Voices from the Dead

Its been quite along time and no, this time the reason is thankfully not laziness but for a change its lack of time !! Never knew life would become so hectic even in Kerala, the Gods own country. The Title of this article might sound a bit scary but no it wasn't meant to create a sensation. I'm no cheap sensation hunter. The Companies in question (or should I say, the dead ones) are Xohm & Pivot. Two very high profile ventures (although Xohm is primarily a brand of Sprint), a seemingly sound business model, a lot of potential promise, investments from a number of big companies, but both going down faster than their rise.

Lets start with Pivot. Pivot was once thought of as way through which Sprint and the other cable companies can compete with the likes of ATT, Verizon etc in the lucrative bundled services market. But there were inherent complications with this business. The Most important one is surely how to communicate the value of you bundled service to your customer without confusing him/her. The Pivot venture was a messy concoction with different partners planning different priorities out of their investments in the venture. This followed the financial problems that Sprint started finding itself in. The Final nail in the "Pivot" coffin was ready before the end of last year when Sprint called off its nationwide network roll out. Current Pivot subscribers are being given the option to either transfer to a standard Sprint service plan, or terminate without any penalties.

If that was about Pivot, the whole Xohm investment looked a bit more compelling. The amazing thing about Xohm is that it was a brand that never even had a product and it died before it made its commercial debut. Sprint's financial worries seem to be the reason behind Xohm's death with the board always wanting to share the business risk. After two sour experiences of Clearwire and Pivot, Sprint never found that elusive third big partner it was always looking for. That forced Sprint to float Xohm. Another example of how business ideas backed by desperation alone can be harmful. Both Pivot and Xohm were also victims to the edginess of Sprint's investors. This edginess again had its roots in ever decreasing customer numbers, high churn and quarter after quarter of poor financial results.

Although nothing has been officially announced about the future of Xohm but a formal death knell was sounded for it when the formation of a new Sprint-Clearwire Joint Venture was announced. The new company will be called as Clearwire. The Announcement just about saved the WiMAX lobby from further embarrassments and gave them a much needed boost. It must be said that in the short term, this JV has helped WiMAX from going into extinction. Being a critic that I am, I just cannot help but doubt this latest effort. One Messy concoction to replace another ?? A JV including Intel, Google, Comcast, TW Cable etc. No doubt that they really big names in the world of technology but will a hodgepodge of powerful players be able to pull off such a complex deal. What about the openness of the network?? Google, a long term "Open" backer joining hands with the likes of Clearwire & Comcast who have a history of blocking traffic in the name of traffic shaping(VoIP & P2P respectively). Intel has put in money to save the investments that it has already made in WiMAX (again one cover up so that the other doesn't get exposed). The Venture smacks of nothing but desperation. Desperation to hit the market before LTE does. Agreed that for WiMAX to be successful, time to market will be one of the key aspects but that definitely is not the only aspect. If unsuccessful, i think its goodbye for WiMAX (at least in North America).

The dead have gone!! But they have left us some important lessons which some of us are not ready to accept knowingly or unknowingly. There is no doubt that the new JV is well on its way to the graveyard. However, it will be interesting to see who else will follow the JV to the graveyard. Looks like Sprint (along with North America's WiMAX dream) is rushing to reach there first.

Towering Ambitions

Thinking micro seems to the flavor of the season. I always thought that it’s only the insurance industry which makes the most out of fear in the minds of people. But that drastically changed after I entered the new phase of my life. If Insurance industry is thriving on people’s fear, I never believed that such a sound business model can be built on fear (/uncertainty) factor among Organizations. Well, for my own good, its better that I don’t dwell on it for too long.

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.