News, views and commentary from the telecoms sector across emerging markets and developing countries worldwide

Thursday, 22 April 2010

India: operator space to consolidate while handset market gets more fragmented?

Maarten Pieters: Vodafone India CEO predicts market consolidation

Last week, a broad range of news outlets were carrying the claim that just 31% of the population of India were known to have access to a toilet and 'improved sanitation' in 2008. This is clearly a regrettable state of affairs, with dire consequences for public health, life expectancy and economic development.

Ordinarily, however, it does not follow that the seriousness of an issue always correlates strongly with the willingness of the global media to give it coverage. It was a welcome surprise, then, to see this particular issue given some space even by the website of the thin, brightly coloured newspaper given free at UK railway stations to daily commuters such as myself. After all, this is an organ whose print version dedicates just a few pages to what I would really call 'news' - far more space is given over to celebrity tittletattle and TV listings.

How, then, did this story successfully compete for space even in that kind of context?

The key seems to have been handing the global media an compelling, ready-written headline. The person responsible for doing so in this case appears to be Zafar Adeel, Director of the United Nations University’s Canada-based think-tank, the Institute for Water, Environment and Health.

So how did Dr. Adeel manage to craft a headline sufficiently eye-catching so as to propel this important but unglamorous issue up the news agenda last week? He did so by building it around the assertion that more Indians have access to a mobile phone than to a working toilet. Presumably, the desired effect on readers in Europe and North America was to stimulate a thought process along the following lines: 'More cellphones than toilets? That's crazy! Toilets have been around forever and are one of the most basic facilities expected for a civilised life -  but the mobile phone is a recently invented luxury item.'

Such a characterisation of the mobile device would be understandable when articulated by someone who ticks the following boxes:
  • lives in a wealthy, developed country and has not had the opportunity to see mobile phones being used on the city streets or in the villages of (for example) Kenya, India or Bangladesh
  • is old enough to remember when mobile phones were seen as an expensive status symbol used only by wealthy executives
  • has not thought about how access to communications services can improve the lives of poor people by connecting them with time-saving information and services
Regular readers of this blog, and anyone working in or around the telecoms sector in emerging markets/developing countries, however, would be much less likely to think of mobile phones in this way. They would probably be inclined to realise that is precisely because developing countries have weak infrastructure that the mobile phone has rapidly become a truly vital part of the lives of even very poor people in such nations. Numerous examples of this have been decribed in DTW posts passim. Rather than trawl through all of those, readers might like to look at a nicely succinct round up of observations on this topic, made recently Anand Giridharadas, writing for the New York Times.

Giridharadas observes that there is "a global flowering of innovation on the simple cellphone" and that "from Brazil to India to South Korea and even Afghanistan, people are seeking work via text message; borrowing, lending, and receiving salaries on cellphones; employing their phones as flashlights, televisions and radios." He goes on to assert that "many do all this for peanuts", noting that "in India, Reliance Communications sells handsets for less than [USD] 25, with one-cent-a-minute phone calls across India and one-cent text messages and no monthly charge — while earning fat profits."

Readers of this blog, particularly any working in India's mobile sector, might on one hand take pride in seeing such achievements talked up but may, on the other hand, not fully recognise the idea of an industry revelling in 'fat' profits.

Certainly, the feeling in India may be that at the very low tariff levels referred to by Giridharadas, not all operators may continue to be viable. Sypmathetic to this view is Maarten Pieters, CEO Of Vodafone India. Speaking to the Economic Times last week, Pieters observed: "It’s all about scale because we have very low tariffs here. If you compared the tariffs here, it’s about 10% or what we get in Europe in the Vodafone Group as an average tariff. So, how can you survive as an operator on those low tariffs that is by creating scale and it is very clear that it will not be able for 10 people or 10 operators to create that scale, which means there needs to be some form of consolidation".

Pieters does not expect this consolidation of the mobile market to happen overnight, however, because it would not be facilitated by India's current M&A rules. "So, we first need to see some changes of the rules and then you will probably see consolidation."

Indian mobile operators, then, have to strive for profitability in an extremely tough environment. Quite often, I have heard industry watchers articulate the view that this should equip the country's cellcos very well for meeting the challenges of extracting a profit from developing countries elsewhere in the world. Also out there is the feeling that any Indian MNOs with international ambitions will need to be mindful of quite different challenges they may face.

Writing last month for about the purchase of Zain's African opcos by Bharti Airtel, for example, Matthew Reed observes that "Bharti will be looking to reinvent Zain Africa by introducing the low-cost business model that it has pioneered successfully in India" and "will also be hoping to achieve economies of scale across its Asian and African operations, which together will make it the fifth-largest mobile operator in the world".

Reed does offer words of caution, however, arguing that "operating in Africa does present particular challenges, some of which will be new to Bharti, despite its credentials as an emerging-market operator."

"The takeover of Zain Africa", writes Reed, "will give Bharti operations in 15 different countries, each of which has its own political and regulatory conditions, and some of which present some political risk. The diversity alone will be something new for Bharti, which only had mobile operations in India until it made recent moves into Sri Lanka and Bangladesh."

Reed also observes that while tariffs in Africa have traditonally been rather higher than those Bharti Airtel has to live with on home soil, the giant Indian cellco is entering many African markets at a time when higher levels of competition have more recently been pushing down prices. "In much of sub-Saharan Africa", Reed adds, "the infrastructure is poor and distribution is difficult."

Maarten Pieters of Vodafone India, meanwhile, is almost uniquely well qualified to make predictions about how his company's major competitor is likely to fare as it embarks on its African adventure - between 2003 and 2005, he was the CEO of Celtel International, the collection of African operators acquired by Zain and subsequently sold on to Bharti Airtel. Pieters has also served on the board of Millicom International Cellular, the multinational mobile group whose African assets currently include opcos in Chad, DRC, Ghana, Mauritius, Rwanda, Senegal and Tanzania.

Pieters offers words of encouragement: "Bharti is a very fantastic company. I really admire them. They have done a very good job in India. They have a very good management. If anyone can make a success out of the old Celtel assets, then it’s them. So, I am very happy that they are in good hands."

While, as Pieters argues, consolidation of the Indian mobile operator space may be inevitable, the handset market, conversely, seems to be becoming more fragmented. Priyanka Joshi of the Business Standard writes that "the segment has seen entry of one mobile vendor every month." For the year 2009, Joshi asserts, "new vendors registered a combined market share of 12.3% of the total 101.54 million mobile handset sales."

Examples of new market entrants offered by Joshi include Wynn Telecom. "Starting May this year, writes Joshi, "the company will launch seven dual SIM handsets priced under Rs 5000 and will also get ready to manufacture handsets in India."

Some new entrants, explains Joshi, will build a business around devices tailored to meet the needs of users in India's vast rural areas. Olive Telecommunications  is one example of a company with this strategy.

It will be interesting to observe, then, whether the mobile services and mobile handsets markets do indeed move in these opposite directions - with the former consolidating down to a smaller number of operators of scale and the latter continuing to offer opportunities for innovative new entrants.

Tuesday, 13 April 2010

More chances to network with telecoms and government bigwigs from Turkey, the Caucasus and Central Asia

'tis the season to go networking with telecoms bigwigs from Turkey and the CIS, it seems. Having not long returned from one industry talking shop in Istanbul, DTW is hoping very much to be able to attend another one later this month.

The conference in question is the 9th annual Caspian Telecoms event, to be held in the city's Hilton Hotel on 28th and 29th April. DevelopingTelecomsWatch is proud to have joined the conference's roster of media partners for the first time this year.

In the coming days, I will take the time to say more about this event and why it may well be worth attending for anyone doing business with telcos, telecoms regulatory agencies and telecoms/IT/information ministries of the countries in this region.

For now, I would simply encourage readers to follow the links in this short introductory note and review the organiser's web site.

Wednesday, 7 April 2010

Eurasia Com: doing the business in Turkey and the CIS

Back in January, I wrote about the Eurasia Com conference which the good folks at Informa Telecoms & Media host annually in Istanbul, taking place in either March or April. At the time, I thought it was unlikely that I would be able to attend. Happily, it did turn out to be possible after all,  meaning that I am able to report some of what was discussed at the Conrad Hotel on 23rd and 24th March.

For those not familiar with the event or with the wider series of related conference-plus-exhibition events of which it is a part, a few words of explanation:
  • Informa's Com World Series evolved from what was once known as the GSM (and later GSM>3G) World Series of events. The GSM series was itself a spin-off of the GSM World Congress (now Mobile World Congress), of which Informa was the original founder.
  • The GSM World Series brought scaled-down versions of the main event to a selection of locations ranged around the world's emerging markets. In each location, the aim was to gather large numbers of decision-makers from the mobile operators of the region around the host city. These locations included cities in Africa, Asia, Latin America and Central and Eastern Europe.
  • The Com World Series brand was introduced a few years ago to reflect a perceived need to offer meeting points for a broader community than just GSM mobile operators. The organisers were mindful of the idea that the previously quite sharp fixed-mobile distinction was becoming increasingly fuzzy around the world. They thought about what had once been pure play mobile operators offering other kinds of broadband service, either by building new networks (copper, fibre, fixed-wireless) or in partnership with established fixed-line operators. They thought about new mobility propositions from companies whose previous offerings had not been in the cellular space. They thought about incumbent fixed-line operators merging with previously quite separate mobile business units (think in terms of what Deutsche Telekom is doing all over the CEE region).
  • Throughout this evolution, Informa's series of events has stuck to a pretty successful business model, which is still in place today - operators (and other telecoms service providers) attend for free, with most of the revenue coming from any organisations with products and services to sell into the operator space. This includes the major network technology vendors and all manner of software companies, systems integrators, consultancies etc.
  • Eurasia Com is a relatively new part of the Com World Series, although this year's iteration was the fourth to take place in Istanbul, having been relocated from Almaty, Kazakhstan, where the event first took place in 2006.
  • The challenge which the organisers face - and which I feel they met pretty successfully this year - is bringing together a crowd from what are quite diverse markets. A large Turkish contingent (representing the likes of Turk Telekom, Vodafone Turkey, Turkcell, Avea and mixes with delegates from the former Soviet republics of Central Asia and the Caucasus, making it necessary to arrange for everyone to gain from presentations in Turkish, Russian and English. If you attend next year, expect to spend some time wearing a headset which pipes the simultaneous interpretation right into your ears.
That, then, is a little about the event, its origins and how it works on the day. The challenge mentioned above (making the conference relevant for both Turkish delegates and for guests from the CIS) was dealt with this year by having elements of the second day billed specifically as a 'Turkey focus' session, thereby acknowledging that there probably do exist some differences between the concerns of the local audience of those of the visitors from the former Soviet republics where market conditions are quite different.

I am pleased to report that this worked well. As a veteran of more conferences than I care to remember, I have got used to seeing events looking busy on day one and feeling a lot less vibrant on the second day. At Eurasia Com 2010, delegate numbers were, I think, possibly even higher on 24th March than they had been on 23rd.

So, what was discussed during these two days of slideware, panel sessions and offline networking? Well, in the sessions I managed to catch, highlights included:
  • Informa analyst Gemma Bunting cautioning delegates to remain open minded about real mobile penetration rates across the CIS, noting that multi-SIM usage makes accurate measurement quite difficult and pointing out that in the supposedly saturated Russian market over 20 million subscriptions were added by operators last year.
  • Informa's Bunting noting that ARPU is declining sharply in some markets - Uzbekistan was given as an example - USD 9/month in 2007, dropping to USD 4/month by 2009.
  • Gemma Bunting wondering about the impact of Tele2's acquisition of a mobile operation in Kazakhstan and observing that the Swedish group is known for its aggressive pricing.
  • Ineke Botter, CEO of Azeri cellco Bakcell indicating the a mobile money offering from her company might not be iminent but was certainly "on the roadmap".
  • Mustafa Kiral of Russian telecoms investment group Altimo indicating that his company is in the market for opportunities to acquire majority stakes in telecoms operators in emerging markets - African markets were mentioned.
  • Altimo's Kiral sounding lukewarm at best when the conference Chairman asked if Altimo is considering investments in the wireline space.
  • Mehmet Hasanov of Aztelekom talking up the revenue potential of the wholesale business and wondering why telcos' marketing people are generally so inclined not to get excited about it.
  • A few snippets about the planned privatisation of Tajiktelecom.
I was not surprised, also, to learn more in offline conversations than I did from listening to presentations. The lesson here, for those few conference veterans who do not already know, is that it's important to get proactive at these gatherings - get among the delegates and speakers, working the room and maximising the opportunity to develop a good number of valuable contacts under one roof.

My guess is that 2009 was at least moderately challenging for conference organisers and that delegate numbers across the events industry may have been negatively affected by financial worries on the part of target audiences. My recent experience in Istanbul, however, just went to confirm that there continues to be no substitute for making face-to-face contact with potential new clients and partners and that events of this type can be a pretty good one-stop-shop for doing so. I would also particularly recommend this and other events in Informa's Com World Series for the way in which they gather crowds from given higher growth regions around the globe.