December 26, 2008
Trouble in the Telecom Land
November 28, 2008
A Not-so-Lucky Mascot
October 18, 2008
That Sour Berry !!
September 30, 2008
The "Capacity" conundrum
August 30, 2008
Let bygones be bygones
The problems surrounding the cable industry seem endless at the moment. The industry is too fragmented to put up a meaningful fight against the DTH pack. What more can be expected when 80 million cable TV homes are being serviced by more than 60000 cable operators and 6000 MSO's. Worse, the top 3 of the industry - Hathway, WWIL and Incable address only 25% of the market with the rest being taken care of by (mostly) unorganized players. So easy is the entry in this market that someone with an approval from the head post master of that area can launch a service. Recently the Tamilnadu government launched its own cable network by the name "Arasu". One has to question the independence behind this decision of the government to become an MSO itself. Further to this comes the aspect of technology. 90% of the cable networks in the country are analog in nature. Meaning they cannot carry more than 90 channels (post migration to HFC) with the existing network capacity. It is fair to say that the industry is in the middle of a massive digitization drive converting their existing networks to IP - but only time will tell whether the efforts are too little too late. Promises of pay-per view, red-button, video on demand don't seem too far but the key question is when will they reach the critical mass. With a installed set-top box, a digital cable TV network promises to deliver more than 1000 channels. Arrival of DOCSIS 3.0 compliant cable equipments are definitely a step in the right direction for the industry. What we comfortably forget is that the cable operators hold a substantial chunk of Internet subscriber in the country. They are till date best positioned to leverage on their existing networks which already deliver video(TV) and data (broadband). With further evolution of FTTC or FTTN networks in India, they are the closest to making the Indian IPTV and triple play dream a reality - but the question still remains, who will drive this in a fragmented and cash starved industry. Some years ago, CAS implementation promised to bring in some much needed relief - but lack of political will seems to have put it on the back burner. But these are not all. Years of distrust have also created a lot of bad taste between the TV channel owners and the industry.
In the initial few years of cable TV revolution in India, most of the channels were available free to air. This was both to increase the viewer base and help in better penetration on the Cable industry. Once channels thought they had substantial chunk of the user base, they turned pay channels. Since the structure of the industry is such that the cable operator pays the channel owners on a per subscriber basis, what followed was massive under reporting of subscriber numbers. The cable operators under reported to MSO's who in turn under reported to the pay channel owners. This lead to frequent squabbles between them leading to blackouts ahead of key television events (often sports). In order to cover their costs, the channel owners further increased the rates of their channels which lead to more under reporting. Lack of proper audit mechanism for subscriber numbers is one issue that digitization promises to address. Although the top 3-5 players of the industry are showing interest keeping long term gains in perspective , the more fragmented part of the industry is unwilling to migrate to digital networks - more because of the lack of knowledge of the advantages that digitization would bring. Its not just the pay channels who are unhappy but newer channels who are having to pay astronomical carriage fee to these operators. An extremely skewed demand supply ratio has sent the carriage fee of all channels skywards. There are constraints on the number of channels an analog cable TV platform can carry. Pay channels are generally allotted the premium bands but every other day, there is a new channel vie-ing for the slot of a pay channel thereby pushing the fee upwards. One wonders what is prompting the business leaders to launch new channels left, right and centre when the bandwidth choc-a-bloc is not expected to clear at least until 2010. Here again digitization seems to be the answer. The Content owners are hoping that DTH penetration increases at a faster pace as they are confident that even after digitization of some cable networks, a major portion of the cable industry will still reel under analog platforms.
The flag bearers of the cable industry today are maintaining that they are on par with the DTH players as far as innovation is concerned and their industry today lacks only a face for selling their products. Dish TV has Shahrukh Khan whereas Tata Sky has Aamir Khan among a whole host of other small artistes. But the situation on ground suggests otherwise. As already mentioned, these operators already have a key pipe laid into people's homes through which they can push various other services - with minimal capital investments from the subscriber. Next comes the mobile opportunity - these operators will be under gross disadvantage if they dont leverage on the wireless opportunity when the 3G/BWA auctions get underway. By the time they get their act together and once the consolidation effors reach maturity, one whole line of business will be past them and they wouldnt even know when it went by. It is difficult to blame them because they need to address some much more important short term priorities which threaten their survival before thinking of the long term.
July 15, 2008
No free lunch in User generated content
This could well sway the odds in favour of some of the more specialised sites, who are able to focus on catering to the needs of different audiences. Bain Capital recently invested US$53 Mn in professional networking site LinkedIn which now values the site at more than US$ 1 Bn. Although this was far less than what Microsoft paid Facebook, but it is an indicator of things to come. Merely having appealing platforms for users to interact may not keep users glued to the sites. The focus has well and truly shifted to applications. This again brings us back to the same question. How profitable is social networking as a business model. One more testimony to this is the news released last week where google conceded that the revenues from its pet UGC video site, You tube will fall short of expectations.
June 27, 2008
Joining the crowd of the mortals
- iPod: It wasn't like iPod succeeded because there were no portable music devices in the market. Sony, Phillips etc were manufacturing them and were making good business out of it. What Apple did was to give a PC interface to a portable music device and create a hip looking device. Giving iPod windows support was single most important decision in iPod's PLC. Windows support helped iPod reach the masses - much beyond its initial kitty of MAC users.
- iPhone: Here again, Apple was a late entrant and the market wasn't short of mean mobile devices or manufacturers. The reasons for iPhone's success are again creation of a really hip looking device with a killer user interface. Visualizing (and developing) a mobile phone without a physical key pad left the competition and the target market spellbound.
Apple's products always had a distinct look and feel about them. Same is the true about its marketing and positioning strategy. iPhone's (for that matter all of its products) branding and positioning till date have been spot-on. Its products are known for their cult following. 3 Australia, the only other company which couldn't strike a deal for iPhone 3G has gone to the extent of launching a iPhone website and started a campaign allowing its subscribers to register interest in the iPhone, send SMS messages about the iPhone and provide comments which would influence the for the powers that be at Apple to see to strike a deal with 3. All this may be pointers to a real rosy scenario for iPhone 3G. But the factors which create doubts aren't about iPhone 3G but about Apple's overall mobile market strategy.
Below are some of the challenges that Apple (after the launch of iPhone 3G) will face in its overall quest for the mobile market.
- Apple iPhone is successful today even though there is only one product in its line because of its pinpoint positioning - appealing the youth with significant disposable incomes. By giving out iPhone 3G @ USD 199, its starts competing is segments dominated by traditional players who have the capabilities to derive better scale advantages.
- Apple just doesn't do enough R&D in mobile & wireless. Somewhere down the line, the Nokia's and the Samsung's of the world have better laid out product strategy for future technology evolutions. Already people have started talking about LTE and handset manufacturers have started developing handsets for LTE & WiMAX.
- iPhone 3G isn't going to yield much for Apple because ATT is retailing it at 199 USD. It will take some time before Apple can derive scale economies and the biggest risk here would be the launch of WiMAX/LTE networks by rival operators. For that matter, with congested 3G networks all throughout the mature markets (coupled with limited 3G networks in the third world countries) and femtocells pleading for more time, delivering a satisfactory 3G experience will be challenge.
- The possibility of more number of unlocked iPhones storming the market cannot be completely discounted with the locked phones being made available at such cheaper rates. With this, the revenue realization strategy of Apple will go for a toss.
Well you cannot help but undermine the above comments as a classic "doom-monger's" view countering anything new and anything good that hits the market. But that was why this post was updated. Apple till date has been a company which was mostly untouched by the "volume" bug and concentrating mostly on premium pricing on its brand. With the pricing of iPhone 3G, it looks like this bug has hit Apple and it stands the risk of joining the rest of the mobile pack. The pack which fights day in and day out (after deciding to play the volume game) to prevent their respective brands from becoming commodities. One final food for thought for all the friends around me who are doubly or triply excited about iPhone debuting at less than Rs.9000/- in India. I seriously doubt if its going to retail at that price and even if it does, they are better advised to take one good-deep look at the contracts they'll get into with Airtel/Vodafone.
June 16, 2008
Music to your ears - Light on your pockets
June 10, 2008
Alltel: All is well
May 24, 2008
Voices from the Dead
May 6, 2008
Towering Ambitions
It is true that I’m struggling to find time to update my blog but no worries because I wont go down so easily. The petty projects and tight schedules cannot hold me back for long. The reason “lack of internet access to update my blog” seems to the flavor of the season, just like the tower hive-off’s in the Indian Telecom sector. The article is about these tower infrastructure companies and how they are helping/will help the growth of the Indian Telecom sector.
Don’t remember who started it all, but the project MoST (Mobile Operators shared towers) was the one which helped operators realize the wonders of passive infra sharing. Project MoST itself was a “towering” failure mainly on the account of unclear and incorrect revenue share arrangements. Lack of clarity from the government over financial support to passive infrastructure sharing only helped hasten its downfall. But it managed to accomplish what it was setup for. Within months, operators started saving on huge capex, opex and manageability costs of network. All this happened on the sidelines of the ongoing Great Indian real estate boom which were driving land prices and stock markets alike.
With the (so-called) intent of increasing shareholder value, companies started hiving off their tower infrastructure into separate companies. Models started to develop around passive infrastructure alone (Quippo, GTL infra etc.). Global majors like American Towers(ATC) were not the ones to be left behind. Infrastructure sharing agreements and Tower company hive-off’s became the order of the day.
Then something dramatic happened. Never before had any industry entered the consolidation phase so early in its life. The Top 3 private GSM operators Airtel, Vodafone and Idea decided that its better to fight a common enemy than to fight each other. A Tower company named Indus came into existence. 42% each in Indus Towers is held by Vodafone & Airtel respectively with the rest (16%) held by Idea. The existing tower infrastructure of the 3 companies will henceforth be transferred to Indus Towers.
Indus Towers today is world’s biggest tower infrastructure company overtaking the world’s leading tower company, ATC (with most of its assets in the Americas) at one go. Indus Towers approximately has around 60000 towers in its network. This along with the tower arm of RCOMM will take the total figure to a staggering figure of 1, 00,000 towers in India alone. Compare this with almost 30000 towers owned by ATC worldwide. ATC has been scouting for to buy a stake in an Indian operator for quite some time now.
With the consolidation of Indus towers, the only possibility for ATC at the moment is to either buy a company much bigger than its original size (Reliance tower infra) or buy into Tata’s tower business(around 16000 towers throughout India). They have already walked out of a stake buyout in Tata’s tower arm due to valuation concerns and only a wild one will believe that RCOMM is will let go of its Tower infrastructure company. Will the much smaller “leftovers” like Quippo, GTL infra etc suffice their ambitions?
The Aggressive plans of new entrants and the expansion plans of the existing ones is music to the ears of these tower companies. But things don’t look all that hunky dory. The new entrants like Unitech, Swan, Videocon etc have to counter not only the existing players with years of expertise but also high access rates that the tower companies charge. Indus has still not made it clear whether they’ll share their towers with the new entrants and Reliance has always maintained that the excess capacity on its tower will be used primarily to cater to its own expansion plans. That leaves the new entrants with only Tata’s to approach for a pan-india access of towers because the smaller tower players are still just that – smaller.
Keeping the aspect of spectrum dearth aside, a sustainable business model (especially for smaller tower firms) would have been the building and leasing of both active and passive infrastructure. But can we actually keep that spectrum dearth aspect aside? What was more disappointing was that none of the smaller players were interested in applying for telecom licenses. It would have been great if a GTL won a telecom license in at least some of the circles. A Telecom license would do a lot more than just complement its tower infrastructure. With the government in a hurry to allow active infrastructure sharing (to avoid more “Virgin” scenarios in the future), the demand from MVNO’s, 1-2 years down the line will be for real. The Issuance of telecom licenses was one great opportunity for these players to counter the scale of established players like Indus, RCOMM etc.
As far as the bigger ones are concerned, there is only one way for them to go - upwards. Sitting on a huge subscriber base, with access to crucial real estate and expertise, they are best positioned to make a killing out of any market condition.
April 19, 2008
The Apple of your Eye
India will become part of the privileged league of countries where Apple “officially” (more on this later) markets iPhones. The market surely looks set for the iPhone. One has to see it to believe it. Don’t think apple would like admit it but the sheer numbers of unlocked iPhones which are circulating in the market would have been one of the key indicators of how the market would respond. Unofficial reports peg the total number of missing iPhones in western markets at 1.4 million and the figure surely looks staggering when you compare it with the total number of iPhones sold (3 million according to Apple). Ever increasing disposable incomes in India have given rise to a new generation of gadget enthusiasts. Why are they part of the new generation? Because it’s not just the features that appeal them but they also long for killer looks. The Ever increasing consumption of XBOX’s & Playstations form only a small part of the story. Prahlad wrote a very good book about exploring profitable economic opportunities at the bottom of the pyramid but what about pampering those at the top of pyramid? Pampering is something the Indian upper middle & upper classes thoroughly deserve.
Many people talk about the revenue losses for Apple because of unlocked iPhones. I don’t quite believe people who say this is a wrong scenario for Apple to be in. Almost 80% of the “missing” iPhones find its way into the Asian markets. It was recently booted out of talks with China’s dominant operator, China Mobile because they could not finalize on a revenue share agreement. Rampant smuggling is a reality in South Asia and an Indian entry should ensure that more number of iPhones enter China. One way or the other, it can only result in increased sale of iPhones.
And what about the technology? No I am not getting into the good-old GSM Vs. CDMA debate because it’s a foregone conclusion that the technology in iPhone will be GSM. But it’s the generation of technology that is the point in discussion. The Market for 2.5G iPhones will surely decline sometime in the next few months and Apple has to find an ideal dumping ground for the 2.5G handsets & technology. What better place to dump the handset and technology than India? The Government’s confusion about 3G policy and spectrum auctioning looks never ending… The Consumers don’t seem to worry…. And the market is still a voice centric one. In India, Apple will surely find an ideal cemetery before ditching 2.5G handsets and technology.
The choice of the operator surely looks a tough one. Airtel surely is in a position of advantage but Vodafone isn’t far behind and Reliance’s iStore tie-up with Apple throws up more possibilities. An Apple/Vodafone looks a distant possibility because they couldn’t reach an understanding for the UK market before because of differences during Revenue Share discussions (Again!!!). But that was before Vodafone entered India. After the acquisition of Hutchison Essar, Vodafone added roughly further 40Mn subscribers in its world kitty and it may currently look at the entire scenario in a different light. I think Apple should go for multiple operator partnership models in India. It is looking at a huge target market here and a single operator tie-up may not be ideal as far as its market penetration targets go. This will be something that Apple has never tested or implemented (at least for iPhone) but there is a first time for everything.
April 4, 2008
Touch Me Not !!
The Problems faced by Motorola and the circumstances which lead to the business getting divided into three Business Units is no secret to anyone. The
Videocon on the other hand is charting unexplored territories. The Indian Consumer Electronics major was recently issued mobile licenses by the Department of Telecom in over 20 circles (Datacom). Although Videocon is still awaiting spectrum to start operations, it is first in the queue for spectrum in most of the circles where it has been issued license. Currently, it is on the lookout for strategic investors (preferably a foreign mobile operator) before the launch of Mobile Services. This will present an excellent opportunity for the likes of AT&T, FT etc who have made no secret of their intention to enter the Indian mobile space. Videocon also has got quite aggressive in the consumer electronics market in the last few years and to be fair, it is doing a pretty good job competing with the Korean powerhouses like LG, Samsung etc, chipping away their market share. Videocon believes that the timing of its entry into the Indian Mobile space with about 25% penetration is just about perfect, mainly because of the reduced capex requirements of operators (thanks to passive infrastructure sharing) and a proven business proposition. The Indian Mobile Market has been adding between 8-9 million subscribers each month in 2008 and about 75% of the additions are GSM based.
At the face of it, Videocon’s interest in the
One Final Word before I end. If the acquisition does go through, it would mean a market full of hot opportunities for Videocon. My Heart says “Yes” for the acquisition urging Videocon to go the distance but my mind, in one stern voice says “No”.
March 23, 2008
700Mz spectrum valuations - II
- Again i cannot help but start with the C Block where Verizon has won 7 of the 12 licences. It might have been a intentional strategy by Verizon not to bid for the rest 5 licences as it mostly comprised of "not-so-attractive" markets like Puerto rico, Alaska, American samoa etc.
- It was never AT&T's strategy to aggressively bid in the auction, thanks mainly to the acquisition of Aloha Partners where it got more than 10MHz of spectrum in this band. It was however a big winner for the B Block auction where it won small regional licences. It will surely use these licences to complement the spectrum it already possesses in this band and extend the service coverage.
- So the auction for C Block must have been a two horse race between Google & Verizon. Google as originally committed would have quit the auction at reserve price leaving the next highest bid(that of Verizon) to win that block. The Fact that the coveted C-Block got sold at just above reserve price will definitely come as a disappointment to FCC.
- However,the disappointment on the face of auction was the D-Block spectrum where the bids fell much much lower than the reserve price. The FCC has now officially delinked D-Block from the auction and it is still unclear what it is going to do with the spectrum. Frontline Wireless & Qualcomm were the main bidders in this hallowed block, and I still cannot figure out the business rationale behind Qualcomm bidding for this Public Safety block.
- And if you thought that the auction will throw up new nationwide operators then you ought to be disappointed. Apart from Chevron, which won a regional licence, there were hardly any new faces in the winners column.
- Everyone believed that this auction would present the cable operators with their best chance of entering the wireless space. But "Everyone" were proved wrong. None of the cable operators apart from COX (which again was limited to regional presence) had anything to show for after the auction.
- Believers of the "third" pipe who were expecting that the auction will open up a third pipe (after mobile & DSL/wireline) into people's homes were doing only that, continue to "believe" after the results were officially declared.
- Echostar, a DBS powerhouse is the next big winner after Verizon and AT&T at the auction but it is still not clear how the company plans to use those licences. Will it convince an existing operator (T Mobile ???) for a tieup or will some cable operator (who has missed out on the spectrum during the auction) be a probable partner.
So, how will the eventual scenario shape up ? People may believe that Google after lobbying successfully for open access with FCC, is still a winner but i believe that with Verizon holding the spectrum that matters, Google may have to lobby doubly harder to ensure FCC pushes Verizon to strictly implement open access. Verizon on its part will continue over-selling devices in normal spectrum and underselling those that fall under open access. You can control and govern what applications ride my networks but you cannot control the way I market or sell stuff and do my business. Keeping this whole "open access" thing aside, I still have a huge committed shareholder base to whom I'm answerable. This is surely a huge disappointment to the likes of Skype, Google etc. Remember, there are still no working manuals & guidelines to tell Verizon what exactly comprises open access. If i were Google and if i was knowing that Verizon is walking away with a piece of spectrum that forms an integral part of my strategic growth path then i would certainly have got aggressive at the auction (considering the kind of financial backing that Google has) and would have bid above the originally committed bidding at reserve price.
But where were the cable guys ? Did the Pivot tie up with Sprint change their minds? Are they evaluating other options like WiMAX? The Response of the Cable lobby certainly leaves everyone disappointed including the FCC. It may have been one of the main reasons why 700 MHz didn't fetch what it should(leaving reasons like Economic slowdown aside). Sprint distanced itself from the auction citing enough spectrum availability to cater to its strategic requirements. T Mobile has presently got its interests laid elsewhere in FMC & UMA. Verizon turned "open", just days before the start of 700 MHz auction and I'm really sorry that I'm having to say this, but it may have entered(and won) the auction to block competition and entry of new operators in the wireless space thereby threatening its oligopoly. Kevin Martin, the chairman of FCC may declare the auction as a resounding success but if fetching money was his reason to celebrate then he deserves all the kudos and celebrations. Keeping the monetary aspect aside, the auction in its true sense is well and truly a failure. The fact that out of the $19.5 Bn that has been garnered from the auction, around $16Bn will be paid by Verizon & AT&T doesn't sound healthy at all. The Digital TV switchover is expected to be completed by the start of 2009 and the spectrum should be ready by February 2009, by which time we should have some clarity on the plans of Verizon. But at the moment, the consumer is left high and dry, contemplating "Competition ?? What Competition ??"
As with the rest of my posts, only time knows the future.
March 16, 2008
Under Sea "Unity"
Till date google has denied the suggestion that it is entering the wholesale bandwidth business. As more & more users try google search or watch videos on youtube, it surely makes sense for google to try a more scalable solution that meets its future requirements. According to some estimates, the bandwidth rates in transpacific are atleast 8-10 times of those in trans atlantic. Under such a scenario, google had no other choice but to scout for solutions which scale. Owning a fiber will take care of its bandwidth requirements in the long term. This would also help google stay ahead of the evolving broadband scenario in Asia. What google is hard pressing after this move is that it is not competing with telecom operators but, a lot of time & efforts are being put-in to ensure that it's not entirely relying on them either.
So why and how did i relate this situation to the concept of super profit ? The Transpacific route of under sea fiber is unique in many ways. As already mentioned, the cost of bandwidth on this route is many times higher than those in the Transatlantic route. The Dynamics of the business in this region are also distinctly different. Most of the fibers in this route are owned and operated by national incumbent operators who have learned from the mistakes committed by telecom operators during the atlantic fiber boom & bust. This means that prices dont drop (atleast not in line with traffic growth), so the more bandwidth google needs, to cater to its increased traffic demand, the more revenues it brings to these incumbents. Google now has solved this by joining a club of submarine fiber owners and not having to worry anymore about the cost of a megabit/s. So whats on platter for the operators on this route. This is definitely bad news for VSNL (now Tata Communications). VSNL was already a dominant operator along this route owning large chunks of bandwidth in SMW-2,3,4, Safe, Flag & TIISC. Flag Telecom has now been bought by Reliance but VSNL still holds both the Indian landing rights and around 20Gb on the cable system. Acquisition of Tyco Global Network made it the dominant bandwidth operator with no operator even close half the bandwidth what VSNL held in this region. The Only geography that it didnt cover through its fiber network after the acquisition of TGN was between Singapore & Japan. To Cover this geography, VSNL leased a fiber pair from Asia Netcom from Singapore to Japan. Enterprises have been complaining for a longtime to industry bodies & regulators about the high costs of bandwidth in this region. Things had to change sometime and it was just a matter of when. Google's entry in this space is a welcome competition(and thereby reduced prices), something that enterprises have been longing for. It is almost certain that google will tie-up with another operator for backhaul redundancy (of Unity) and i dont see that operator being VSNL(thanks to the lost goodwill). Reliance's Flag Telecom is the most probable operator that google will ink a deal with for the backhaul connectivity. Times sure look tough for VSNL, with the recent multifold drop in profits (the magntitude of which is unheard of in the present Indian telecom scenario), this was surely not the news it was hoping to hear.
So, what other options did google have ? It could have sat back and have watched competition grow in this market thereby take advantage of the bloodbath (a la atlantic scenario). But this scenario wasnt developing. So it had to somehow trigger this scenario and Unity, in many ways is the perfect trigger. Under the circumstances, continual leasing of STM-1's, STM-4's & STM-16's from operators was not a scalable solution for google. Google, in many ways believes that its bandwidth requirements have exceeded the ability of what the traditional players can offer, so having a fiber which exclusively caters to its requirements isnt that bad an idea.
Many people believe that this is a start of a trend because there are many companies out there just waiting for bandwidth prices to fall through natural means but never ever evaluated the option investing in a under sea fiber. With google's lead, they may start looking at this option. The only other operator, i believe which may (must and should) follow google's example is Microsoft. With its NOC in Singapore, and significant investments around Asia & Europe, a stake in a fiber consortium aint that bad an idea for Microsoft. But apart from Microsoft I dont see any other operator following google's example. One must remember that it is not all free lunch after investing in a under sea fiber. There will be a significant ongoing cost, for fiber maintenance which is more than 5% (per annum) of the original cable investment. Apart from this there is also an unpredictable aspect of fiber getting cut ot sliced that has to be addressed. Considering all these, i believe only google and microsoft have the kind of scale to derive any sort of advantages out of owning an exclusive under sea fiber.