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How is the global telecom market shaping up? BT Online asked Dr Karl J. Deutsch of AT Kearney.
Dr Karl J. Deutsch is vice-president, AT Kearney, and also the global head of its communication and high-tech practice. He spoke to BT Online's Vandana Gombar on how things are shaping up and the lessons that Indian players can draw from their global peers. Excerpts. Q: At a time when Average Revenue Per User (ARPU) is declining, does a customer acquisition spree make sense? A: The larger the market share that a service provider has, the lower the cost per subscriber, by definition. The focus has to be on getting subscribers since that enables the company to reap economies of scale. A service provider with less than 25 per cent market share is barely profitable and is not able to generate the cash required for the next round of capital expenditure. For a developing country like India, this is the best time to gain market share since the market itself is growing. It is much more costly to snatch subscribers in a saturated market. Q: But there are investments related to scale too. When funds are hard to come by, does it still make sense to acquire customers who make demands on capex and do not bring much by way of revenue? A: The name of the game is acquiring profitable customers. It is not very difficult to identify them. It is more challenging to find the right service offering to acquire them. Telecom operators face two issues-profitability and growth - and the former can actually be fixed by intelligent next generation cost reduction. However, mastering revenue growth is the biggest challenge at a time when there is intense competition in the market. Q: Why not focus on value-added services since the ARPU for these services would be rising? A: Within ARPU, the share of mobile data or SMS (short messaging service) is increasing. However it is not offsetting the price decreases. In a country like India, I think it would not be wise to roll out full mobile data service offering. The population of mobile subscribers is still low and the focus should be less on mobile data and more on gaining subscribers...that is what counts. It is very important to go for market share and not die with mobile data services which are expensive, catering to a niche need and whose utilisation rate is still low. Further, I feel India needs to be looked at through the lens of the addressable market. Given the income structure and the high cost of handsets, only a handful of people can afford mobile data beyond SMS. Q: Service providers also need to look inwards and manage their costs efficiently. You have helped many a company trim millions of dollars in costs. What are the flab points? A: In the past, everyone was thinking there is no end to anything in the telecom sector. There was enough money around, and everything was growing. Reality is that it is a huge market still. However it is not a growth market anymore, at least in the western world. We have worked with operators on product portfolio rationalisation, capacity planning, customer care and outsourcing to target cost cuts. The key to success has been that the cost-cutting exercise was driven by the top management - the CEO. Incumbents believe that demand will grow forever and they plan overcapacity, which is not required. Some companies had service offerings nobody wanted to have with just a handful of users though they had to have the infrastructure in place to provide the service. Why have the service? These were simple things we looked at which had a huge impact on costs. Customer care is another area where there is scope for cost savings where many companies have a one size fits all model. Lower end customers need a low cost version of customer care. We helped a company graduate to a plug and play model for its low-end customers (thus reducing demand on customer care), while focusing resources on the high-end customers. Australian operator Telstra achieve a significant reduction in costs with our strategy. Q. What is the best strategy for service differentiation when all operators are cutting costs and expanding the subscriber base? A: There is a good chance to differentiate oneself based on handset strategy (beyond bundling of handsets with the airtime subscription). The user interface could be tailored to appeal to various segments of subscribers, whether it is the young or the business subscribers. There are operators out there who are willing to customise the handset for the service provider. Some 3-5 years is the window of opportunity for this kind of differentiation. In five years time, we may have a standardised interface. The whole success of imode was based on the right handsets-handsets tailored to the I-mode service offering. In the handset space, we helped a company reduce the number of clicks to send a picture message from 17 to 4 clicks. That is a huge differentiator for a user.
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