One Store Too Many

Its been months since I last wrote something and what an uneventful few months it has been, with not much happening in the Indian Telecom scene thanks to the general elections. The International scene is equally dry. Barring the broadband stimulus package announced by the Obama administration, there has been not been much news which can be analyzed with great interest. But what has now become almost boringly predictable is the opening of app stores by every vendor and off late, every carrier, regardless of the size.

Mobile applications have been around for more than half a decade - a concept championed by apple. The volumes, however started building up only since the last couple of years and most, if not all of the credit for this goes to the smart phones. The Apple iPhone’s & the appstore success has transformed the mobile industry. In multiple industry shows, handset manufacturers enmasse started announcing their intentions to offer multimedia handsets and complementary app stores to rival the iPhone juggernaut. The launches are justifiable. Despite having smart phones on the market for years, Nokia, RIM, Palm and Windows have struggled to garner the kind of momentum that Apple achieved behind its flagship device - the iPhone, and its app store. Apple stands to generate revenue beyond just hardware sales as it earns around 30 percent for each paid application purchased. With more than 1 billion paid and free applications downloaded in just nine months, Apple’s competitors recognized this continued revenue opportunity post hardware purchase.

Given all the hoopla around app stores the carriers who always hated being dictated by OS makers, but could do nothing about it, started making noise that they will soon join the fray. The operators recognise this opportunity as a natural evolution for their product cycles. With plump customer base (customers are more familiar with carrier brand than an Ovi Store or Android Marketplace) and unbarred network access, they are in naturally advantageous position. Already there is a talk that operators will differentiate their offerings by providing only certified content and giving customers an option to test the app before making them pay for using the full version. This really for them as some say, a mechanism to turnaround their dumb pipes.

But with so many stake holders endorsing the concept, are the app stores too big to fail? Well the concept itself will not fail but most of its believers will. From fashion to home automation to games, almost everyone is getting into apps. The key concern is many players are entering the app business more to ride the hype without understanding what the consumer wants and what resources are needed to manage this business. In short there are more players out there who are getting into a business they know little about. Being successful in this business requires scale, a global reach, a deep product catalog and a seamless way to deliver content to consumers quickly and cheaply. Only specialists and those who partner the specialists will eventually survive in this ecosystem. So all those developer conferences apart, a trend will emerge where developers will side with a fewer more serious set of big players citing scales and cost efficiency, throttling the smaller less serious ones to death.

Here & Abroad

Who ever said life in a tourist destination is all comfortable, needs to look no farther than my schedule. Expectations from a break from life in India was soon short lived when reality dawned upon me that it is still the very same people who drive the industry here as well. Sometimes you wonder where the slowdown really is - except a sizeable cut in the pay cheque and lost time with family, no where else has slowdown affected us Asians. If there has been any better demonstration of the century belonging to Asia, the resilience with which it has tackled slowdown has to be one among those. The bears have been overwhelmed by the bulls as far as telecom is concerned - the latest to add to the bull power is the news that India has just clocked 50% more net subscriber additions than ever achieved (15Mn users-month on month).

Reliance with its nationwide GSM launch added close to double the customers added by Bharti for the month of January 2009. After months of finishing distant second to Bharti in subscriber additions, Reliance looked like a company on steroids adding close to 5Mn users in one month. It is a mad rush at the moment with the core focus for the current set of players lying on customer acquisition alone, before the new ones enter the market. The new ones on their part are focused on increased liaisoning for faster network roll out. With teledensity close to 35%, and policies for MVNO & Number portability in the pipeline, more such "15Mn" months cannot be ruled out. With general elections round the corner, 3G auctions may still take a while to kickoff and the initial acceptance of 3G services from BSNL & MTNL may be limited as both control less than 9% of the total market. But with increased delays in 3G auctions, government will also be expecting an proportionate increase in specturm valuations. With the current economic scenario and limited interest from foreign operators, the government on its part would be satisfied if the total revenues raised through the auction is adequate to cover the network roll out CAPEX for the Defense forces.

The situation in the other side of the globe is in stark contrast to its asian peers. With consumer spending taking a massive hit, most network operators are struggling to find capital to fulfill rollout commitments. Operator focus has gone back to value offering thereby avoiding the "nice-to-have's". But telecom is in a much better position to face the crisis than many other sectors like manufacturing or financial services because it was already on a robust growth path before the downturn. Going into this period of turmoil telecoms were in fantastic shape. To an extent, credit should also go to telecom slowdown in 2000. The bursting of the telecom bubble in early 2000 prompted the established players to retrench and have made themselves quite solid. Integrated operators with both fixed-line and mobile products are best poised to come out unscathed as they have a resilient business model and have the capability to offer bundled services, which seem to be the preferred flavour for cash strapped customers. As far as enterprise communications in concerned, Telecom/network IT has both advantages and disadvantages. The disadvantage is that all the talk about ROI easily dries up when the client top management sees nothing but an urgent need to cut costs. But the advantage is that a properly planned set of carrier contracts provides far greater predictability in costs than most other corporate expenditures - The entire game here is how to get clients locked onto long term carrier contracts.

Finally, regardless of which region you hail from, every economic downturn provides new opportunities for some in respective markets and I think this one will lead to introduction of disruptive technologies in the telecom space. Crises often provides a fertile environment for new technologies to gain a foothold and provides optimum time for companies to develop innovative solutions which eventually result in reduced cost and increased efficiency. We are already seeing a surge in take up of low cost netbooks which are roughly half the price of full feature laptops. We are also seeing increased focus from the integrated operators on Mobile broadband compared to wired operators in order to reduce CAPEX investments. As someone rightly said, real crisis rarely affects telecom because Crises come and go but people still need to communicate wherever they are.