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Like any business, we face the dilemma of outsourcing even in Telecom Industry. There are various views on outsourcing and the arguments of the proponents and opponents are equally convincing. Indian companies like Bharti Airtel, Idea, Vodafone Essar have outsourced some of the functions like network and IT which is still considered as core by many telecom operators in the western world.

Outsourcing is an important decision and it cannot be decided without giving proper thought to it. A framework is needed to help the operators decide on the contentious issue of outsourcing. If a function is core to the success of a company, then it cannot be outsourced but the problem is how do we identify the core. Geoffrey Moore explains the concept of core vs. context in his book “Living on the Fault Line” -

Everything begins with strategy. Strategy determines what is core to a company’s competitive advantage. Sustainable differentiation is the basis of economic success. Differentiation creates the basis for customer preference and gives a company pricing power. Sustainability is based on a barrier to competition and increases the returns on investment. Core is defined as any process that contributes directly to sustainable differentiation. Context is all other processes required to fulfill a company’s commitments to one or more of their stakeholders. Everything that gets done in a company is either core or context.

In optimizing resources, the goal in core is to create competitive advantage. Differentiation is critical here. This is the place to invest human and financial capital. On the other hand, with context activities, the goal is to meet market standards. Differentiating on context is a mistake and one that is costly. The key is to extract human and financial capital from context wherever possible and repurpose for core.

Moore uses the 2×2 matrix to determine the functions that can be outsourced but also cautions on the way it should be outsourced. I have taken the same matrix and applied on the Telecom Industry to arrive at the outsourcing framework for mobile operators (refer figure below).

The above becomes a very good framework to decide what needs to be outsourced and how. The companies cannot outsource the core that is mission critical. I would say that no operator can outsource its customers to any other company. Similarly, the development of employees cannot outsourced as it is the employees that define culture of the company and they bring in the customers. Strategy and Finance functions should always be kept close to the heart as they certainly help a company differentiate itself from others.

Anything in the top right quadrant (context and mission critical) is difficult to outsource but can be outsourced as they do not differentiate the business from competitors. Network operations were probably core when the mobile services were being rolled out but now it is no longer a differentiator (it is a hygiene) and hence can be outsourced. If we continue to insource network operations, we are likely to waste scarce resources and attention in an activity that does not give us any advantage. This may result in missing the opportunities due to lack of focus. The outsourcing of non-core activities also help us unlock the company’s wealth that can lead to higher stock prices.

IT services should also be outsourced as the companies do not have enough resources and cannot focus on development of cutting edge IT systems. Similarly, there could be other companies that can manage the VAS and customer support services better. One company’s context can be core of some other company. It is always better to outsource the context functions to a company that treat them as core. This would ensure that the value keeps generating within the system.

Functions that are support or non-mission critical and context can easily be outsourced. The challenge here is to ensure day-to-day quality and period quality checks should give the desired results.

For the context and yet mission critical quadrant, we need to have a very robust outsourcing strategy as the key challenge is keeping the control. The partner selection needs to be very carefully thought decision and the relationship should be governed by strong service level agreements (SLAs). In the next few articles, I would focus on how to outsource and what should be strategy of the operators while outsourcing.

References:

1. Geoffery Moore’s presentation on book ‘Living on the Fault Line’ - Geoffrey Moore – Core vs Context

2. Interview of Don Price, CTO-Bharti Airtel

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Over the last many months, I have received numerous requests and gifts in my Facebook account from a game called Farm Ville. There is a friend of mine who is regularly playing this game and updating her status with the levels she has managed to crack in the game. I too played this game for a while and found pretty addictive but never realized that just within a year of its launch, FarmVille has become the largest online game with over 82.4 million active users (over 1% of world’s population).

Zynga’s Farm Ville has become symbol of success for social games but there are many other players making significant strides. In last one month, I have come across multiple VC investments or acquisition in this space. MTV networks acquired social game developer Social Express (MTV will use Social Express to develop games based on TV shows from MTV,Nickelodeon and other Viacom-owned brands), Playdom brought Metaplace apart from 5 other acquisitions, Disney brought game maker Tapulous, Zynga brought Challenge Games and XPD …. and the list goes on. This flurry of activity started last year when EA acquired Playfish for $400 million. Recently, there is another rumor doing rounds that Google has secretly invested $100-200 mn in Zynga and gaming would be the cornerstone of Google Social Networking site. Zynga managed to get half a million VC dollars last year and is estimated to have clocked $350 million as revenues. Zynga has a big hand is making Facebook popular and is the biggest customer of Paypal.

What is Social Gaming and how is it different from Multiplayer Gaming?

Social games are turn based, multi-player games that use social platforms to provide users with an identity and to provide the backbone for simple forms of communication (such as notifications, etc). Social gaming is probably not for hard core gamers and is more likely to attract casual gamers. The key component of social gaming is awareness of other’s actions in the games which acts as catalyst to attract other friends in the network. Top social games are Farm Ville, Texas HoldEm Poker, Cafe World, Mafia Wars, etc.

Social gaming companies rely on turn-based asynchronous game mechanics to lower the stress level and focus on playing with your current circle of friends. Games such as Warbook, Ikarium, and Friends for Sale have the benefit of closely matching the current behavioral model of social networks in which posting to walls and poking one other serve as the primary modes of communication. These games allow users to take time to make their decisions, they integrate well with a players current set of friends, and they do not require the “presence” that real-time games require. Multi-player games in contrast are synchronous games.

What makes Social Gaming a game changer?

People seeking cheap, escapist gaming fixes during the downturn has seen social gaming reach hundreds of millions of consumers globally leading to social gaming being named by Brandweek as one of the Top 10 digital trends to watch in 2010. There are many reasons for success of social gaming and the prominent ones are as follows:

1. Ability to use social graph of users

Zynga has shown how to creatively leverage the social graph to spread the word around about the application. Continuous postings and poking help generate the interest of non users to casual gaming. There are over 230 million social gamers playing games like Farm Ville or Mafia Wars.  The games involve gifting and rewards which keep the game’s interest in the game.

There are possibilities of cross selling other games from within a game like in Farmville, players are encouraged to play other games from Zynga (“Did you milk the cow? Take a break with a milkshake in Café World!”).

2. Sense of Achievement and need to consistently maintain high score (Engagement)

People are looking to be successful at things. Its hard to get ahead in business or careers, many things in life aren’t noticed as true achievements as they should be. People find these games addictive because they give them a sense of accomplishment and give them opportunity to achieve more. They like to announce their achievement to their friends and continue to play to get to higher levels. Social games are high maintenance games and the hard work goes waste if the user does not play the game regularly… the more you play, the higher are the chances of a high score. Social games are like soap operas that never seem to get over.

3. Micro-payments boosting Revenue Generating Opportunities

It has been seen that if a game is charged upfront, few users are willing to pay but the users are ready to pay for smaller value items that might be required to boost their score, e.g. a car racing game can be free but users can be asked to make small payments for alloy wheels or better engine or better looking car. Since the game is social in nature and the payments are of smaller denomination, the users do not mind paying for them. This strategy has led to huge upsides to the revenues of the social gaming organizations. About $1 billion revenues are expected this year from social gaming and still it is considered under-monetized.

4. Advertising Opportunities

The advertising on social games has so far been limited but has a huge potential. According to industry insiders, active social gamers spend anywhere from 45 to 90 minutes on the games providing ample of opportunities for advertising. Microsoft used advertising in social gaming when they launched Bing.com. Sony is promoting its Vaio Laptops on this media. In-game advertising is a huge opportunity waiting to be exploited. Many companies from movies and music to FMCG are likely to add social gaming as part of their marketing mix.

5. Key Statistics look encouraging

According to a survey commissioned by Popcap Games, an average gamer is a 43 year old woman (sorry all stereotypes on the gaming profiles have been proven wrong!!!). Other findings include – Facebook is the most popular destination for online games, with 83% of respondents saying they have played games there. Twenty-eight percent have purchased in-game currency with real-world money. The average gamer has played six social games, and more than 50% of gamers started playing a game because a friend recommended it or because they saw a friend playing it in a news feed or other social stream. Now this is viral effect!

6. Potential on Mobile Phones

The social games can be played on mobile phones. Imagine, you can continue to gain points on Farm Ville by playing on your mobile when you have free time – it will be highly addictive. Also, the total number of mobile phones far outnumber the PCs in the world. In case of social gaming, the primary user is a woman and in emerging markets, the women normally have a mobile phone but do not have access to a PC. Also, on the mobile phones, context (location) can be added to the game giving  a completely new dimension to gaming.

7. Use of Virtual Currency

Anybody who has played Farm Ville on Facebook would be aware of credits that you need to buy virtual goods. The virtual goods can either be earned by playing the game more often or by participating in research or by participating in viral marketing or by simply buying using real cash. The value of virtual goods was almost $9 billion in 2009 in Asia and $1 billion in Western countries. It is expected that the virtual money would continue to rise and has the potential to be used in both physical and online world. The advertisements are likely to become more engaging and interactive with the advertisers doling out virtual currency or goodies. So much so that Lolapps has predicted in a report that by 2015, the Government will regulate virtual currency and try to attach its value to real currency. Already, virtual goods are taxed in China and South Korea.

Summary

Social gaming has a huge potential and is not only a game changer for the gaming industry but also has a potential to impact the growth of social networks. Google is planning its social networking site with Gaming as one of the key plank. With social networks permeating our daily lives, entertainment is being redefined and social gaming is here to stay.

*** For those who do not know about Farm Ville ***

Farm Ville is a real-time farm simulation game developed by Zynga available on the social networking website Facebook. The game allows members of Facebook to manage a virtual farm by planting, growing and harvesting virtual crops and trees, and raising livestock.

FarmVille leverages the social networking aspects of Facebook. Along with their own farm, players can invite their friends to join and be neighbors. Acquiring neighbors has benefits in game play — not only can one earn money and experience (by visiting and helping on neighboring farms), but with eight or more neighbors, a player can expand their farm and own more acreage. Gifts (such as trees, animals, and decorations) can be sent to both confirmed neighbors and any other Facebook friends even if they do not use the application. The Gifts received from neighbors usually have relatively expensive buy prices in the market; so getting gifts from friends is one of the best ways to get relatively expensive items. Many of the items available to gift to friends are not available in the FarmVille market.

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Word of Mouth has been the oldest marketing tool but was relegated to the background due to higher popularity of direct advertising. In the last century, the mass media became popular and direct advertising soon became a great tool in the hands of the marketing professionals. At that time, the number of TV channels were few, newspapers were few and the radio channels were also few so if you broadcast your message, almost everybody is bound to notice the advertisement. However, things have changed now with the expansion of mass media. Higher number of TV channels mean that the companies have to spend much higher to reach the same number of people. Even on the same channel, there are more companies advertising which means that an average individual sees 1000-4000 ads in a day.  Moreover, there is a degree of distrust in direct advertising and people are more willing to rely on the recommendations and consumer opinions (refer to the survey from Nielsen below).

Given the fact that the word of mouth and recommendations from known people are trusted more that any other form of advertising, it is important to take full advantage of the social media which includes the entire conversational media like social networking sites, blogs, forums, etc. It could be a great tool to attract new customers and give confidence to the existing customers that they made the right decision by choosing your brand.

Booz & Co has identified six elements for creating online customer lifetime value.

The next generation of successful online business models will combine the elements of a traditional retail site—trust, ease of use, and personalized offers—with social apponomics features, such as personalized advice, community, and the functionality of customized applications

Social media would enable the companies to create a community that can be used as a test market for bouncing off ideas and can also provide personalized proactive customer support. However, the first challenge is to create the community and then the second challenge is to to keep the community engaged. If we can overcome the two challenges, the viral marketing is mostly likely to be successful. I would explain  and list the various possibilities in social media by taking examples of online business or a mobile application but these may equally be applicable to any other business:

1. Use Facebook Connect:

An average individual has over 10 virtual identities (ids) on the net and at most he or she is able to remember 5-6. Last thing anybody wants is to create another id and any new website wanting its customers to create a new log-in id for its site is sure to put off a lot of customers. With almost 45% reach, every second person on the web is likely to have a Facebook account which can be used as log-in for any site.

2. Create applications for Social Media

If people are looking for recommendations from about existing users, then provide them that information using creative applications that post reviews and activities on Facebook, Twitter, etc. So, if there is a website that books movie tickets and gives great deals to its users, then it should create an application where the users are prompted to post the purchase on the social networking sites. Since the customer got a good deal, he would want to announce it to the world and satisfy his ego and at the same time it might entice the others in his network to avail the same deal from the website once such information is posted on Facebook.

Businesses may also look to create applications to increase the awareness about its brand and increase the usage. Pizza Hut’s page on Facebook announces all the deals that are available to its customers and has a application that allows the Facebook users to order their Pizza without leaving Facebook. I do not have statistics on usage of this application but I am sure it must be adding to the delight of the customers and may have snatched a few customers from Dominos.

3. Create Facebook Page

Having a Facebook page is a great way of not only reaching out to new customers but also keep them engaged and increase usage. Facebook page is the ultimate opt-in markting channel for any company. Coca Cola’s page on Facebook has over 6 million followers and this page is certainly adding to the brand value of Coca Cola (Click on the image below to see a clearer picture).

Companies can drive and measure response with special offers on the page and that would drive more fans to the Facebook Page.

Bad experience on Facebook page does not mean that the brand value would suffer. The cult following of iPhone has not dimnished due to a poor presence on Facebook. On the facebook page of iPhone, there is no information about the company, there are only 4 photos and almost zero engagement (click on image for better clarity). However, most of the brands are not as lucky as iPhone so ignore the power of social media at your own peril.

4.  Create Engagement Ads

Instead of serving direct ads, the companies can take benefit of the engagement ads available on Facebook. This would give a better recall to the brand as the engagement ads can be much more fun and interactive. If your social strategy relies on advertising in social media, it’s probably better to hang on to your money (Teddy Hall, COO Meteor Solutions)

5. Incorporation of a Facebook “widget” on the website

Show off your fan base by displaying the Facebook Widget on your website and add to the fan base directly from your website. This would help enlarge the community which is a captive audience for any future communication or test market.

6. Be visible on Social Media Sites

The top management should not only be present on Twitter, Facebook but also should be blogging about their companies. Zappos, an e-tailer has 500 of its employees active on Twitter ensuring there is ongoing conversation with the customers. They also take advantage of Youtube to facilitate word of mouth marketing and have 10 blogs to create an active community. Zappos was aquired by Amazon last year.

“You will make mistakes. If you are sincere about helping the community, the authenticity will show and your mistakes will be forgiven.” – Zia Yusuf, executive vice president for SAP’s global ecosystem and partner group. This quote from Zia sums up how should we approach the social media. If we are honest with the community, there is no reason why it would not reciprocate.

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Recently, O2 announced a revised set of data tariffs for new and upgrading mobile customers in the UK. Customers will have a choice of “smartphone tariff plans” with a bundled data allocation of 500MB, 750MB or 1GB, depending on the total monthly fee, which ranges from £25 to £60. Earlier this month, AT&T had withdrawn unlimited data plans from its network. If the AT&T and O2 are any indicator of the future, the unlimited data plans could soon be a thing of the past.

In April 2010, Opera Mini users generated over 398 million MB of data for operators worldwide. Opera compresses the data by up to 90% and despite that this huge data was consumed by its users. Opera has close to 26.23% market share as per a report from Statcounter as of June, 2010. This means that the total data consumption across the world is much larger than 1150 million MB (Cisco estimates it to be closer to 2000 million MB) and this has been growing at over 100% annually. Cisco has predicted that the mobile data usage would continue to grow at over 100% CAGR until 2014.

If the data consumption continues to grow at the rate forecasted, the operators have a huge problem at hand. The increasing market share of iPhone and Android (Android has reached 10% share of smartphones in just 6 quarters) is likely to make the situation worse than Cisco’s forecast. In the figure below, it is clear that though Apple and Android have just 25% share in smartphone sales, they consume almost 67% of the total data traffic. This means that the average data usage on iPhone and Android based phones is a little under 3 times than that on any other phone.

The data networks were hugely under-utilized before the launch of iPhone. Operators had invested huge money in 3G networks and the due to low usage, they were finding it difficult to recover the investments. In order to increase usage and adoption, the carriers started to offer flat data plans and some of them went a step further by giving unlimited data plans. This was a great strategy on part of carriers and the analysts lauded it profusely and even lectured the carriers that were not offering unlimited data plans on its value proposition. With the advent of iPhone, the mobile Internet usage shot through the roof as the applications became more data intensive and the users started to download full track music, use peer-to-peer (P2P) file transfer and streaming services.

In US and some European countries, iPhone has really high market share putting extra strain on the carriers in those countries. O2 revealed that less than 0.1% of its subscribers account for a third of all network data traffic. Just 3 percent of users on smartphone tariffs account for 36 percent of its smartphone data traffic. The disproportionate data network usage by smartphone users (especially iPhone) meant that the other users were subsidizing the data usage of smartphone users. This is not only unfair but also unsustainable. O2 has been spending around £1m a day to upgrade its network to cope with the “exponential demand” for data on smartphones. AT&T had also claimed similar numbers on data usage.

It is getting increasingly clear that the operators in most of the countries would be left with two choices: either increase the data capacity by investing in the newer technologies like LTE or stop offering unlimited data plans. Given the financial health of the carriers and the maturity of LTE, it is likely that the carriers would adopt the later approach, i.e. stop offering unlimited data plans to consumers. Alternatively, the carriers can adopt the approach of promoting and offering incentives on handsets like Nokia and RIM that are either more data efficient or the data usage is lower by consumers on these phones.

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Apple WWDC 2010 – Steve Jobs Keynote Quicknotes (Contributed by Navdeep Manaktala)

iPhone 4

• US Smartphone Market Share – RIM: 35%,iPhone: 28%, Windows, 19%, Android 9%, other 9%
• US Mobile Browser Usage – iPhone : 57%, Android : 23%, RIM : 13%, Others : 7%
• Hardware
  • New design (leaked iPhone)
  • Thinnest smartphone ever (claim) – 9.3mm thick; 24mm thinner than the iPhone 3GS
  • Stainless steel body for strength
  • Glass display for optical quality and scratch resistance
  • Integrated antenna – The outter rim of the case is the phone’s antenna
  • Display :
    • 3.5 in display
    • 960×460 pixels (4x more than current iPhone)
    • Retina display – 326 pixels per inch (300 is supposedly the highest for the human retina). Highest ever resolution on a phone
    • 800:1 contrast ratio (4x better than current iPhone)
    • IPS Technology for superb color and wide viewing angle
    • Going to set the standard for displays over the next few years (claim)
• A4 processor (same as on iPad. Designed by Apple)
• 40% improvement in battery life (larger battery + improved processor) – 3G Talk (7 hrs), 3G Browsing (6 hrs), WiFi Browsing (10 hrs), Video (10 hrs), Music (40 hrs), Standby (300 hrs)
• 32 GB of storage
• Quad-band HSDPA/HSUPA
• 3-axis gyroscope, adding pitch/roll/yaw, rotation around gravityvide 6 axis motion. Gyro + accelerometer pro – Perfect for gaming
• Camera : 5 Mpx, front & rear, backside illuminated sensor, allowing more light to get to the sensor, 5x digital zoom, LED flash, tap to focus
• Video : HD (720p @30 fps) video, tap to focus, built-in video editing, one click sharing, flash support for videos also
• iMovie App : Create video clips with ability to add pictures, backgrounds, location, music, etc.
• Software (iOS4)
  • Folders, task switcher, unified mailbox, enterprise features (as outlined earlier this month)
  • Choice of Bing for search
  • Will ship 100 millionth iOS device (iPhone, iPod, iPad) this month
  • iBooks now also comes to the iPhone (including download same book for all your apple devices at no extra charge). iBooks will also automatically sync your notes, books, and place wirelessly across all of your deivces
  • PDF support
  • Support for video calling (being called Facetime), front and rear camera support, only via Wifi in 2010, support for landscape and portrait mode
  • To be also made available for existing devices
  • Colours : Black, White
  • Price : $199 for 16GB, $299 for 32GB ; iPhone 3GS (8 GB) is going to be $99
  • Availability : Jun 24^th

iAds

• Objective – To help our developers earn money so they can continue building apps
• Selling iAds for 8 weeks now
• Adverisers so far – Nissan, Unilever, AT&T, Citi, Chanel, GE, Liberty Mutual, State Farm, Geico, Campbell, Sears, JC Penny, Target, Best Buy, Direct TV, TBS, and Disney. Have committed $60 million in iAd advertising
• Support for full screen and full interactivity

Platforms

• Apple supports two platforms – HTML5 (fully open, uncontrolled platform) and the AppStore (curated platform)

iPad

• 8500 native apps
• 35 million app downloads over last 65 days = 17 apps per iPad
• 5 million book downloads from iBooks over last 65 days = 2.5 books per iPad
• New feature on iBooks – Notes (post mark shows alongside wherever you noted)
• PDF support

AppStore

• 225k apps
• 15k apps submitted each week in 30 languages
• 95% of apps approved within a week
• Top reasons for rejection of submitted apps – App doesn’t function as advertised, Use of Private APIs & App crashes
• eBay app – 10 mn downloads of app since its launch last year. 600 mn transcations via the same in the first year and expected to do 1.5-2 bn transactions this year
• NetFlix coming to the iPhone (14 mn subscribers). Like on the iPad, you can resume movies from where you left off on other platforms. Full catalog and Instant Queue access
• Farmville by Zynga, one of the most popular online games of all time with 80 mn players currently, comes to the iPhone with pinch/zoom, notifications, etc.
• Guitar Hero with strumming (certain notes are swiped, rather than tapped) comes to the iPhone
• 5 billion downloads on iPhone. Across the 3 stores, there have been over 16 billion downloads
• Across all three stores (App stores, iTunes, iBooks), Apple has over 150 million credit cards users
• US$ 1 billion payouts to developers to date (70% of end user revenue)

Watch the video of the address on the Apple site.

There is a strong rumor of Qualcomm partnering with Airtel to roll-out TD-LTE network in India. Qualcomm has bid for the ongoing BWA spectrum and would need to find an Indian partner if it were to win the bid as Indian laws prohibit any foreign company to hold more than 74% share in any telecom company.

Qualcomm has a good chance of winning the bid as it would do anything to get the spectrum and showcase the TD-LTE technology. Airtel has not been able to get 3G spectrum in almost half the circles and would be keen to leapfrog technology by launching 4G across the country. 3G spectrum can then be used for freeing up the 2G network. Qualcomm on the other hand has no interest in launching the network by itself and is only interested in blocking WiMax from getting further foothold in India. Thus there is a perfect match between Airtel and Qualcomm.

I had mentioned in my earlier post that in a statement, Qualcomm made it clear that it intended to act only as a facilitator: If it wins the spectrum auction, Qualcomm plans to partner with an India-based operator to build a TD-LTE network and then exit the business. Surely, Qualcomm would like to partner with a pan India player and with significant subscriber base. Qualcomm has good relationships with Tata and Reliance but does not view them as potential partners which leaves is it with Airtel as the only choice. Vodafone is a global company and would not like to have a tie-up with Qualcomm.

Please note that this rumor has not been confirmed by either Airtel or Qualcomm.

Lately, a new dimension has been added to the fight between WiMax and LTE, which is TD-LTE. Developed largely in China, TD-LTE has started to make inroads into other markets as well. Huawei recently launched TD-LTE network for China Mobilewhile Qualcomm has put in a bid for BWA spectrum in 2300 MHz in India and plans to roll out TD-LTE network. It is reported that TD-LTE networks may also come up in Indonesia. In the US there have been statements by Clearwire that they want to migrate from their current Wimax to TD-LTE deployment. Reports state Russian operator Svyazinvest has also picked TD-LTE for mobile broadband deployment. GSM association has also thrown its weight behind TD-LTE. All in all, TD-LTE has crept out of its Chinese comfort zone and been unexpectedly linked to some of the world’s most influential mobile markets. These developments are a major blow to the WiMAX camp, the technology normally associated with TD spectrum bands.

What is TD-LTE?

There are two versions of LTE. FDD-LTE uses the FDD (Frequency Division Duplex) paired spectrum with two separated channels, one for the uplink and one for the downlink, which is the type of spectrum most mobile operators have. TD-LTE uses TDD (Time Division Duplex) unpaired spectrum channels that combine uplink and downlink, and split resources on the basis of real-time demand. Voice is inherently symmetric in the uplink and downlink so it is well suited for FDD spectrum allocations. Data traffic benefits from TDD spectrum, as it is typically asymmetric but the degree of uplink/downlink asymmetry is not fixed. The development of TD-LTE was initially pushed by China Mobile and regarded as a mainly Chinese standard, similarly to TD-SCDMA.

TD-LTE provides backward compatibility with 2G and 3G networks and hence would work even outside the LTE coverage area.

Why sudden interest in TD-LTE?

All vendors are trying to increase the installations of the network in which they hold the maximum number of patents and not necessarily moving towards development of a standard platform with a clear migration plan. In a statement, Qualcomm made it clear that it intended to act only as a facilitator: If it wins the spectrum auction, Qualcomm plans to partner with an India-based operator to build a TD-LTE network and then exit the business. The bulk of Qualcomm’s sales come from technology licensing agreements. Qualcomm has a veritable monopoly on CDMA patents and is seeking to expand the market for its other intellectual property holdings as the global wireless market moves toward 4G technology. The CDMA evolutionary path is coming to end after EVDO and hence Qualcomm would not like to risk the revenues by allowing the operators to move to a technology (read WiMax) where it has fewer patents. NSN, Motorola, Sequans and other companies are also reported to be active in the TD-LTE space so that they do not miss the bus in China.

In many countries, there are upcoming spectrum auctions for 2.3 GHz and 2.5 GHz spectrum bands that is better suited for TDD. Operators so far found little interest in the TDD band and WiMax had positioned itself very well for the TDD band. Operators are in general opposed to the WiMax roll out as it encourages open ecosystem and moreover was an entirely different technology with no evolutionary path from either GSM or CDMA. WiMAX  is controlled by IEEE, the consumer electronics industry, which is far more open than telecom/3GGP. However, now operators see a clear synergy in rolling out TD-LTE networks if the TDD spectrum comes up for auction. In India, the operators may actually be bidding for BWA to roll-out TD-LTE rather than WiMax.

There is another belief that is gaining traction is the fact that TD-LTE provides a migration path for WiMax players. Bruce Brda, Motorola’s senior vice president and general manager of home and networks mobility, said in an interview with a leading technology magazine that

Carriers can choose to deploy LTE networks either in FDD (frequency division duplex) or TDD (time division duplex) versions. Since WiMax is a TD technology and shares more assets with the latter, TD-LTE presents a more efficient migration option for WiMax operators. Those with broad spectrum rights such as Clearwire in the US have the option of dividing up that spectrum between WiMax and TD-LTE so that they can enter the LTE market without cutting off their existing subscriber base. But a small carrier with limited spectrum will not be able to maintain both business lines, and will have to decide between the two platform.

On the handset side, there is a flurry of activity with HTC announcing TD-LTE handset pilot and RIM’s announcement on TD-LTE Blackberry for China Mobile. Efforts are on to produce a converged LTE device, capable of supporting both TDD and FDD versions of the next-generation technology.

TD-LTE seems to be a technology which is seeing the ecosystem building around it and has a potential to co-exist with FDD LTE. It would be interesting to see if it indeed leaves behind WiMax in terms of roll-outs.

Recently read about the dynamic pricing plan from Uninor offering up to 60% discounts to its customers on the call costs based on the location and the time when the call is made and and the discount increases in areas with lower network traffic and during off-peak hours . Visit the link to get more info on the plan from Uninor.

Obviously Uninor is not the first company in the world which offered this kind of plan. Many emerging market operators have introduced this plan in various countries and many more are considering to do so. It is believed that this will result in the increase in the MOU and also bring down the burden on the networks where they are really clogged. MTN Group was the first operator to introduce dynamic pricing with its MTN Zone tariff in Swaziland and South Africa in February 2008, and has since rolled it out to 11 of its 21 operations. Vodacom South Africa quickly followed suit and introduced its own dynamic tariff, Yeboforless, in May 2008. More recently, Orange Botswana launched its new prepaid dynamic tariff (Sesolo Zone) in July 2009 and Safaricom Kenya announced the launch of its new prepaid dynamic tariff (Supa Onega) in September 2009. Orange Group has indicated that it is looking to trial a dynamic tariff offering in most of its African subsidiaries.

There are lots of analyst views (including Mohit’s) which say that it has the potential to increase ARPUs, MOU and hence the profitability for operators. They have always taken these plans as positive for the company. There are real examples which show that for a brief period of time, these plans do increase ARPU. One of them is Vodacom – ARPUs increased two consecutive quarters after the launch of dynamic pricing plans. I personally don’t believe that ARPUs increased because of this plan and there was something else which led to increase in ARPUs. The reason is ARPUs declined for the next 2 quarters after the first 2 quarters of increase and then increased once again after the decline. So ARPUs dont really follow a pattern apart from suggesting that ARPUs in Quarter 3 and Quarter 4 are normally higher than other quarters. Some of the other reasons why I believe this kind of plan is rather negative for the company are stated below. I know I am going against the collective intelligence of various operators but I have my reasons for the same.

• These discounts are based on the premise that these discounts would lead to uniform level of usage through out the day well distributed between high and low loads. However, in emerging economies where price elasticity seemingly is high, the introduction of dynamic pricing will lead to considerable change in the user behaviour leading to non uniform usage behaviour through out the day eroding price per minute. This risk could be minimized by having a real variable pricing plan where there are no preconfigured prices for any time and location. In fact pricing would really change based on the network load and not on time and location (I know network load is directly proportional to time and location of the user but still it matters when the prices are configured in the system)

• These discounts are aimed at cannibalizing operators own existing customer base by offering a blanket plan to the whole customer base. I think if operators need to offer this plan, then this should be offered to properly segmented customers based on their usage behaviour. Blanket plan would lead to lesser revenues from even that customer segment which is willing to pay full rates for the call during that time at that location. But by offering this plan to everybody operators can loose out on massive revenues. So plans should be launched after carefully studying the customer usage behaviour

• If operators want to uniformly distribute the network through out the day, then instead of cannibalizing their existing revenues, they should focus on other mechanisms/business models by which they can sweat their infrastructure by other means instead of loosing out on revenue from their customers who would change their behaviour. One of the most common businesses which comes into mind is M2M where ARPUs are really low and operators can charge least possible rates for these transactions promoting M2M transactions and usage. M2M can be automated in such a way that they take place only those times during the day when network usage is least. This would help operators not only capture very low ARPU business but also refrain from making less from those call where they could have made more. Dynamic pricing can seriously cannibalize operators own market.

• Could this lead to bad customer experience – With ever changing prices, customers could get really get confused about the cost of the making a call. If they made the call in one area and then moved to another, what price would they be charged. How many times in a day this pricing is changed. What are the T&Cs in these. These are the valid questions which operators will have to address otherwise customers could have a real bad experience dealing with this complex plan.

Finally, not to say that these plans invariably loose money but they have the potential to backfire and can lead to even lower ARPUs for the operators. What operators need is development of new business models to make effective use of their networks rather than dynamic pricing to cannibalize their own market

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In one of my previous post on 3G license fair price, I had written that I expect the Pan India 3G license to cost around $2 billion. However, now that 3G auctions are over the final price of a Pan India license is $3.6 billion ($1 = Rs 47), which is much higher than the my expectations and the expectations of all the analysts. The Government managed to garner $14.4 billion which is expected to bring the budget fiscal deficit down to below 5%. With the final price of $3.6 billion for a pan India license, it is now time to look at the options in front of the winners.

The results and winners of 3G auction can be downloaded here (3G_Auction_Final_Results).

The interesting thing about the auctions is that no single operator has bid for the Pan India license. Due to the high auction price, they have bid for the circles where they have strong 2G positions. Below is the interesting 3G network map of winners.

From the 3G winner map, it is clear that most of the operators have tried to bid for their stronghold circles except for Reliance and Tata. Airtel’s largest circles are Delhi, Karnataka, Andhra Pradesh, Bihar and Rajasthan where it has won the 3G licenses as well. Similarly, Idea has got 3G licenses for its strong circles like Maharashtra, Kerala, Haryana and Andhra Pradesh. Airtel and Vodafone have tried to ensure that their bid amounts for their key circles remain below the annual revenues, e.g. in Karnataka, Airtel has to pay $351 million which is just 49 per cent of the income generated there. On the other hand, Bharti dropped out of the race in Maharashtra and Gujarat where the bid amount had crossed the company’s annual revenue numbers. Clearly, the aim of the operators was to protect their current strongholds and current revenues. The figure below clearly shows the operator strategy was to defend their 2G revenues even if they fail to cover the large parts of the market.

The article from Economic Times on the relative competitive scenario post 3G auctions can be downloaded here (3G Economic Times)

What is the break-even user base for operators?

I have done a detailed analysis on the number of 3G subscribers required by operators in next 5 years to break-even in 5 years. The result of the analysis shows that the break-even subscriber base is highly sensitive to the ARPU that the operators can get from 3G subscribers.

The key assumptions in the above analysis is that the number of cell sites required across India would be around 75,000 resulting in a network CAPEX of $1,700 million and additional OPEX of $ 112 million per year. With the current ARPU levels of around Rs 150 ($3.2), I would not expect the 3G ARPU levels to be above Rs 350 ($7.5) which means that the industry would need to add over 52 million 3G subscribers in the next 5 years. If the 3G ARPU is lower than Rs 350, then the required user base for break-even goes up significantly. Given the current 2G congestion for large incumbents , the operators would endeavor to shift as many users to 3G as possible. Operators cannot price the 3G services high otherwise not many users would shift to 3G leaving the 2G networks no less congested from the levels that they are today.

What can be operators strategy to break-even on 3G?

Operators need to be very careful in the selection of their strategy options as the stakes are very high now. They need to work with the other ecosystem players to ensure that the total cost of ownership is as low as possible and that the relevant content is available to attract users to 3G. Here are some of the actions that can be taken by Indian operators to break-even faster than what most of the analysts think:

1. Replicate Minute Factory Model: The Indian operators have been innovative in bringing the costs down in 2G by changing the measurement metrics from ARPU to margins per minute. They have considered their business as a “Minute Factory” where minutes are sold at a certain price and there is a cost to the minutes. As long as the the realized rate per minute is higher than cost per minute by 30-35%, they are okay. Their entire effort has been to bring down the cost of minutes and have looked at network outsourcing, lower tariffs among host of other things. One of my previous posts on the case study on Indian operators has looked into the various actions taken by operators to keep the tariffs low. Even in 3G, Indian operators would need to follow the same “Minute Factory Model” in their efforts to attract higher number of 3G users. However, this action is likely to result in lower ARPU which would in turn mean higher 3G users required to break-even.

2. Refarm 900 MHz Spectrum: Unsuccessful bidders in any circle have an option of refarming their 900 MHz spectrum for 3G usage. This is an attractive option as most of the unsuccessful bidders have excess 2G 900 MHz capacity in the circles where they could not win. Refarming is a highly cost effective way of launching 3G services.  Refarming was explained in one of the previous posts on Spectrum Refarming – Rollout 3G services on 2G spectrum

3. Indirect bundling of handsets/ Upgrade schemes with handset vendors: Handset bundling in India is not prevalant as the ARPU levels are low which means that the handsets costs cannot be recovered even in two years time. Also, the operators have focused on keeping the costs low and hence have not indulged in any kind of handset subsidy. However, this should not prevent them from looking at innovative ways of indirect handset bundling. They should be willing to offer network minutes for free in return for tie-ups with handsets companies. The operators should tie up with handset vendors to upgrade the handsets of its subscribers who are on the verge of replacing their handsets by proactively targeting subscribers with over 18 months old handsets. Studies have shown that after upgrading their handsets, the users tend to experiment more with mobile services resulting in higher ARPU.

Handset vendors should also work with the operators to keep the aspiration levels high as well as keep the 3G handset prices low. There is a need to develop handsets that are “Made for India” keeping in mind the operator objectives. If the operators want to focus on voice, then there is a need for a cheap handset which may not have a big screen size or multimedia capabilities. On the other hand, if the operators decide to focus on music and videos, then the handset capability needs to be changed accordingly. Similarly, if the operators refarm the 2G spectrum then the handset vendors should have the handsets ready to support it. MediaTek’s plan of bringing cheap 3G smartphones based on Android might just be the impetus that this market requires. However, the other handset players need to better the MediaTek offering as the MediaTek based handsets may not be good for the ecosystem players and consumers in the long term.

4. Focus on Non Voice Devices: Operators should aggressively focus on non voice devices like the data cards, net books and other devices needing connectivity. This would ensure higher revenues and faster break-even. In the coming years, the popularity of net-books, eBook readers and handheld tablets is bound to increase and hence the need for connectivity.

5. Ensure fair Revenue share: For the success of 3G, it is important to have the right content and applications for the users. The ecosystem would be more vibrant if all the players get a fair revenue share. Fair revenue share would ensure higher developer interest in developing new applications. Unlike the other markets, the revenue share in India is heavily skewed in favor of operators which needs to change for quality content to be develop and mobilized.

6. Aggressively focus on GPRS: Once the users begin to shift to 3G, the 2G network would get decongested and the operators would be able to offer GPRS/EDGE plans to their subscribers. Subscribers should first experience internet and then would demand better speeds. Hence, GPRS can be a good stepping stone to complete 3G transition. It is therefore important for the operators to continue to focus on increasing GPRS penetration.

7. Roll-out HSPA+: India is already one of the last countries to roll-out 3G and therefore, it would be good for the operators to provide superior consumer experience in terms of internet speeds by rolling out HSPA+ rather than just WCDMA.

I am very sure that the operators would be able to break-even on 3G networks within 5 years if they follow the same that they did for 2G. India has always been different from other parts of the world in telecom and there is no reason why it cannot give positive surprises even on 3G.

Please leave your comments on the other possible strategies that the operators could adopt for faster break-even in 3G
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Little did Google envisage the popularity of live online sports matches while signing the IPL deal. IPL is the Indian Premier League of cricket and is hugely popular amongst the cricket playing nations but there are only 12 cricket playing countries across the world (mostly countries that were colony of British empire at some point of time). Google beamed all 60 matches on Youtube with a 5 min delay (apart from US where the match telecast was after the completion of the match) for free supported by advertisements. With over 55 million views on Youtube from 200 different countries, the statistics surprised Google as well as the analysts. The viewers came from not only the cricket playing nations but also from many other countries, a fine example of long tail at work. The matches were played after office hours in India and hence Google had anticipated higher traffic from other countries but in the end, the highest traffic was from India. This was another learning that most of the households are single TV households and hence the online TV increases the media consumption. Despite the popularity of IPL on You Tube, the views on the traditional TV increased from the previous two editions of IPL.The matches were blocked on mobile phone and hence there is no data point available on its impact on mobile TV.

Internet TV is not a new concept. Hulu is a hugely popular online TV service in US with close to 20 million visitors to its site in US last month giving 662 million page views (source: Comscore). The popularity of Hulu has been on the upswing and if unique visitors is any criteria, then its visitors have increased by a huge 140% in last one year. The average time per visit is 4.7 minutes which indicates people are watching short videos on Hulu.

The inferences that can be drawn from the above two examples is that the internet channel is complementary to traditional TV and should not be seen as a competition by the TV industry. Internet is likely to bring in additional viewers as there are hundreds of channels but only 1 or 2 TV sets in a house and hence not everybody can watch their favorite programs. With internet, people can either watch multiple shows or different family members can watch what they like for short durations, e.g. during IPL, my wife wanted to watch her regular TV serials while I did not want to miss out on the cricket match; I watched the match intermittently for short durations on You Tube to know the score and how is the match progressing (cricket unlike football need not be followed for the entire match) while my wife watched her serials on television. The advantages of internet TV to the traditional TV are as follows:

1. Higher viewer ship: It has been observed that the number of people watching television have been increasing despite the advent of other media.  In 2004 the Kaiser Family Foundation reported that the average person aged 8-18 was spending almost six-and-a-half hours a day taking in some kind of media—television, films, music, video games and so on. By multitasking, they were able to cram eight-and-a-half hours of media consumption into that time. The researchers concluded that young people were “filled to the bursting point” with media. Whatever, responded their subjects. When the study was repeated in 2009, young Americans were spending more than seven-and-a-half hours with media each day, an hour more than they had done five years earlier (see the chart alongside). Into that space they packed an astonishing 10 hours and 45 minutes of consumption. Among other things, they were watching more television (source: Economist).

The internet TV can easily be beamed across the globe which means additional viewers. Also, people can watch it even when they are not at home which means additional time on TV.

2. Additional Revenues for broadcasters: TV channels should look at internet as an additional advertising revenue source. Hulu generated $100 million in revenues in 2009 purely from advertising and now it is starting a subscription services at $9.95 per month. Internet TV may not be able to sustain itself on its own in the near future but it can always act as an extension to traditional TV.

3. Better services to Viewers: Internet TV can offer services like personalization, interactivity, ubiquitous availability that are not possible in television. With internet, it is possible to make television viewing experience very social. I envisage multiple applications being developed just the way it is happening to the mobile world.

4. Targeted Advertising: The advertisers would benefit from targeted advertising on internet TV. On internet, it is possible to track the behavior of the viewer leading to better returns through targeted advertising.

Converging technologies are blurring the difference between different media. The trend towards convergence started with Direct to Home and set-up boxes on cable to facilitate digital transmission but now IPTV is in a way internet TV. Google is also set to transform the set-up boxes by brining in its Android platform to enable application development. There are ample opportunities for the TV industry to innovate and become more interactive and internet TV is the step in the right direction but the real fun would be to bring the internet TV on mobiles.

Today’s consumer is exposed to a lot of digital media and entertainment in multiple formats and over mutiple mediums. Broadcasters should aim at unifying their service offerings and provide a unified lifestyle to their subscribers. Mobile phones and computers would complement the TV viewing experience in future and all the strategies of the channel owners should be keeping this reality in mind

Uninor, which is a joint venture between Norway’s Telenor and India’s Unitech, came out with an innovative tariff plan to attract subscribers in a highly competitive Indian market.  In this market, competition intensity has meant lower tariffs but Uninor has introduced the dynamic pricing where customers would be offered 5-60% discount based on traffic on the network. The traffic would be function of location and time at which they call. The discount would change on an hourly basis and the discount available at any moment will be visible at all times on the screens of handsets that display cell broadcast. When the call ends, a flash will appear on the phone screen indicating the actual discounted cost of the call. Discounts are calculated by a sophisticated ‘Discount Engine’ that relies on state-of-the-art IT systems to continuously monitor traffic at every tower in the network. This plan is called ’24X7 Badalta Plan’ which in English means ’24X7 Changing Plan’.

Many analysts have dubbed this plan as a revenue depleater. They suspect that the effective call rates would fall and this is another way of triggering tariff war. However, I differ in the assessment and feel that this plan has a potential to increase usage. Anybody who needs to call would call irrespective of the time and place but if the user sees 50% discount flashing on the screen, he would be tempted to call-out to his friends or family. I would not be surprised if this plan leads to overall increase in ARPU due to higher minutes of usage.

Uninor has already outsourced its network and in case of managed services, the payment is made on peak capacity. This means that the increased utilization in off peak hours is at no extra cost till the time it does not cross the peak capacity. This effectively means that any increase in usage would go straight to the bottom line and hence the EBIDTA of this plan would be very high. If Uninor customers do not make call in the peak hours and wait for the discounts then Uninor pay outs would come down on account of lower peak capacity in future. This way it is a win-win situation. Operators have tried to give incentives for usage in non peak hours like night usage at half price but the pricing has never been this dynamic.

Another benefit of this plan would be ability of the operator to offer differential pricing in rural and urban areas. The capacity utilization is low in rural areas. The dynamic pricing of Uninor would offer higher discount in rural areas and lower discount in urban areas. This would not only help fill up the rural network but also help Uninor differentiate itself from other operators in the lucrative rural market.

The location based pricing is a radically new concept and it would be wrong to dismiss it as yet another means of lowering tariff. Having acquired the ability of monitoring the network utilization by tower on a real time basis, Uninor would be in a position to collect consumer data on the price elasticity which would help it in designing better plans. Most of the operators struggle with questions around price elasticity when it comes to plans aimed at increasing usage. I for one would be interested in tracking the success of this plan.

Recently, I heard that there is a location based social networking site called Foursquare that has been valued at $125 million. My first reaction was that of hype getting build around yet another social media site. It is yet to get million users let alone the revenues. After a lot of initial inertia, I managed to create an account on Foursquare and in the process learnt a few things about it.

What is Foursquare’s Business Model?

The business model of the site is crowd-sourcing of geo-location  data with information around the location. This model allows the company to collect hyper local data which can have potential value to advertisers. The revenue model is based on location-based marketing services which is a multi-billion dollar opportunity.

Foursquare pioneered the concept of “Check-in” which is a voluntary feature where users who want to share their location check-in using their mobile phones. The service then intimates the friends of the users, recommends things to do in the area, and awards points and badges to the users for their activity. It also lets the user recommend things other people should do and track what the user has done himself. Users earn points, win Mayorships and unlock badges for trying new places and revisiting old favorites. The awards and rewards act as incentive for the users to disclose their locations.

Foursquare gives opportunity to small business to benefit from the location of a potential buyer. A bar can run promotions not only when a person checks into the bar for the first time but also when the person checks in after a certain number of times. For example, Dorado Tacos & Cemitas (Brookline, MA) gives free Ensenada fish taco on your 5th check-in!. Similarly Broken Record (San Francisco, CA) offers 50% your first beer when you check in on Foursquare. This is hyper local to the core. These offers give incentive for the users to check-in their location. There are a few offers for the mayor (person with maximum check-ins in a location in last 60 days) like Dogpatch Labs New York (New York, NY) offers unlimited Coke Zero for all mayors other than Joe Essenfeld (Now who is Joe? I have no clue it was mentioned this way on Foursquare business page). Foursquare has created stickers to help the small businesses with marketing creative.

In December last year, Pepsi joined hands with Foursquare as part of its Refresh Everything Community program. For every Check-in in New York, Pepsi donated 4 cents to inner-city youth center camp interactive. Within one week, New Yorkers earner $10,000 for the organization. This small pilot got Pepsi excited on the enormous possibilities on location based promotions.

How successful will Foursquare be?

The chances of Foursquare becoming a successful venture are bright but it would have to overcome a lot of obstacles:

• Ubiquitous Appeal - The services offered by Foursquare would appeal to a city/metro person rather than a small town person as the small towns do not have enough locations or businesses offering promotions. Foursquare would find it difficult to scale the services in emerging markets.
• High Attrition Rate -- The service suffers from high attrition rate just like Twitter. Many would start to use the Check-in and get excited by the promotions and discounts but the initial euphoria about the service may wear off very fast. The users who do not travel much are likely to churn faster than others.
• Limited Services -- The current business model of Foursquare relies on the user Check-ins and recommendations. The company would need to look for other interesting uses (just like Twitter) to sustain the interest.
• Competition from other Social Networking Players- Nothing stops Facebook and Twitter from offering similar hyper local information and promotions to their users. In fact both Facebook and Twitter have similar aspirations and since they are established players, it would be easy for them to roll the location services faster

Why is the valuation so high?

The world is placing bets on success of “Hyper Local” and not necessarily on Foursquare as a company. Foursquare just happens to be company that is ahead of others in terms of its execution. The high valuation is due to the hopes of its acquisition by an internet major like Google or Yahoo. Yahoo offered $125 million but its bid has been rejected by the Foursquare management. Local ads is largely an under served market with a huge potential (numbers as high as $10 billion have been quoted). If any company is able to get a fraction of the potential, the valuation is bound to skyrocket. Foursquare has been tipped as the next big thing after Twitter with a potential to eclipse Twitter. Now that Twitter has been valued as $1 billion company, Foursquare has raised its expectations. However, the management needs to be careful while evaluating the bids as any misstep may see valuations tumbling and sometimes there is a limit to which the valuation can be stretched without the support of a big brand.

Interesting video on Social Location from Kevin Rose

www.youtube.com/watch?v=UlJy343uJdE