Krishna Baidya’s Random Musings

Posts Tagged ‘India

Indian telecom industry has not been impacted much by global economic slowdown and many new vendors see this as opportunity to enter Indian telecom space. With the 3G auction around the corner, 27 new handset vendors have entered the market in just one quarter, according to Economic Times.

These new mobile companies are coming up with dual SIM cards, full Qwerty keyboard and at a cheaper price to attract more customers. Mobile handset sales in India recorded a 6.7 percent increase to 100.9 million in the year ended June 30, as compared to 94.6 million in the year before. Even Mindtree has entered the telecom space through its acquired company Kyocera Wireless. China Wireless Technologies’ Indian subsidiary, Coolpad Communications, is targeting Rs. 800 crore revenue in next five years in India. The company is set to invest Rs. 400 crore as capex and opex over the next three years.

According to a new research study by IDC India, the new vendors have ensured that the overall mobile handset shipments touched 6.3 percent as compared to 1.2 percent during the June 2008 quarter, when the new vendors totaled 11 percent. “The shipments from such new players who have entered the Indian market in the last 12 to 18 months grew six-fold with 6.41 million unit sales,” said Deepak Kumar, Associate Vice-President (Research) of IDC, India.

In terms of shipment, Nokia still leads the market share in India with 56.8 percent followed by Samsung with a 7.7 percent share and LG with 5.4 percent share in the 12-month period ended June 30, according to the report. ‘With the mobile handsets market in India growing in volumes , device manufacturers have started focusing on niche and emerging segments based on lifestyle profiling of buyers ,” said Naveen Mishra, an Analyst at IDC India.

“We see the market getting further crowded. At the same time, an accelerated evolution of the market is at work, as rising competition forces vendors to offer a combo of volume and value,” said Kumar.

Source: SI

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Debt ratings agency, Fitch says that it expects the recent tariff war by new telecom entrants in India and the likely retaliation by incumbent operators, will have a significant impact on industry revenues and profitability.

The reduced tariffs will lower the ARPUs and operating margins for all industry players. In a recent report, Fitch stated that EBITDA margins of existing operators will fall on lower ARPUs in the near term. The exaggerated tariff reduction and competitive intensity will likely reduce ARPUs by 10%-15%, which is lower than expected.

The Indian telecom industry is witnessing price wars with the entry of the new telecom operators, which were allotted universal access service licenses (UASLs) in February 2008 by the Department of Telecommunication (DoT).

The new entrants (Aircel, Sistema Shyam Teleservices (SSTL) and Tata Docomo (GSM)) have launched aggressive tariff plans in an effort to garner subscriber market share. These new entrants have launched per second billing, either selectively or throughout their networks, while Tata CDMA has launched tariffs on a per call basis, irrespective of duration (Re 1 and Re 3 per call on local and STD, respectively). Following this trend, Reliance communication (Rcom) has reduced the tariff to 50 paise per minute for local, STD, roaming and SMS, for both off-net and on-net calls. BSNL has also launched per second billing plan in Karnataka, Andhra Pradesh and Orissa.

Fitch expects other incumbent operators to eventually match the reduced tariff plans, considering the adoption of mobile number portability in the near future.

Nevertheless, Fitch expects the Stable Outlook of the sector to continue, given the net monthly subscriber additions. However, the impending 3G and BWA auctions remain an event risk.

Fitch expects subscriber growth to be at a CAGR of 25%-30% over the next three years up to FY12, as compared to a CAGR of 44% in the last three years (FY07- FY09). The incumbent operators with strong balance sheets and strong portfolio of high-end customers in metro areas are expected to maintain their credit profile. However, Fitch expects new entrants to face increasing difficulties in garnering any meaningful market share, with already low tariffs leading to lower ARPUs, a lack of adequate spectrum quality and restrictions on spectrum sharing.

The telecom industry has yet to see service launch of other UASL holders like Etisalat DB Telecom India, Datacom, Telenor – Unitech wireless, Loop Telecom and S-tel. Fitch believes that the reduced industry profitability will likely expedite industry consolidation in the medium to long term.

Source: Fitch Ratings

Move over credit cards, India is now preparing to use the mobile contactless payment method. Citibank has announced the launch of Citi Tap and Pay pilot service in Bangalore as an effort to make the mode of payment more convenient. Using the NFC or Near Field Communication technology, Citi along with Nokia, Vodafone, ViVOtech and MasterCard, is aiming to gain insight into a wide range of parameters including, assessing customer acceptance to making contactless transactions through mobile NFC. This technology allows the user to use the phone instead of a credit card to make purchases at the grocery store, bookstore or eating joint. If the technology becomes a success in India, it will be a big opportunity for other banks to tap into the market with Citi as pioneers in the field.

The technology has already been piloted across other parts of the world and may soon replace the traditional credit card system. In fact Visa launched the world’s first commercial mobile payments service using NFC in Malaysia, in April this year. In Japan, the technology has already been employed by wireless carrier NTT DoCoMo which allows customers to use cell phones as mobile wallets. Now NFC is making inroads into India.

A recent study by ABI Research shows that globally, 450 million mobile phones will be NFC-enabled by 2011, which represents about 30 percent of handsets shipped worldwide in that year. Moreover, Strategy Analytics predict that mobile phone-based contactless payments will facilitate over $36 billion of worldwide consumer spending by 2011. Now, the banks are eying to cash in the Indian mobile subscriber base that stands at 415 million in May 2009 to promote the contactless payment. Jeff Semenchuk, EVP and Head of Growth Ventures, Citi Innovation said, “Citi believes contactless mobile payment services will be a key lifestyle driver for our highly mobile, international and increasingly urban customer base.”

The mobile phone can be tapped on a contactless reader at the point of sale to pay for purchases eliminating the need for the traditional swipe of credit cards. With this, the need to send SMS or mobile data charges is also eliminated. One can avail of the service free of cost and all one has to do is register and have a Citibank account and MasterCard card. However the service will function only on NFC enabled Nokia 6212 phones which cost Rs 11, 560 but will be sold at an inaugural price of Rs 5000. The customer also needs to have a Vodafone connection and will be charged for the GPRS service to make contactless NFC mobile payment.

Michael Mullagh, CEO of ViVOtech, which will be providing the reader machines and the necessary software said, “This new technology promises to revolutionize the payment and shopping experience and bring enormous benefits to consumers and the payment, retail and mobile ecosystems.”

Although there are already a few startups like mChek and Cashnxt that are planning to launch similar pilots in other parts of India, it is the first time that an initiative like this is being taken up in India. Out of the four lakh Citibank customers in Bangalore, the project is targeting around 5000 for the pilot which will be six months long.

Gartner assessed the suitability of APAC countries as offshore locations and identified “10 Leading Locations for Offshore Services in Asia Pacific for 2009.” These included the undisputed leader in offshore services, India, and the greatest challenger in terms of potential scale (China). The rest are a mix of mature environments that offer limited cost-benefits (Australia, New Zealand and Singapore) and emerging countries with a variety of challenges, but attractive costs (Malaysia, Pakistan, Philippines, Thailand, and Vietnam).

Although India continues to grow in top-line revenue levels of IT services being exported, its share of the overall worldwide totals has declined as other countries are investing to gain more market share. Enterprises seek strategies to reduce risk, and India faces challenges. These include wage inflation, local attrition rates, geopolitical issues (including the Mumbai terrorist attacks) and the “Satyam Effect.”

Despite increases in investment, infrastructure remains India’s biggest weakness while strained power capacity and inadequate connectivity remain challenges. Some IT service categories such as application outsourcing have matured and the level of incremental growth is smaller.

What about China?

China is still attracting great interest. But it has challenges to buyer confidence including security, quality and intellectual property issues, relatively low English-language capabilities, and a scarcity of middle managers.

A large portion of the current market is geared to R&D-embedded engineering services, which differ significantly from commercial enterprise buyer requirements. Thus, there is a need to build strong process and quality maturity for delivery of IT services to commercial enterprises.

Marketing skills across the value chain of the outsourcing industry are still immature, which results in a lack of information access and authenticated, verified sources of data for decision-making. Given the immaturity of the market, organizations wishing to set up in China should plan and budget for more substantial levels of project management, change management and governance requirements.

Where else then?

The Philippines generates considerably more offshore revenue than China. The country has a history of providing services to the US and Asian markets. Some IT services have been exported for more than 15 years. It’s now a key outsourcing destination for call centers, finance and accounting.

English continues to be the predominant language in the country and the level of accent neutralization required is relatively low – significantly lower than in India and China. It has a good labor pool that’s scalable at low cost and its overall cost structure is lower than India’s. Wage inflation and attrition ratios are also lower.

When considering the Philippines as an offshore location, companies must be sure to establish adequate risk mitigation measures around intellectual property protection, security and privacy. They should also ensure they are comfortable with specific technology and industry knowledge before signing a deal.

Companies seeking to be pioneers in a large and untapped low-cost destination should investigate Vietnam. Opportunities exist, but rigorous due diligence is required. Salaries of IT and business process professionals are among the lowest in the world. Consequently, Ho Chi Minh City and Hanoi are attracting a good deal of interest from major IT companies. Both IBM and CSC have made substantive investments in setting up global delivery centers in the country.

Companies should think carefully before allowing the cost base to overly influence their choice of Vietnam as an offshore destination. Understand all the risks, including hidden costs, risks related to data security, ease-of-doing-business issues and relatively low-level English-language skills. 

Source: Jim Longwood, Gartner

Nation with billions still outplacing multi-billion deals

Large deals are still being (or waiting to be) signed in Ch-Indian context, specially in the IT/ Telecom sectors.

India’s domestic demand:

Multi-year IT outsourcing deals from new telcos in India (Unitech Wireless, Loop Telecom, Swan Telecom, ByCell Communications and Datacom) are likely to be worth up to US$2 billion. Taking a cue from Bharti, the pioneer in this aspect (was later adopted by the likes of Vodafone, Idea Cellular), new telcos are likely to outsource their all IT operations, including setting up of IT networks and managing services. Leading Indian IT vendors such as Wipro, Infosys, Tech Mahindra are running against each other and the likes on IBM (contribution from India to its global revenue has soared in recent times). Most of these new telcos have already shortlisted IT vendors and are in different stages of talks.

According to reports :

  • Unitech deal (valued around US$ 600 million over 10 yrs) is expected to be finalized in May.
  • Swan Telecom (expected to be worth US$500 million) is looking at 2Q to finalize vendor.
  • ByCell Communications is evaluating proposals from vendors and likely t o decide on partner(s) soon.

Aircel, a regional telco that revved up plans to become a full-fledged national operator in 2009, has recently awarded a nine-year contract to Wipro. Deal was valued to be US$600 million.

China Inc. looking outward to ink multi billion dollar deals:

Chinese government has taken extra steps to help companies win deals from US and Europe.

Bloomberg reported on 27th April ’09 : “Chinese delegation in Washington, D.C. for a forum had signed 32 contracts totaling US$10.6 billion. The forum was hosted by the U.S. Chamber of Commerce and China Chamber of Commerce for Import and Export of Machinery and Electronic Products. Among the U.S. signatories are IBM, Cisco Systems, Hewlett-Packard, Dell, Microsoft, Oracle and Sun Microsystems. “

February ’09 update : “A trade delegation of about 200 Chinese entrepreneurs led by Commerce Minister Chen Deming arrived in Germany yesterday as the first leg of their four country tour. Following Chinese Premier Wen Jiabao’s Europe tour earlier this month the trade delegation will also visit Switzerland, Spain and Britain and is expected to sign a series of deals worth up to $15 billion. The delegation consists of joint ventures, state-owned and private companies and plans to sign deals for automobiles, machinery, aircraft engines, railway equipment, and foodstuffs.”