Let Neutrality not lead to Mediocrity

Recently, Thomas K Thomas of Hindu Business Line wrote an article regarding the Net Neutrality issue that is being debated in several countries and was introduced into the Broadband debate in India by Google. While TKT was kind enough to quote my views, there's only so much one can express in a quote. Therefore, this post to elaborate on the quote:

But Indian telecom operators are not in favour of any such regulation.  Srinivasa Addepalli, Senior Vice-President, Corporate Strategy, Tata Communication, says that more than it being a question of principles it is a commercial issue. “It is fair that consumers should have unrestricted access to the Internet. It is also a fact that telecom operators are investing billions of dollars in creating infrastructure. The Internet is at the core of private enterprise today; network operators, like the content/service providers, should be allowed to develop their commercial models without additional regulatory constraints,” Addeppali says.

There was a twist in the Net Neutrality debate in the US with Google and Verizon announcing a joint proposal and with AT&T jumping into the fray with its support of said proposal (or at least one key element of the proposal). Proponents of an open Internet accused Google of a sell-out and Google responded with an analysis of myths and facts related to the proposal. (By the way, I liked this reasonably objective teardown of the Google-Verizon proposal).

Whatever the outcome of the current round of debate on Net Neutrality proposals, I guess there are some key issues that one needs to consider here.

Is the Internet a public good or a private enterprise?

What might have started out in defence and academic circles, is now the primary platform for knowledge, collaboration, commerce, entertainment, and more. On one hand you have the largest encyclopedia in the world that is user-managed and runs on donations, and on the other you also have the most valuable brand in the world, both of which owe their existence to the Internet. The late Dewang Mehta of Nasscom once famously included Internet bandwidth as a fundamental right of all (Indian) citizens and rightly so. But it is not just information or governance that the Internet provides us now and nor is the Internet "free". Content providers and commercial enterprises are free however, to charge their customers (or not) for access to their services as they deem fit. There is no regulation that determines how much a song download should cost or what the pricing of a hosting plan should be. You can sign up for a free, 'lite' version or upgrade to a pricey, 'premium' version. It's a competitive market out there, and a reasonably free market.

Is Internet Access a monopoly or a scarce resource?

In the early days of telecom (30 yrs back in developed markets, 5-15 yrs back in several emerging markets), customers had no choice, whether it was voice services or data connectivity. Regulators were introduced in most of these markets to break incumbent monopolies and encourage competition. Even until a few years ago, customers had very few choices for broadband connectivity, one or two service providers at most in any market. But that has changed. Wireless broadband access has emerged as a reasonable alternative to wireline, particularly in developing markets that have had very poor wireline in any case. Most markets have at least three such providers; extreme cases like India have 6-7 (and growing) wireless operators. Of course, these broadband networks (both wireline and wireless) have failed to keep pace with the exponential growth in Internet traffic demand but that does not reflect scarcity or monopoly behaviour. 

Regulators, I believe, should aim to make themselves redundant. That can only happen by encouraging competition, not just in terms of numbers of players, but also ensuring that each of the players has the requisite resources to be an effective competitor. Regulations should define the minimum acceptable performance levels, for customers and competitors; beyond that, effective competition should take care of creating sufficient customer choice.

Broadband Networks: No longer commodity utilities

For long, telecom networks have been called the pipes, equating them with other utilities like water pipelines and electric wires. Broadband networks, as critical to human existence now as the aforementioned utilities, have features that set them apart from the other pipes. For one, as mentioned earlier, they are no longer primarily provided by local or national government bodies and are not monopolies. In addition, the "content" that flows through them is also varied, competitive and unregulated (unlike water or electricity), The highway example is an interesting one, with several similar characteristics to the broadband network. As one of the industry experts in TKT's article says:

It's like any toll road in the country where every type of vehicle gets to use the expressway but the toll charges vary depending on the type of vehicle.

Everyone can use the roads to travel as they please, however, there are several rules that govern how traffic flows on the roads. There are certain roads (highways or expressways) that place limitations on who (or what type of vehicles) enter the road and charge them in a differential manner. Traffic on these roads is regulated in different ways; certain types of vehicles get priority to use fast lanes and some have to stick to the slower ones. On some roads, the authorities may mandate some capacity to be reserved for public transport by creating special bus or taxi lanes, even if it slows down the rest of the traffic. Finally, in specific circumstances, private roads can be built and the owners determine what they are used for and how. What do we gather from this:

A) Rules of what is allowed and what the charges are should be clear to the users (and to the regulators)

B) Differential treatment to users is permitted. In the light of (A), users can choose what they prefer. (By the way, roads are a near monopoly or maybe duopolies; telecom networks, we have established earlier, are more competitive than roads)

C) Certain capacity of the 'public' infrastructure can be reserved or set aside for critical usage or public interest. 

D) Customers can, in certain circumstances, negotiate and build private infrastructure and use it the way they want.

As a Broadband customer, I would be willing to pay a premium for a network that understood my priority applications and provided a superior performance for such core services, even at the expense of other stuff. For instance, I would surely like to access my enterprise applications (Intranet, Mail, etc.) much faster / better than say, a YouTube video. A doctor providing remote medical assistance would surely want her tele-medicine application to not be choked mid-way through the procedure. On the other hand, a movie junkie (perhaps the doctor, on vacation) would want nothing more than super-fast download of the latest iTunes movie (in HD). Should we let this be left to fate (or best effort, in Internet / telecom parlance)? I say, No. Internet service providers need to make their networks more capable, to discriminate intelligently and individually across different types of content / applications. In a world where our lives are going to revolve around the cloud, networks have to become more than dumb pipes. Intelligent networks will create more value to the customers as well as the content providers. 

Maybe most customers do not want such intelligence. Maybe most content providers do not care about it. But for the few that want the choice, let regulation not take it away and relegate them, in the name of neutrality, to an "average" experience.

I welcome your comments and feedback, particularly because the "Net Neutrality" debate is still not defined well enough in developing markets.

Posted via email from Global Gyan

Broadband in India - Praying for Better Times

(This article, in this form was published at PuneTech.com on Jan 11, 2010)

India has about 7 million broadband subscribers, broadband, which by the way is defined in India at >=256Kbps: just about enough speed to let you experience the new, emerging Internet. The Indian Govt. had declared 2007 as the year of broadband, and a target of 9mn subs was set for the year. Even two years later, we are way behind! Just so you know, China has over 80 million broadband subscribers.

Why is a nation such as ours, IT superpower and aspiring global superpower, so poor when it comes to broadband penetration?

Very Poor Fixed Line Infrastructure

Most countries that have a high broadband penetration have (a) high wireline penetration, and / or (b) robust cable infrastructure. Simply speaking, if you do not have the basic infrastructure, you cannot provide a superior service such as broadband. Unfortunately for us, neither of these two conditions exist in India.

There are about 37 million fixed lines, of which only about 30% – about 10mn – are even capable of providing broadband. In recent years, there has been almost no investment in increasing and/or improving the quality of fixed line infrastructure. The country has added more than 400million wireless connections in the last 8 years, as against none in the fixed line space. While lack of focus on wireleine by the incumbents, BSNL and MTNL is an important factor, the blame must really be borne by the regulatory and policy regime which has not created an environment to encourage competition (and thereby, investment) in fixed line infrastructure / services in the country. The TRAI had recommended unbundling of the local loop as a step towards limited competition, but as has now almost become a norm, the TRAI recommendations were not accepted by the DoT.

Less said the better about cable infrastructure. It is a highly fragile and completely unregulated cobweb of many thousands of independent networks. It will take an investment of at least Rs 200 billion to upgrade the cable last mile to make it 2-way and broadband capable. Nobody, it appears, is willing to take that challenge up.

No Encouragement to Competition

It is well-recognized that the mobile revolution in India has been driven primarily by competition: at least 6-7 operators across the country. Private operators were licensed years before the incumbents were allowed to enter the mobile market; several steps have been taken towards creating a level playing field for all the licensed mobile operators. On the other hand, in broadband, there is absolutely no policy measure to encourage private operators to enter and compete; this in spite of the fact that none of them have any last mile infrastructure to speak of, and therefore, require considerable support in the initial years.

The incumbents that are riding on public-funded fixed line infrastructure have – in almost a predatory manner – dropped tariffs so much that India has, at the same time, the lowest broadband ARPU and the poorest broadband penetration in the world! Wireless broadband (read 3G & WiMax) is generally expected to become the competitive alternative – but there has simply been no urgency in creating the policy environment to encourage wireless. Spectrum â the essential ingredient to rolling out wireless networks â has not been made available for Broadband; the proposed spectrum auctions have been postponed several times in the last 2 years.

Can something be done to salvage the situation?

Unfortunately, in the short term, I see no option for the customers and private operators. During 2010, the incumbents will strengthen their dominance in the broadband market (for whatever it is worth); private operators will half-heartedly roll out parallel copper / cable networks and will be plagued with quality issues. If spectrum auctions happen in Jan-Feb 2010 as currently envisaged, 3G and WiMax services should become available in most metros towards the second half of the year.

The Broadband market will have to wait till 2011 for true competition, high quality and innovative services – available in all major towns and cities. But the rest of the world will not stay still. Singapore is experimenting with getting 100Mbps to every home by 2012; we hope to get to about 1Mbps in the top 100 towns by then.

Every year, since 2005, I have been hoping that the next year would be the year that broadband becomes widely available in India. I have been proven wrong before; I pray that things change this time around.

2009: Sad Year for Indian Telecom; 2010: Unlikely to be better

I spent the entire Oh-Ohs (00's) decade working on telecom. NTP '99 heralded the real opening up of the Indian telecom sector and every spare hand was diverted to telecom... and boy, has it been an exciting ride! More than 500million subscribers were added during this period; we have seen tariffs hit all-time lows; 8 new submarine cables connected India to the rest of the world... the achievements are endless to recount here.

However, I am saddened by the manner this decade ended. 2009 has to count as the year that promised so much but delivered almost nothing. The most talked about disappointment, of course, was the postponement of the 3G & BWA spectrum auctions. What is more disconcerting was that major decisions that would have created true customer choice - Number Portability, MVNO and Internet Telephony - were put off, on some pretext or the other. Even the one decision (this year) on Calling Cards could not be implemented because the terms and procedures are yet to be finalized.

Most people are happy about the entry of new (mobile) operators and consequent reduction in tariffs. I am not so sure, though. Adding new (facilities-based) players to a reasonably crowded market is not necessarily in the best interest of the industry or the customers. While it does result in some short-term pricing benefits, the common resource used by all of them is scarce spectrum -- the more fragmented it gets, poorer the quality of service. So while we have so-called lowest tariffs, we also have poor service levels. Instead, the Government had the opportunity to introduce new forms of competition (& customer choice) through MVNO and Internet Telephony, but dragged its feet on those decisions.

Telecom policy-making was at its worst this year, with no clarity on who was responsible and in what direction we were headed. What we needed was an NTP 2009; what we got was EGoM meetings and TRAI consultation papers.

2009 saw Bharti losing out an opportunity to become a global leader in the mobile business; in fact, none of the Indian companies could capitalize on the recession (& low valuations) in developed markets to make any large, bold moves/acquisitions. Intense tariff pressures in the domestic market dented their valuations - most analysts reacted with a Sell on the Indian telecom sector, probably for the first time in the last 5-8 years.

Will 2010 be different? I do not see much cause for cheer: the fundamental problem around policy-making is not likely to go away in a hurry. 3G & BWA auctions might happen in early 2010 (only because the Government is counting on the auction money in this financial year!), but networks/services would be available only towards the end of the year, in a limited manner. The camps on both sides of MNP, MVNO and Internet Telephony are strong and therefore, I expect status quo will prevail - for all practical purposes.

It will feel good to be proven wrong.

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.

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.

Evaluation:
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.

Conclusion
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...

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.

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.)

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.)

Emerging Markets Calling...

The Indian telecom market has not only grown at a scorching pace in the last 5-6 years but also created some world-class companies that have now emerged as potential global challengers. There is now great level of excitement amongst investors, customers and bankers worldwide about the next moves of the Indian telcos. Whether it is mobile mergers or submarine cable builds or Wimax investments, India appears to be in the thick of things.

 

Over the next few years, growth in telephony will be driven by emerging markets in Asia, LatAm and Africa. These markets, with low teledensities, have been using wireless / mobile technologies to leapfrog several generations of telecom.  Emerging markets are also leading the growth in data and bandwidth consumption partly driven by increasing Broadband penetration but more importantly on the back of growing enterprise connectivity. These markets, typically growing 6-10% p.a., are now attracting attention from MNCs as growth or revenue opportunities, and not just as cheaper alternatives for back-office functions.  We are also seeing the rise of the new multinationals, from India, China and other rapidly developing economies, creating the reverse, outbound flow of investment. An obvious consequence of this economic activity is the need for improved cross-border communications and networking services. 

Some of the Indian telcos like Tata Communications made significant investments in global submarine cable networks at a time when most western telcos, smarting from the excesses of the previous decade, stayed away from the game. The previously under-supplied regions of Asia, including India and Middle East and Africa are now the hot-beds of cable laying activity, with Tata Communications alone involved in at least half a dozen projects simultaneously. We are also now moving up the value chain through investments in new networks (MPLS and Ethernet) and the creation of managed services like managed security, hosting and collaboration, with investments of several billions of dollars. Not only do we have the advantage of growing local businesses, we also bring with us a distinct knowledge of operating in the complex business, regulatory and policy environments of the emerging markets. As Indian companies and multi-nationals seek to build and expand their presence in this new world, they have greater comfort in partnering with those that have global capabilities but are locally superior. 

Indian telcos may have the disadvantage of a relatively small home market - the Indian enterprise market is about $5Bn in size compared to most western markets that are 4 to 20 times larger. Being small and late to market however is possibly our biggest strength. Determined to make a mark and without the burden of legacy networks and systems, we can seek to successfully take on the larger, more established and usually bureaucratic competitors. In particular, as relative new entrants, we can focus on innovation around new services capabilities and commercial models. At the same time, ownership of the core transmission and IP infrastructure provides us the ability to create distinctive network or cloud based managed services. Our managed security offerings, for instance, combine superior technology platforms with the strength of a global, Tier-1 IP network. Similarly, the ownership of a global MPLS network and a unique private plus public room business model have translated into a world-leading managed Telepresence service.

Indian telecom companies are not yet amongst the largest in the world, perhaps we will never be as large as some of the big players from the US and UK. However, in several segments and markets that have the highest growth potential in future, one can safely expect us to play a leading role. As developed markets age and slow down further, India and other emerging markets will become the center of gravity for the new world of communications. We can proudly say “hello” to that. 

(This article also appeared in the Annual issue of Communications Today in October 2008.)

India@75: What can India Inc. achieve in 15 years?

Vision has been defined by some as the setting of bold and audacious goals. Prof. Prahlad has indeed set India some challenging goals for 2022, one amongst them being ‘30 of Fortune 100 from India’. Given that today not a single Indian company makes it to the list and only 6 feature in the top 500, it is indeed an audacious goal. At the same, it is not unachievable. Five of the top 20 global companies in 2008, by market capitalization, are already from emerging markets. Fifteen years to 2022 is a long and adequate time in today’s world for Indian companies to break into the Fortune 100. 

One of the major reasons cited for Indian companies not being large enough compared to global peers is the relatively small size of the Indian market (the US pet food market size is as big asIndia’s entire FMCG industry, etc.). The trick, however, will lie in identifying opportunities that can leverage our inherent strengths and the rapid economic growth that we are experiencing. By 2022, India would be the third largest economy and will contribute nearly a billion strong workforce to the world. The market should provide adequate (volume) scale to create globally leading business models. Even today, the Indian mobile market is next only to the Chinese, in terms of size, and is growing faster than any other market worldwide. An additional challenge inIndia is to consolidate what are typically highly fragmented and unorganized markets. Leadership, in the true sense, in the home market is essential to achieve the scale that the Indian market can provide. Simultaneously, we also have to be prepared to access and compete in international markets if we truly want to achieve global leadership. 

The key task for Indian firms is to leverage the power of the billion in creating globally competitive businesses. In order to eventually become globally leading, we need to first focus on benchmarking ourselves to the best in the world, on service level, cost and productivity measures. This is important for Indian companies so as to even remain competitive in the domestic Indian market which is seeing the entry of several international players. Tata Steel became the world’s lowest cost steel manufacturer several years before it commenced its global ambitions. 

Being globally competitive will not be sufficient to achieve leadership. Successful firms lead through innovation, backed by open organization structures & culture and significant investments in research. We lag on both counts, more so on the latter. We have relied far too long on licensing technologies, reverse engineering and services models; now is the turn for us to create products, technologies and business models that will be replicated elsewhere. If over 80% of global incremental mobile adds are expected in emerging markets, who better to lead the implementation of profitable, low cost mobile business models than Indian operators? Why cannot India, a broadband starved country, drive the adoption and lead the growth of WiMax and other wireless broadband technologies? Thus, Indian companies are better advised to seek and succeed in opportunities in other growing, emerging markets rather than rush to the large but static markets of the developed world. 

The next few years will be at the same time challenging and full of opportunities. Several markets, including USA and UK, are reeling from economic slowdown and financial crises. Consequently, most MNCs are seeking to grow into India (and other emerging markets) making these markets more competitive. We have to defend our domestic turf, not by creating entry barriers but by taking on global players head-on. At the same time, weak global markets are throwing up interesting acquisition opportunities at attractive valuations, opening up new markets in USA and Europe. This will enable our companies to also enter and take the fight to the global markets. Indian companies will have to master this block (at home) and tackle (abroad) strategy to win in the emerging world order. 

So, can we get to 30 of Fortune 100 by 2022? My bets are in favour of us succeeding. BCG’s New Global Challengers report has already identified 20 Indian companies that have the potential to challenge and change the world. We have to just find ten more.

(A version of this article appeared in the Outlook Business June1-14, 2008 issue.)

Fix the Fixed Lines

(This was written about two years ago, but the suggestions are still valid and need to be implemented.)

I have not had a fixed line at home for several years now; my wife and I have four mobile phones between us and never felt the need for a fixed line at home. I thought, like many predict, that fixed lines would soon die. But just today, I applied for a fixed line at home. Not a fixed wireless, mind you, but the copper line that is uncharitably referred to as the plain old telephone service (POTS). 

Why did I need to take such a "retrograde" step? There were several reasons:

1. The quality of the wireless network is erratic. I am unable to depend on my mobile phone for long phone conversations, particularly official conference calls. With flexi-work and international calls at late hours, the need for a reliable phone line at home has become a must. 

2. Mobile call rates are still higher than that of fixed lines. Whether that reflects relative costs or not, it is surely true that calling from a wireline, particularly at high usage levels, is cheaper. My employer might be footing the bill, but still, why should I pay more when I call from a fixed / pre-determined location (home or office).

3. My mobile phone provides service to me as an individual, it can be shared only when I am at home. So if there is someone at home who needs to make a call when I am not home, say my parents or my child or a domestic help, the fixed line is a shared communication service. This is true even at the work-place where everyone does not necessarily have a mobile phone.

4. Finally, I must admit that I just like the convenience of using the fixed phone - the big black box which nowadays can pack in a lot of intelligence. While I need my mobile to be slim and light to fit into my shirt pocket, the form factor is not convenient for long conversations, particularly when you are in a fixed location. In spite of hands-free devices and bluetooth, voice clarity is still suspect on most mobile phones, even the high-end ones.

Just so you do not misunderstand, I am not saying that mobiles are in general inferior to fixed lines; just that in certain contexts, the POTS delivers greater value than a wireless service.

If there is, as demonstrated above, a reasonable case for the continuation of the fixed line at home, why is it that only about 15% of Indian homes have a fixed phone? It cannot be because of affordability: twice as many homes have cable TV at home, paying almost the same charge, every month. Further, data shows that the average # of mobile phones per home (in homes that have a mobile phone) is less than 1.5; given that household size in India is 4 to 5, there is clearly a gap in telecom coverage.  Lack of competition in the fixed services space and the fixation of policy makers on wireless growth has completely choked the growth of wireline.

Let me correct that to lack of effective competition. There are a few access providers rolling out wireline networks - cherry-picking the enterprise locations and high-end homes. But more interestingly, some ISPs have also rolled out various forms of wireline (cable, fiber, copper) networks. However, none of them get any encouragement to continue their roll-out. There are no clear policies for RoW permissions - every municipality, authority and building society charges its pound of flesh for allowing network creation. Having created the network, with a very high capex per sub (usually Rs 15,000 to 25,000 per subscriber), the ISP can only offer Internet and limited Internet Telephony services. They do not have the opportunity to offer basic services like voice, which even today contribute a large portion of telcos' revenues globally. Obviously an ISP cannot hope to compete with the incumbent , while addressing just a fraction of the customer revenue but with the full (or more) capex.

What needs to be done

* Allow ISPs to migrate to new category of access license: Unified Access License - without spectrum, for a nominal entry fee. On terms similar to UASL, allow ISPs to offer access services, including full Internet Telephony.

* Encourage competition in fixed line services by mandating local loop unbundling - perhaps starting with all non-metros.

* Legislate free RoW for all access licensees (recovering just the actual re-instatement charges) and mandate sharing of existing ducts - on cost recovery basis - by all licensed operators.

Cheers!

Creating a National Broadband Access Network

(This was written nearly two years ago; the suggestions remain valid and still need to be implemented.)

Singapore is considered a highly developed country and is used as a relevant benchmark for India, at least in the telecom sector. The Singapore Government has initiated an interesting and rather ambitious program to make the city nation the leading knowledge hub in the world. The masterplan called iN2015 (Intelligent Nation 2015), is a ten year blue-print to harness the power of infocomm for the nation (www.in2015.sg). One of the major initiatives within iN2015 is to build a Next Generation National Broadband Network (NBN). Just look at some of NBN's parameters: reach to 95% of all postal addresses, 100 Mbps capacity at each home / office on day 1 to be scaled upto 1Gbps in a few years' time! 

The most interesting thing about NBN is that it is being driven by the regulator / licensor, Infocomm Development Authority (IDA) as a public-private partnership. The model is simple. The IDA intends to license an operator to create a high speed access network as an equal access, wholesale infrastructure. All service providers would be able to lease this access network and offer innovative content and applications to their target segments. Considering the targeted bandwidth, only a fiber based solution (FTTX) would be feasible. A global search for the appropriate partner(s) in this initiative is underway, expected to be completed by the middle of 2007. 

In stark contrast, we have no such plan for the future, in fact, not even a discussion to arrive at such a plan. By defining Broadband at 256Kbps, we have already set our sights low. By treating Broadband Wireless as the panacea, we have converted a short-term bridging technology into our long term goal. By letting everyone do their own thing, we have ensured that the investments that are required to create a robust, national infrastructure are sub-optimally duplicated by several players.

India is a much "tougher" country than Singapore from a broadband perspective; the sheer geographical size of India that is required to be "broadbanded" is many, many times that of Singapore. More the reason why we need to plan today, if we want to be anywhere comparable in ten years' time. 

What needs to be done

* Accept that true broadband will require a fiber-based infrastructure, even in the last mile.

* Develop a plan to create a National Broadband Access Network; select an operator / consortium to roll-out the network in phases, over the next 5 years. The NBAN operator should be a pure wholesaler (similar to IP-2 license) and cannot directly be a service provider. The NBAN operator must get automatic and free right of way across the country, and could be selected on the basis of lowest subsidy required for a target tariff.

* Release spectrum in 2.5GHz and 3.5GHz bands immediately for WiMax roll-out during 2007 - this will enable basic broadband services to be introduced in a ubiquitous manner.

What Ails Broadband in India?

(This was originally written two years ago; nothing much has actually changed since then!)

1000,000,000 people

700,000,000  young people

600,000,000 literate people

180,000,000 telecom subscribers

100,000,000 with higher education

60,000,000 cable pay TV homes

40,000,000 Internet users

... and just about 2,000,000 broadband subscribers. Broadband, which by the way is defined in India at <=256Kbps: just about enough speed to let you experience the new, emerging Internet. The Indian Govt. has declared 2007 as the year of broadband, and a target of 9mn subs has been set for the year.

Just so you know, China has about 75 million broadband subscribers -- 60% of its Internet subscribers have broadband.

Why is a nation such as ours, IT superpower and aspiring global superpower, so poor when it comes to broadband penetration?

1. Very Poor Fixed Line Infrastructure

Most countries that have a high broadband penetration have (a) high wireline penetration, and / or  (b) robust cable infrastructure. Simply speaking, if you do not have the basic infrastructure, you cannot provide a superior service such as broadband. Unfortunately for us, neither of these two conditions exist in India.

There are about 40-odd million fixed lines, of which only about 30% - about 10mn - are capable of providing broadband. In recent years, there has been almost no investment in increasing and/or improving the quality of fixed line infrastructure. The country has added 140mn wireless subscribers in the last 5 years, as against just 5mn wireline subs. While  lack of focus on wireleine by the incumbents, BSNL and MTNL is an important factor, the blame must really be borned by the regulatory and policy regime which has not created an environment to encourage competition (and thereby, investment) in fixed line infrastructure / services in the country. The TRAI had recommended  unbundling of the local loop as a step towards limited competition, but as has now almost become a norm, the TRAI recommendations were not accepted by the DoT.

Less said the better about cable infrastructure. It is a highly fragile and completely unregulated cobweb of many thousands of independent networks. It will take an investment of at least Rs 200 billion to upgrade the cable last mile to make it 2-way and broadband capable. Nobody, it appears, is willing to take that challenge up. 

2. No Encouragement to Competition

It is well-recognized that the mobile revolution in India has been driven primarily by competition: 6-7 operators across the country. Private operators were licensed years before the incumbents were allowed to enter the mobile market; several steps have been taken towards creating a level playing field for all the licensed mobile operators. On the other hand, in broadband, there is absolutely no policy measure to encourage private operators to enter and compete; this in spite of the fact that none of them have any last mile infrastructure to speak of, and therefore, require considerable support in the initial years.

The incumbents that are riding on public-funded fixed line infrastructure have - in almost a predatory manner - dropped tariffs so much that India has, at the same time, the lowest broadband ARPU and the poorest broadband penetration in the world! Wireless broadband (read WiMax) is generally expected to become the competitive alternative - but there has simply been no urgency in creating the policy environment to encourage wireless. TRAI has finally issued its recommendations - suggesting that WiMax be implemented in the 3.3 - 3.6 GHz bands while the rest of the world is moving towards 2.5GHz. There is no clarity when these recommendations will be accepted and subsequently, implemented. One can guess that it will be late 2007 before any real competitive action will begin in broadband. Meanwhile, BSNL's juggernaut will continue - they have now announced 2Mbps speeds (up 4 times from 512 Kbps) for the same tariff.

Can something be done to salvage the situation?

Unfortunately, in the short term, I see no option for the customers and private operators. During 2007, the incumbents will strengthen their dominance in the broadband market (for whatever it is worth); private operators will half-heartedly roll out parallel copper / cable networks and will be plagued with quality issues. Everyone, including BSNL, will experiment with WiMax, and perhaps by the end of the year, commence full-fledged network roll-out.

The Broadband market will have to wait till 2008 for true competition, high quality and innovative services - available in all major towns and cities. But the rest of the world will not stay still. Will the gap between India and other markets such as US and Singapore widen? I am afraid, yes.

What a depressing thought to end 2006 with. Let us change that. My next post, hopefully before this year ends, will have some suggestions on medium and long terms measures on what can be done during 2007 to ensure that we catch up with the rest of the world before the end of this decade.

Cheers!