Why Optimism Around Home Grown E-Retailer Will Fade Soon.

The recent upsurge in e-Retailer segment business attracted analyst as well as retailer to claim explosive growth potentials in said segment. The CXO’s level of most of the Indian companies came out with growth projections which reminds me Telecom VAS forecast that happened in 2007. At least, Telecom VAS forecast came out as dump and many investors which include both PE and equity holders in publicly traded companies suffered huge losses.

Last many weeks, most of the print media focusing on growth potential in Indian Online marketplace and potential higher adoption of Indian consumer space includes WEB and WAP user base. All cheered Flipkart achievement of $1 Bn revenue club in short period of time and ended up comparing with the likes of Amazon and predicted that Indian Online e-Business is going to achieve multibillion $ club in next few years.

The recent investment by PE’s in Indian Online e-Retailers cheered many and as a result many new e-retailers jumped in fray with focus on valuation. E- Retailers also projected that the exponential growth of Smartphone adoption in India is going to offer them additional opportunities to create business but seems they missed many factors on ground level.

Some Of Them Are As Follows

1. How many e-Retailers are profitable?

2. How many users are using their credit card?

3. What is the cost of user acquisition?

4. What is the conversion rates w.r.t consumer visits?

5. The cost involved in payment mechanism due to CoD?

6. What is the repeat user percentage?

7. How many Smartphone users are using devices to place order?

8. Did e-Retailers offer guarantee to maintain security and privacy concern around device to offer seamless secure payment mechanism?

9. Who would be responsible for data theft in case of wireless hacking?

10. And many more

All investors are rushing to invest in e-Retailer in hope that down the line the online market space will mature and they will make money out of it. In my point of view, that is over optimism as retailers must focus on innovative approach to attract user and offer secure solution. Creation of Mobility Applications as well as offering product at discount to attract user is not going to work in long run. They invest heavily in promotions but given the total internet user base in India, it’s not justifiable.

India is a place of organized retail market and if e-Retailers want to entrench that segment to attract user towards their platform, they must focus on platforms and delivery mechanism supported with extraordinary consumer support management. Post aggressive push by International players such as Amazon it would be extremely difficult for home grown players to match them as International players already crossed the teething problems and exactly know the consumer dynamics and nodal points which works with consumers. Hiring top grad is not going to work but viral connection with end consumer is going to work. Indian marketplace is Atypical where any new approach gets lots of attentions. Once consumer experiences any issues then it’s a lost customer forever.

In the mobility approach home grown retailers must recognize that the money they spend on Print can be used to acquire consumers in one or another way. It would bring better conversion probability compared to current approach. In my views, early growth attach to any new sectors are in exponential curve and subsequently in high single digit. We must learn this aspect with growth story of Telecom sector. I also believe that some of the players would come up with strategy which is going to crack the potential and consumer adoption but for that strategy needs to be completely out of box rather than copycat.

Bharti Airtel Excellent Move – Bonanza for Post Paid Subscribers

Telecom Industry players post experiencing major headwinds started showing some sign of stability. In the last two years coins turns in favour of incumbent telecom operator and challengers as well as regional players are struggling to hold on to their explosive growth. Bharti Airtel seems taking the charge given their end to end telecom service offering including high speed data offering through 4G network. Bharti Airtel came out with unique tariff plan exchange for post paid subscribers. The move is going to give Bharti Airtel edge over competitor as well as opportunity to convert high APRU oriented Post Paid subscriber. Interestingly, Bharti Airtel identified the pain of subscriber of getting confused in choosing tariff plan from ‘000s available one as well as to manage multiple different plans for different kind of telecom services. Indian Telecom Service providers total ARPM or ARPU from VAS or ARPU from data is low compared to peers in developing countries. One of the major reasons of the same is freebies attached with pre-paid plan and MNP (Mobile Number Portability). Many pre-paid subscribers use Mobile Number Portability as mechanism to keep on taking freebies. The launched tariff exchange offer post-paid subscriber flexibility to allocate their chosen plan for voice, data, and value added service. It also offer subscriber to opt for remodelling of their plan once in a month. It would reduce Bharti Airtel resources in handling billing issue and would offer better revenue recognition capabilities. The predictive nature of plan would also help Bharti Airtel to add scalability for their successful VAS or data service by using dynamic resource allocation management. In my point of view, the launched plan is going to attract many subscribers and may fulfil Bharti Airtel goal of more post-paid user to increase ARPU across quad play services.

MVAS subscription record management – New Threat for Indian MVAS Suppliers and Mobile Operators

As per the directive from government regulators, all MVAS (Mobile Value Added Service) provider both in OnNet and OffNet environment of Mobile Operator must maintain subscription record of all offered MVAS product or application or services. The new directive is going to be in force by 10^th of July 2013. In new directives, there must be a mechanism for double verification of any new subscription or renewal of MVAS on pull or push basis from OffNet an OnNet environment which is directly or indirectly connected with Mobile Operator Network. On one hand, new directive is going to be relief for MVAS users whereas it is going to bring in multiple technical, operational and financial implications. In the past one years, on accessing financial results of both Mobile Operators and MVAS ecosystem players, it is evident that MVAS regulation impacted their revenue stream negatively and new directive is going to make ecosystem players business model more negatively than positively. As claimed by TRAI that there is an easy exit mechanism in place to surrender MVAS product or services but I humbly think the other way. The exit mechanism onus should not be user initiated but should be focussed on the first step of subscription request. The new directive is going to increase the churn rate of MVAS users further and financial impact is going to be much higher than expected.

Biggest and Growing Hurdle of Indian Telecom Sector Growth

In recent years, Indian telecom sector started experiencing cascaded impact on multiple fronts. Once, FDI investment darling experienced lowest FDI investment inflows in the last 2 years period. The constant amendment of regulation and non- correlated action initiated by both Telecom, Finance and Defence ministry helped growing doubt about government intention to offer single window clearance to International and domestic investor to invest across sectors. For post readers, the first opinion about me that I am critic of government but that’s not the fact. The issues related to ILD, roaming, MNP, MVAS, taxation of Vodafone, Idea,2G scam, 3G roaming agreement, voice service enablement for BWA license holders post auctioning license are few examples of lack of vision and wrong assessment of ground reality. Simple query pops up about recent additional tax demand from Vodafone, Bharti, Rcom and other Telco after 3 financial years. I don’t think that our finance ministry so incapable of not identifying the discrepancies on the fly. Recent penalty on Bharti for services which got discontinued 5 years back demonstrate that service provider must be open to get notice on any aspect any time from associated ministries. The operators collaborated on 3G roaming and I strongly believe that all the service providers are not stupid and incapable of identifying the positive and negative implications. The DoT notice and subsequently court orders for Bharti to pay 350 Cr as penalty only justifies that the communications in the form of consultation or any other form are grossly under rated. The immediate reaction of Telco industry was even more negative for investor as well government by demanding re-auction of 3G license based on the current and future policies projection or refund paid amount back to service provider. In a scenario when government is offloading their stake of Navratana PSU’s to control Fiscal deficit in order to delay another credit downgrade from rating firm. It is unfortunate to read news article that any scam investigation take the everything decade back and that got validated by Summoning the architect of Indian Telecom sector Mr. Sunil Bharti Mittal and Mr. Ruia. Being citizen of great India, my query to government is simple – Why investigating agencies woke up after 10 years. On the contrary, the parliamentary investigation panel, JPC chairman is willing to take the final decision without calling the prime suspect of 2G scam. Do we believe that India growing campaign will carry relevance when the reality is different? Recently, respected Finance Minister travelled to different geographies to attract FDI and also claimed seamless regulatory / Policy implementation. Today we are at 4.8% GDP growth and government is projecting 6.5% in coming few quarters. I am rest assured based on my analysis that it would even go down in current scenario. In my point of view, government inter departmental minister must discuss in GoM about their weakness rather than putting the onus on Industry.

Mr. Sunil Bharti Mittal, Mr, Ruia and many other industrialists are brand of India and International investor invests on the basis of their commitment not on the basis of Manrega or Food security. Still it’s not late; all of us must try on individual or collective level to increase India Brand which got dented badly due to policy paralysis in the recent past.

Is Indian PSU’s are helping in maintaining India Telecom Story

Indian Telecom sector started witnessing turbulent time post 2G scam. The entry of additional service provider added fuel in fire by escalating tariff war. It resulted in deep recession in Telecom sector. The incumbent private service provider lost major ground to regional and challengers in all circles. It prompted Incumbent to introspect their service offering and area of concern which resulted in fall of revenue attributed by multiple factor. The MNP regulation was used by low earning subscribers as a tool to get the freebies from competitors and get the communication service literally free of cost. The tariff war and easy way to get the connection offered subscribers a way to acquire multiple connections to avail lower tariff from multiple service providers. It also helped them to bypass roaming charges while being on other service geographies of service provider. The revenue sucking environment prevailed for more than year till 2G scam surfaced. The speedy trial and greater scrutiny of subscriber address forced many subscribers to stop using multiple connections. The sudden changes in regulatory environment dramatically increased non active subscriber base. In FY11-12, the VLR active subscriber base stood at 30-32% of total subscriber base. Post license cancellation by Supreme Court, the incumbent got an opportunity to realign their strategies to get back their lost subscriber base through multiple point of action. The decision initiated major write off of non VLR active subscriber and subsequently total subscriber base started going down steeply in first half and early second half of FY12-13. Bharti Airtel, Reliance communication, Vodafone, Tata and Idea shed out around 50 Million non-active subscriber base whereas Aircel, Uninor, Videocon and other lost millions of subscriber due to the license cancellation. The unexpected move by Incumbents took everyone by surprise and all analysts scrambled to re-access the growth potentials in Indian Telecom sector. The government also struggled to project their India Telecom growth story afloat. During all these period, I failed to see any write down by government PSU telecom players. The TRAI Feb 2013 subscriber data clearly indicates the same. In Feb 2013, Indian wireless sector again started showing net positive subscriber addition which also includes positive net addition by major PSU Telecom Company. On detailed analysis of VLR active subscriber base, it is evident that PSU company VLR active subscriber % is only 54.17 of their 100.6 Mn subscriber. The incumbents VLR active % are running at higher than 93 % and current VLR active subscriber base is 712 million out of total subscriber base of 862 million. It translates to a conclusion that PSU contribution in non-active subscriber base is currently running at 30.5%. Based on the TRAI directives and release of number, incumbent were directed to indicate non VLR subscriber data as well as to initiate the clean-up process. The non-initiation of process by PSU might be a reason to keep the Indian wireless sector growth story intact. I believe that proactive approach by PSU to clean up the non-active subscriber base would bring down Indian wireless sector subscriber base by another 7-8% to 820 – 840 Mn range by the end of FY13-14

MNP in India is facilitating Incumbent to recapture their lost ground

The intention of regulators is to offer level playing field in telecom segment and also to enhance the service offering QoS indirectly. At the onset of MNP launch, the challenger and regional player clutched the opportunity to grab new subscribers by offering lucrative voice and text plan. It also triggered tariff war escalation which impacted industry dearly. The addition of new subscriber also encouraged challenger and regional player to go in big way in introducing new but not successful product with lower price points. By early 2012, it was the talk of street that incumbent players are going to suffer more subscriber loss due to aggressive price point coupled with free minutes by the competitors. The revenue growth of the regional and challengers started falling at higher speed than incumbent which led to subscriber dissatisfaction. For the last few months the average per month request crossed 2.5Mn. On detailed analysis, it is quite clear that once the dominant subscriber acquisition strategy of challengers and regional players did not work and they lost revenue generating subscribers to incumbents. At the same time, the Supreme Court ruling on challengers and regional player service continuation in cancelled service area led subscriber in no man’s land. The subscribers used MNP as a tool to keep their communication system running and not losing the contact with their dear ones. The regulatory directive which was once used by the regional and challengers the most to hurt Incumbent in turned impacted them the most. It is believed that the regional and challengers brand image got the major beating and it would take additional advertisement in dollars and years to recover the same level of trust from subscriber end. Idea Cellular result validated the same.