Saturday, August 22, 2009

DoT permits Long Distance Calling Cards in India... Finally!!

In 2000-01, I spent several months working on a business plan for - at that time - one of the largest opportunities in Indian telecom: the imminent opening up of the National Long Distance (NLD) market. It was estimated at Rs 12000 crores (~$3 Billion) in size and was a BSNL monopoly. Private operators were almost salivating at tearing away chunks of this business... while tariffs were expected to drop dramatically (60-80%), there was also expectation of significant price elasticity. Even if only 50% of the market was addressable (due to infrastructure limitations), a fair share amongst 4-5 players could result in about Rs 1000 crores revenues in 4-5 years. Towards this opportunity, a few operators were ready to pay Rs 100 crores licence fees and offer Rs 400 crores bank guarantees.

Major investments were planned on building out national fiber backbones and setting up switches and points of interconnects at all district headquarters (as per the roll-out obligations)... project cost for NLD was estimated at Rs 1000 crores at least. However, there was one highly critical assumption behind these NLD business plans...

The assumption was that private operators would be able to gain meaningful share of the NLD market, even though BSNL (&MTNL) had more than 80% of all phone connections then. This was to be made possible by a major regulatory move: implementation of Carrier Access Code or Pre-Selection within some months of the NLD market opening up. (See this very detailed article on the NLD opportunity from those times...)

The TRAI did issue the appropriate order to implement the technical changes that would permit customers to choose their NLD (and ILD - international long distance) operator, and not be bound by their access provider's choice. However, for several years, most of the operators refused to implement this order under various pretexts, usually raising technical objections and creating the scare that customers would have to "pay a lot" for it. TRAI tried following up, but soon gave up. A couple of years later (about a year ago), it formally dropped the plans for implementing CAC/Pre-Selection but permitted the use of Calling Cards by long distance operators to access customers directly. A year later, after doing the rounds of the DoT, this has now finally been implemented as an amendment to the NLD and ILD licences.

Why is this at all important?

First, from a customer perspective, NLD and ILD services are still a monopoly of the mobile operator. While it is true that customers have choice of several mobile operators, that is not the same as providing choice for long distance services. In particular, in the absence of Number Portability, no customer is going to give up the phone number to get a better long distance tariff plan. Given that spend on NLD and ILD is a considerable proportion of the total call spend, customers have the right to choose their operator. It is a well-established practice world-over, and it is even a surprise that it took seven years for this to be resolved in India.

Secondly, from a pure contractual perspective, operators acquired NLD and ILD licences and made huge investments on the basis of a regulatory structure that would have enabled them to access the market in a particular manner. By changing the regulation post-facto (or by not implementing it for years), the regulator and the Government have adversely affected the investment decisions. On a stand-alone basis, most of those business plans are nowhere close to realization; of course, growth of captive subscriber base - much more than that anticipated in 2002 - has compensated integrated operators, but policies and investments cannot be based on anticipation of accidents or good luck.

What will be the impact?

For customers, the impact on NLD call rates might not be dramatic since tariffs have fallen quite a bit and are almost on par with local rates. But, competition from calling card operators might give rise to some innovation in bundling and customization, beyond just pure price cuts. In ILD, the impact is likely to be much more. Access providers have typically premium-priced international call rates, even though the wholesale cost of carrying the call is much less. There is a high likelihood of ISD call rates dropping with the advent of calling cards, particularly to competitive destinations like the USA. Business customers can also look forward to interesting packages and bundles in the near future.

So, later, much later, than we had anticipated, and in a partial manner (no CAC, only calling cards), Indian customers will have choice of long distance providers... soon. I hope.

Friday, August 21, 2009

Is Indian Broadband Overpriced?

New World of Communications: India Broadband: Under-fulfilled Potential

Price of Broadband services, it appears from the poll & comments I heard from various people, is the biggest inhibitor to adoption of the service in India. So, let's examine the pricing issue here.

Since pricing is directly linked to what is being purchased, we need to make some assumptions.

Mr. Novice has recently purchased a computer and wants to figure out what the Internet is all about. He is quite OK with 256 Kbps onwards speeds and does not need more than 2Gig downloads per month. On the other hand, Ms. Savvy has been on the Net for long and has recently got a office laptop that she wants to connect from home. In addition to work stuff (email mostly), she is also looking forward to improving her online social networking, as well as getting some latest content for her iPod. She would like at least 512 Kbps (perhaps more) and expects her data transfer to be about 5Gig a month. Finally, Master Gamer has just convinced his father to get the home PC connected to the Net, and can now avoid those trips to the cybercafe for his dose of WoW. He knows all about Internet speeds and service levels, and prefers an unlimited connection of at least 1 Mbps; his only concern is that he lives in a distant suburb of a mini-metro.

Based on my evaluation of various service providers and tariff plans, I would recommend the following choices:

1. Mr. Novice is better off taking a 256K DSL connection on his landline at an additional cost of Rs 500 (total about Rs 600 with voice). If DSL were not available, the next best alternative would be a data card (not 3G) with a plan cost of about Rs 700 per month, but an upfront CPE cost of about Rs 1500.

2. Ms. Savvy could take a 512K DSL connection or a fixed WiMax connection (if DSL were unavailable) at about Rs 1000 to 1300 per month; alternatively a 3G data card would have an upfront cost of about Rs 2000 to 3000, and a monthly charge of about Rs 1000 with the added advantage of mobility for the laptop.

3. Master Gamer would be lucky to get a DSL or Fiber connection at his home; his only option is likely to be a fixed WiMax 1Mbps connection (a 3G data card could work but may not give him the assured high speeds that he requires for gaming). This would cost nearly Rs 2000 per month for unlimited data transfers.

First of all, it is not at all easy to determine what is the appropriate pricing / plan available from service providers. While there is value in choice, too much of it can also lead to confusion.

Now, let's compare the price-points with other benchmarks. I first checked Singapore and USA, but most operators in those markets had plans of several Mbps... ahem, not easy to compare our 256K plans. I looked towards China next (our favorite comparison) but I had to go back a couple of years to a period when 512kbps was the most popular connectivity there. A typical 512Kbps unlimited plan cost about Rs 1000; current prices are at similar levels but for more bandwidth.

In 2007, according to this article, average prices in North America & Western Europe for 4Mbps speeds were about Rs 2500 per month; while tariffs are not necessarily proportional to bandwidth, this should translate to about Rs 600 per 1Mbps. Eastern Europe had prices of about Rs 2000 per 2Mbps, or Rs 1000 per 1Mbps.

(Note: these are are just rough calculations using public info for benchmarking, directionally correct, I believe.)

From the above, it is clear that tariffs in India are more than what many other markets have, but there is one big difference: all these markets have either a very strong DSL market or have a competitive cable industry (in some cases like USA, both). If we look at a market like South Africa that has very high mobile/wireless penetration and low fixed line coverage, we find that price-points for 3G data cards are at about Rs 1500 per month, which are not dissimilar to the India plans.

Prices in India are perhaps somewhat higher than what they ought to be, but not by a large margin, given where we are on the adoption curve/scale and infrastructure availability. So, while price is stated by most as the inhibitor to adoption, the real issue must lie elsewhere. Otherwise, every market that started with high tariffs (including Indian mobile) should have stalled like Indian Broadband has...

We will continue looking for answers...

Wednesday, August 19, 2009

India Broadband: Under-fulfilled Potential

For years, we have been talking about the upcoming Broadband revolution in India, yet it remains an elusive dream. We, of course, find fault with Government policies on fiber roll-out and spectrum auctions yet it is not clear what is inhibiting customers from adopting Broadband. There are instances where Broadband is available (from one or more operators), however, network fill-factors are quite low, abysmally low in some cases. "Availability of last mile" cannot be the issue in such circumstances... there has to be something more.

Over the next few posts, I will try to uncover the customer perspective towards Broadband services, service providers and adoption-related issues. I will use a few snap polls to answer specific questions as well as conduct a few focused discussions with existing and potential customers to get their perspectives. Your inputs through comments would, of course, be most welcome.