UCC and Telemarketing – Stringent Regulation & Monitoring Needed

In 2006 “Unsolicited Commercial Communication’ regulation initiation and subsequently National Do Not Call (NDNC) Registry was established in 2007. The purpose of NDNC was to enable Mobile operators dip into the database before connecting voice calls from e-marketers and forward messages to end subscriber. With further unseen problems, the regulators enforced tele-marketers to register with the regulatory body to get the NDNC dipping facility to scramble their database and match with NDNC before allowing call to non-NDNC subscriber base.

The suggested regulatory directives were fully supported with Mobile operators and NDNC cost was absorbed by mobile operators to improve the customer experience. Still Mobile operator networks are flooded with UCC and subscriber pain increased with the higher adoption of web usages. It leads to simple query regarding the failure of UCC control. With the adoption and evolution of mobile network and subscriber base, the number of business sector identified mobile marketing as a simplest mechanism to position their product given the cost verse reach factor. It brought Bulk SMS provider with short codes into picture. Many of the company started deploying Bulk SMS infrastructure with minimum or no feature set of SMS platform but got the short-code enabled with most of the mobile operators and used web-services to enable customer to launch their targeted subscriber base across Mobile operator network. In FY12, the Bulk SMS volume size crossed 25 Bn and expected to grow by 20 in FY13. In FY11, Airtel stopped Bulk SMS business and also advocated vigorously to increase Bulk SMS termination charges as mitigating factor by making Bulk SMS cost unviable in order to reduce UCC. All efforts of regulator and millions of $ investment showed no to little impact on UCC traffic volume. Detailed analysis came as rude shock as the UCC and tele-marketing turned as illegal business model by many rouge companies. They use 10 digit MSISDN number to send UCC and mention short codes as well as 10 digits MSISDN to enable interested potential mobile subscriber to get connected with the advertisers. UCC under the wrap of P2P messages goes undetected by mobile operator network and get delivered to mobile subscriber and in turn Mobile Network Operators are held accountable. Similarly, the tele-marketers are buying mobile subscriber’s number from various sources and use 10- digit MSISDN to go undetected by Mobile Operator as well as regulators.

Based on my analysis, the above mentioned activities by rouge Bulk SMS providers as well as tele marketers are inflicting major revenue loss for both Mobile Operators and Government. Under Telecom act, any message consisting of commercial information or potential of generating revenue for message sender must be considered as commercial message and cannot be treated as P2P message. Short Codes response request from subscriber P2A but in this case A2P message is missing in order to complete the cycle.

All these activities by few SMS based advertising companies for quick gain costed Mobile operators Millions as penalty from regulatory and landed them in loggerhead with regulators.

The Mobile Operators may opt for SMS aggregation platform with content monitoring, filtering and security to identify UCC and take the legal action. At the same time regulators may opt for stringent clause for companies opting of mobile advertisement based product awareness through rouge Bulk SMS providers. The companies giving a business to rouge Bulk SMS provider must be penalised so that other gets discouraged and opt for legalised Bulk SMS providers. Regulators may also opt for centralized Web Portal for both UCC and telemarketing related complaint, initiated action and end result. At the same time, the Telecom ministry should take subscriber awareness program which would lead mobile subscriber comes forward and lodge formal complaint.

In conclusion, UCC and unauthorized telemarketing is not only carrying nuisance value but also possess great threat towards mobile operator network, device security, theft of sensitive information and national security.

Unrealistic National Telecom Policy vision to achieve 70% Teledensity by 2017 & 100% by 2020

In June 2012, Indian Telecom ministry came out with National Telecom Policy to steer static to dynamic policy transition. The new policy goal is to achieve seamless availability, reachability, scalability, security and affordability across consumer and prosumer base through adoption of new network, technology and management. According to floated policy document, the ministry vision of achieving 70% and 100% rural teledensity by FY2017 & FY2020 looks too aggressive given multiple macro and micro environment of India.

In the past one year, Indian Mobile Operators are experiencing fall in net subscriber addition and current mobile subscriber base is 890 Mn with 39% rural teledensity which translate 333 Mn rural subscribers against a rural population of 858.37. The said teledensity is achieved through co-ordinated positioning of heavy advertisement, lowest tariff, Low device cost (starts from $15) and took 12 years post further liberalization in Telecom sector.

The ministry vision achievement looks bleak due to contrary policy movement w.r.t 2001 to 2004 era. Now with higher spectrum auction price (Upcoming), license fee, roaming policy, low tariff, ballooned debt situation, one time spectrum fee, low adoption of VAS services, slow growth of 3G subscriber base and competitive environment are impacting negatively to Mobile operator revenue, operational cost, interest outgo. These factors in turn forced Mobile operator to raise tariff to be viable and maintain minimum level of Capex to maintain the agreed quality of service set by the regulators.

Based on eagle eye calculation, the mobile operator needs to add 290 & 585.32 subscribers to achieve rural teledensity vision. The 80% and 176% subscriber growth in rural sector in next 5 & 8 years respectively looks extremely difficult given the World Bank statistics of poverty level in India by 2020 with 268 million lives under $1.25 per day.

In conclusion, given the current telecom sector environment with cost of offered service increasing beyond control would impact further rise in tariff and in turn impact rural subscriber addition. In order to speed up rural subscriber teledensity government may opt for free mobile phone scheme similar to free security bill. Even though, it looks unrealistic due to the low literacy level with below poverty line.

Indian Telecom Sector: Mounting Debt and Ripple Factor on Ecosystem

The Telecom growth story started in late ’90 and early 2000 helped India to survive worldwide economic downturn in 2001-2005 by creating millions of direct and indirect jobs absorbing major shock in ICT domain. The Telecom Mobile operator invested Billions of $ to increase network coverage, capacity, operational excellence and innovative services to cater dynamic transition of user usage trend. During the process teledensity of mobile subscriber started showing result and encouraged mobile operator to increase Capex threshold to support data oriented services. By 2007 – 2008, Indian Mobile operator completed the transition from circuit to packet switch with more 2.5G supported data and VAS services fulfilling subscriber usage pattern such as MMS, photo Sharing. With the growing adoption of wireless services and the potential to unlock the value of spectrum, high teledensity, enabling higher QoS through higher competition; government decided to allow additional mobile operators. The move acted as poison pill for Telecom sector. The new mobile operators moved into the market with price and volume strategy to increase the subscriber base to increase the valuation of company. The strategy started voice call charges even lower than 1 US cent for considerable period of time. The price sensitive Indian subscriber base started switching valuing more to price than performance. In order to retain valued subscriber base, incumbent were forced to lower the tariff price. The move impacted mobile operator ability to make respectful profit and in turn invest in modernization. The Mobile operator’s EBITA margin, operating profit, net margin went down drastically which attracted higher credit spread for most of the mobile operator. The 3G and BWA auction also increased to mobile operator wounds but they had no option to bid to be in the game. With already ballooned debt level of more than $46 Bn with more than 30% debt in foreign denomination, depreciating Indian rupee, is making it increasingly difficult for mobile operator to service. The mobile operator move to monetize tower assets attracted little to no interest as investors are wary of the surrounding environment. The recent regulation of MVAS, roaming, license renewal, mandatory participation in upcoming spectrum auction, high spectrum base price, and one time spectrum fee forced Mobile operator to change their strategy and turned them into sceptical from believers. The mounting debt level is showing ripple factor across different industrial sectors.

According to NASSCOM, Telecom share of IT spend is 17% and lower capex allocation impacted IT companies bottom-line. The slowdown in IT sector impacted Job creation and opportunity for Large to mid-Tier IT vendors which include OEM’s. Mobile VAS companies had no option but to reduce their revenue share or price to be competitive. The lower revenue realization impacted their product roadmap. The initiation to consolidate product and partner through managed service model impacted many small solution providers. Broaden competitive environment within managed service provider and subsequent contract redefinition with mobile operator linking utilization and capacity as revenue KPI’s. The lower margin contract forced managed service provider to put on hold the expansion. Impacted public and private sector bank with exposure of more than $7Bn to the mobile operator who lost their license and shut the operation. It would impact the cash flow within the economy and increased NPA of banks. As a result, government started infusing equity capital to maintain minimum capital adequacy of bank. The higher interest outgo and decreasing capability to generate free cash flow attracted credit rating which impacting FDI in Telecom sector.

In conclusion, Spectrum auction in early 2000 landed Europe in economic recession and similarly 3G and BWA auction put mobile operators in tough financial situation. The follow up’s negative market dynamics impacted broader ecosystem negatively. The friendly regulation, taxation, lower spectrum base price would act as stimulus for Telecom sector not investor road-show.

Indian Broadband sector adoption challenges

The broadband in India witnessed slow growth in the past year and expected to grow at lower rate. The YoY growth rate in FY12 was 13.79% with total subscriber base of 13.79 million (>=256 Kbps). The FY 13 would end with total subscriber base of 15.2 Million with a growth rate and teledensity of 10.2 % and 1.24% respectively. Moving forward the broadband sector subscriber and ARPU would grow at a modest rate of 12 to 15% & 10% YoY. According to TRAI document, Top 10 ISP contributes 93.1% of the total userbase whereas the total number of registered ISP stands at 159.It raises simple query about the growth potential in broadband sector in India. In my point of view, the broadband sector would face uphill task to grow to make the profitable return of investment. With the higher addition of around 25 Million Smartphone, Tablet, Notebook, Netbook and desktop PC offer opportunity for ISP to convert new device owner as customer. Private ISP’s launched co-ordinated advertisement program by investing around 10% of total revenue and managed to capture only 20% of the market share and rest are still with the government owned ISP’s. The price to performance also plays a crucial decision making factor for subscriber as taking a connection require one time investment by consumer for devices. In a price sensitive market like India, it impacted the overall adoption trend. Secondly, in recent years change in the taxation of telecom service, subscriber experienced additional cost of around 20% due to service and other tax which is playing as negative factor. Post the landing charge reduction by the ILDO’s, it was expected to have higher competition in the broadband sector and price point going down but the growth rate is still dismal.

In NTP-12 document released by DoT to “Provide affordable and reliable broadband-on-demand by the year 2015 and to achieve 175 million broadband connections by the year 2017 and 600 million by the year 2020 at minimum 2 Mbps download speed and making available higher speeds of at least 100 Mbps on demand” again looks over commitment. Most of the ISP’s have done huge investment with a hope of friendly regulatory environment but the happenings in the last 2 years on the licensing, spectrum, coverage, pricing and many hidden impactful moves dented ISP’s ability to be in the game.

In conclusion, to achieve set vision in NTP-12, ISP need stimulus in terms of friendly regulation, tax waivers on investment and offered service, innovation credits to make it more affordable for end subscribers and subsequently enabling ISP’s to take a shot to achieve set goal in NTP-12.

MVAS Regulatory– Technology and Business Impact on VAS companies

The government regulator initiative to govern VAS vendor and mobile service provider to protect end consumer needs further re-calibrations. Post consultation paper release in FY10-11 and subsequent responses from ecosystem stakeholders highlights showstopper as well as hidden opportunity around proposed MVAS. This article highlights Technological and Business continuity challenges posed towards VAS developer, Owner’s, and aggregators.

Before going into details of impact, MVAS regulation makes it mandatory for the VAS service provider’s to take authorization from end user to activate requested VAS service. Post authorization, Service Provider would be able to bill end user. The process must be repeated at the end of VAS service expiry.

The government regulatory wanted to address end user concerns of repeated billing or lengthy process of deactivating unwarranted VAS services but in-turn forced VAS ecosystem players to realign their VAS design, development and delivery mechanism

The technological and financial impact on the VAS providers would be the followings:

Technological Impact

1. All VAS provider would be enforced to change the service delivery mechanism both on the service and business logic level to support the regulation on Service Creation,Execution, Activation, QoS, Provisioning and Assurance
2. Enhanced two way Security, Business Intelligence, Reporting and Billing upgrades
3. All VAS provider would be enforced an automated customer care portal integrated with mobile operator website in order to seamless adhere regulation
4. VAS provider would be required to integrate minimum feature set of Service Delivery Platform and integrated CDN
5. All VAS provider must offer certified product or service w.r.t standardization for seamless integration with Mobile Operator Network
6. All VAS services or product must be certified across devices in order to get the security clearance from mobile operator
7. All VAS provider must have dynamic feature set with a capability of segregated and aggregated mechanism to enable and disable business and service logic based on the product offering

Financial Impact

1. Due to the high capex and opex cost by Mobile operator, there is a high probability that mobile operator would renegotiate the price point with VAS provider
2. High Capex in implementation required regulatory compliance feature set
3. High Capex in certification process
4. High Capex to upgrade VAS service or product attached  technological platform
5. Lower customer adoption and subsequent low VAS revenue due to stringent mechanism.
6. Low ARPU per customer across Apps, SMS, Data- music, video centric service
7. High Capex to offer committed QoS
8. Low RoI and High TC

In the midst of high competition, margin pressure and added hidden threats of MVAS regulation may take Indian Mobile Operator into VAS tariff war which till now was not affected with the same.

In conclusion, MVAS regulation might bring cheer for end user but High TCA, TCO, UAC and cumbersome processes would translate into Low - VAS Revenue, ARPU, Margin, RoI. It also possesses great opportunity for the innovative VAS companies to tap untapped VAS userbase.

Cloud Based Unified Service Delivery Platform – Low Cost and High Return

With the adoption of high speed data network supporting triple play services or products, the focus turned on increasing the adoption of data from voice centric service. Most of the mobile operator in India focussed on product positioning and experienced low adoption due to price vs. performance factor considered by potential user. Cloud based Unified Service Delivery Platform can be a game changer to enable mobile operator to tag innovative product provider with superior customer management. It would reduce User, Service, Partner acquisition, activation, upgrades, notification, billing, troubleshooting, RCA as well as management and operational cost. Reeling under decreasing EBITA, high TCA, high TCO and Low ROI, the potential proposition would enable mobile operator’s to achieve low risk and high reward through cutting edge Technology platform offered by leading and Innovative Technology companies. The same platform can then be reused to deliver Enterprise Horizontal and Vertical to tap the untapped business opportunity in India. In order to achieve the same, product manager should think ecosystem module of content, context, competition, commerce, connectivity closely tagged with Performance, Priority. In conclusion, shift towards User, Device, and Network agnostic environment to increase Product, Service, Customer, Revenue assurance.

Quality of Service (QoS) Guarantee of Data Service required to kick-start higher adoption

Currently Mobile Operators are considering new subscriber as data subscriber because new subscribers are enabled on data enabled network. Based on the government document on subscriber numbers, the data subscriber base would be around 430 million ranges whereas the VLR active data subscriber would be around 290 Million. The recent thrust by incumbents’ mobile operators such as Bharti Airtel, Reliance, and Vodafone to differentiate them self is from challengers such as Idea and Tata DoCoMo generated new specifics around network, services and product Quality of Services (QoS). In the recent past most of the mobile operators used to run their network on Best Effort mechanism as the focus was on non real time product portfolio. With the investment on 3G and increase penetration, mobile operators started tweaking network parameters to offer differentiated services to their end customers on the real time product portfolio segment. It increases their data centric revenue as mobile subscribers are getting uninterrupted real time data oriented services. The recent strategic moves by few incumbent and their constant focus on data segment started reflecting in their quarterly result. These must have network KPI's should be exploited by Mobile Operators to define new service and product portfolio's to generate new sustainable long term revenue opportunity.

Innovative VAS service offering required to increase sustained APRU in India

Based on the current mobile subscriber base, India contributes around 15 to 17% of total subscriber base of world whereas the ARPU is one of the lowest. The current ARPU in India is around $ 1.9 per month, which in turn is negatively affecting mobile operator to invest on the CAPEX and OPEX. Even though mobile operator increase in voice service tariff by 15 to 20% is not going to improve mobile operator finance, given the demanded one time license fee and proposed spectrum license in 900MHz and 1800 MHz’s, Mobile operator needs to find out other sustainable way to increase revenue to fulfill their strategy to be in the game. On detailed analysis of currently offered VAS (Value Added Services), most of the product portfolio’s are based on the SMS and IVR services whereas the real time data service offering is in nascent stage. Around 20% of the total subscriber base in India, availing VAS services in one or another way that opens an opportunity for mobile operator to change their strategy to focus on innovative VAS services away from extension of existing product portfolio. Indian subscribers indent to try new offering and Mobile operator should try the same to capture curious subscriber base to increase their APRU

840 Million Indian Wireless Subscriber by March 2013

In FY10-11, with the launch of services from new mobile service provider entrant and subsequent tariff price reduction, there was huge addition of new mobile subscriber base. In late 2010 and 2011 the monthly subscriber addition was at an average of 4.5 Million subscribers. The growth of Subscriber addition got muted post Supreme Court order in Feb 2012 to abolish the license of many mobile operators. At that point of time the analyst kept on forecasting growth in Subscriber addition. Many mobile operators, who lost their licenses, took the abrupt decision to stop offering their services in circle where their subscriber base was low, and cost of per subscriber addition was high. From July 2012, the subscriber growth rate turned negative. Given the trend and hidden macros of Mobile Operator ecosystem the subscriber base would touch 840 million by March 2013 from current level of 901 million. For optimistic analyst it's very hard to accept the forecast for Wireless Subscriber March 2013 but forecast which was done in early and late 2011 about FY12-13 is self explanatory