,  often used inter-changably for some services. Take for instance, photography or video recording. Most mobile phones can perform the imaging functions reasonably well (for the lay person); yet people still do own digital cameras and camcorders. Similarly, e-mail and gaming are available on many devices including computers, mobile phones, smartphones and gaming consoles. Additionally, many of these devices are getting networked (or at least network ready). WiFi is now available on all laptops, most PCs, smartphones and gaming consoles, some cameras, music systems, mp3 players and special devices.   

In such a world, where the customer could choose from hundreds of devices and have Internet access from many of them, the Web emerges as the platform of choice for most services. To be successful in this world, a service should have at least the following characteristics:

Identity: The service recognizes who you are and customizes the content / offering based on your choices or previous patterns. Your identity enables you to access multiple services and carry your content / preferences across all of them.

Context Sensitive: The service recognizes what device and / or access mechanism you are using, and adapts itself accordingly; yet, it preserves the core features based on your Identity.

Storage: For the Identity to be preserved across contexts, your content, preferences and history need to be stored or hosted centrally.

Of course, Google is the leader and champion in this world, having transformed our online experience. With a Google identity, you can access all your e-mails, contacts, photos, videos, chats, documents, news headlines, stocks, blogs, maps... well, pretty much your life, perhaps, from any device, any location.  With the latest additions of the Chrome browser and Android mobile paltform, Google is reinforcing our ability to have this seamless experience, irrespective of access mechanism. While Google is the most successful in leveraging the "Personal Web", others like Facebook, Skype and LinkedIn have also made significant progress in recent times.

The Personal Web experience is not limited only to consumer services; businesses can also now create truly office-less work environments. Enterprises can roll-out hosted applications, including ERP, CRM, Salesforce, collaboration and even, voice, on private IP networks and/or the public Internet, in a highly secure and cost-effective manner. In fact, the success of Google in the small and medium business space reflects the opportunities for greater efficiency and cost savings that large enterprises are probably missing out on. 

I had said in an earlier post that Service Providers (as against Device Providers or Network Operators) would be the winners in the mobile world. The same holds true for the entire Communications industry. Networks are almost a commodity and hold no opportunity for differentiation and consequently, pure network operators have limited opportunity for a value upside. Devices are usually a one time purchase (till the next upgrade or replacement, at least) and therefore, device manufacturers have little scope for an ongoing customer engagement. Services, on the other hand, can leverage the capabilities of networks and devices to create a compelling and ongoing experience; thus, service providers have the best shot at long term value creation.

Customers, individuals and businesses, are of course, the ultimate winners. They can choose the best of all worlds from amongst networks, devices and services - mix and match them to suit their requirements. 

The Web is Personal, Finally... 

Global Influence

Recently, Global Telecom Business, a leading telecom journal, published a list of the Top 100 influential people in the telecoms industry. It was widely reported in India that seven Indians had made it to the list, although if one were to be pedantic, only four were directly connected to the telecom business in India. It is a matter of pride to me that two of the executives in the list belong to Tata Communications, Srinath at No. 8 and Vinod at No. 68. 

I read comments on some Indian blogs that it was surprising that the names of a few other large Indian telecom operators were missing from the list. Well, it was not so surprising to me, partly because the article begins with the caution that the list was biased towards US and European executives because of the nature of the survey. 

More importantly, the list was about people who were significantly influencing the global telecoms industry. While size of operations is indeed a factor that drives influence, it is not the most important one. Influence has to reflect in changes brought about to the market, in terms of customer behavior, business model, economics or competitive positioning. Those that influence have a clear idea of what the future of the industry will look like (not just that of their company) because they will drive that future.

Rightly so, this list is led by the Google trio, and followed closely by Steve Jobs. All of them, in their own way, have shaken up the telecom industry. It is interesting to note that that the Top 2 influencers of the telecoms industry do not belong to it, well, not by traditional definitions at least. This reflects the 'influence' that Service Providers (or platforms) will have on future customer behavior and industry dynamics (see earlier post on the topic here).

The influence of China (its scale and its policies) on the world is reflected by Li Yizhong, the Chinese telecom Minister, at No. 3.

Finally, Srinath at No.8 shows how rapidly one can change the world order... less than 7 years ago, his company was a public sector monopoly in India; today it is recognized as a global challenger with the strides it has made in the international voice and connectivity business, both wholesale and enterprise. With its focus on new technologies (Ethernet, MPLS, Wimax), managed services (Telepresence, security, hosting) and emerging markets footprint (India, China, South Africa, Asia, Middle East), it is poised to play a leading role in the global wholesale and enterprise markets.  

I look forward to greater innovation and game-changing moves by these influencers.

(I would normally avoid writing about my employer or my colleagues, but I felt that I had to make a mention of this topic since it is really about industry dynamics and influence.)