As competition in the crowded telecom market heats up, players will be facing an increasing urge to embrace new technologies to turn the tide in their favor
Intensifying competition in the voice and data segments, heavy pay-outs in the 3G spectrum auctions, and declining ARPUs (Average Revenue Per User) have deeply affected the financials of the Indian telecom players, resulting in huge amounts of debt.
Uncertainties around spectrum allocation and pricing issues continued to impede the growth in 2014. Yet the year was not all bad as the sector’s revenues saw an upward trend, driven mainly by data revenues. According to PwC, share of data revenues increased from 5-6% in 2013 to almost 12-13% in 2014 for all the leading players. Leading telecom players were also making significant network investments.
Going forward, the telecom companies will be looking at embracing new technologies to capitalize on the growing opportunities in the digital world. Consumers are demanding better digital experience that makes it essential for telecom service providers to offer improved services while also focusing on internal efficiencies.
“Some leading companies are already getting into development of mobile applications for higher customer engagement. But with increased automation and platform-based services that can be replicated across segments and non-linear initiatives, SMAC (social, mobility, analytics and cloud services products) will allow the IT industry to offer more value to the clients,” says Gaurav Sharma, Director, Advisory Services, EY.
Big data is making it possible for telecom providers to know their customers better and stay ahead of the curve. “Analytics is becoming a key differentiating capability as consumer needs and targeted hyper local offerings are becoming more integral to product planning and customer service management, leading to influencing network planning,” asserts Kunal Gangakhedkar, Director, Advisory- Consulting, PwC India.
SMAC technologies will drive further investments in the industry as companies try and build their IT capacities to succeed in a crowded telecom market, with improved service offerings and superior customer experience.
“These (SMAC) service lines will get to mainstream with deals becoming big and complex. Most telecom companies see merit in the combination of two or three technologies if not all four. While certain elements of SMAC are possibly over-hyped or are reclassifications of traditional service lines, these present an attractive opportunity for Indian IT services companies over the next few years,” Sharma points out.
IoT’s Huge Potential for Telecom
The growing interest around the Internet of Things (IoT) is bringing about massive opportunities for telecom companies. As the telecom industry is at the forefront of changing customer dynamics and in order to be in tune with the new business demands, telecom providers need to adopt intelligent insights and data-driven customer service, which is possible with IoT.
4G Yet to Spread its Wings
Despite huge hype and expectations surrounding it, 4G roll out in the country has so far been quite erratic. But 2015 is expected to be a significant year for 4G in India, as almost all the leading telecom players are making advancements on that front. According to a PwC report on 2015 Indian telecom trends, the industry will witness multiple Indian players launching 4G on a more efficient 1,800 MHz spectrum. The consulting firm estimates that 4G LTE subscribers will reach from 10 mn to 15 mn by December 2015 driven by competitive pricing, superior network experience, and affordable smartphones. Airtel has made some early moves in this direction. Vodafone and Idea Cellular are also advancing their 4G strategies to keep pace with competitors. Smaller competitor, Aircel also expanded 4G services in places like Tamil Nadu and Jammu and Kashmir. A major turnaround
is expected as Reliance Jio Infocomm, which holds pan- India spectrum for 4G services makes its entry sometime end of this year. The company plans to roll out its 4G mobile- cum-broadband service through 1,000 retail stores in the country by December.
Data: The next growth driver
The availability of cheap smartphones and the growing need among country’s tech-savvy generation to stay connected is causing an explosion in data usage. Telecom players are hence witnessing a surge in their data revenues, at a time when voice revenues are becoming stagnant. Data now constitutes a significant chunk of the total revenues of some of the leading players. This changing trend is encouraging telcos to make significant technology investments to enhance their data service capabilities.
“Mobile Internet data penetration is substantially increasing due to boom of eCommerce/online service companies which is resulting into a lot of investments around SMAC technologies,” opines Rajat Kohli, Engagement Lead, Zinnov. With data usage expected to significantly expand in future, telecom players will be looking at different ways of monetizing their data services. Experts indicate that a price war is pretty unlikely in the data space as companies have no headroom for reducing prices further due to increasing pressure on margins and rising costs, though some of the new players might look at entering data market through price disruptions. But it is getting more and more evident that data is going to be the next growth driver for Indian telcos.
Where is it headed?
Unfavorable M&A policies continue to affect the telecom industry as small and big companies fight it out to grab and expand the revenue share. The PwC report points out, “The current M&A guidelines have not been able to stimulate any consolidation in the sector. With new network launches expected in 2015, the rapidly growing data market will witness intense price competition.”
3G adoption is expected to drive data revenues significantly, though 3G users as a percentage of the total wireless subscriber base is currently pretty low. 4G will bring its own challenges too. “Deployment of 4G network in India is still a major obstacle as operators face the challenge to launch the new network along with improving the existing 2G and 3G network in the country,” explains Gangakhedkar.
IT budgets and spending by telecom companies in the recent past, have remained constrained by their revenue growth. However, there is hope for a slow revival as industry looks at reaping substantial value from data services. “Revenues are likely to increase, and this is likely to increase telcos’ IT spending. Ovum expects IT spending in the Indian telecom industry to increase gradually, growing to $433 mn by 2018 at a CAGR of 3.6% from 2014-18,” indicates Sharma.
Telecom players will continue to invest in network infrastructure, yet customer experience will be a key factor when it comes to capex investments on the IT side. “The key focus areas should be improving order and service design and delivery processes, and adopting an omnichannel strategy for customer service and support,” adds Sharma.
To open up new revenue streams and create more value for customers, telecom companies will have to significantly invest in new-age technologies so as to build a strong ecosystem going forward.