3G fallout: Call-based tariffs to give way to data-based tariffs

After the 3G rollout, the possibility of massive increase in data-based services will give mobile operators an opportunity to create products and tariff plans with data-based services as the base product instead of voice-based services, thus unlocking new revenue segments

With the impending launch of third generation (3G) spectrum for mobile services and robust response to the ongoing broadband and wireless access (BWA) auction, data-based services like short message service (SMS), multimedia messaging service (MMS), Internet, music, video or games are likely to rule in future. This will be a paradigm shift from call making and receiving (voice-based) model that every mobile service provider has followed till date.

Whether it was a tariff of Rs16 per minute per call (the rate prevailing when mobile services were launched in India for both incoming and outgoing calls) or pay-per-second tariff—most of the time subscribers are lured by voice-based tariff plans. Traditionally, voice calling has always been the basic service offered by mobile operators. The industry has used average revenues per minute (ARM) as a benchmark for their earnings. This will be no longer there in the future. Instead, the industry will have to use average revenues per kilobyte (KB) as a benchmark over the long term.

"In a 4G (3G for India) flat-IP world, where voice is just another application, households and businesses want a data 'bucket' they can use to view any content they want like Internet, music, video or games on any device they own,” said Nielsen in a research note.

According to Nielsen’s ‘Customer Value Metrics’ research, which analyses the wireless services bills of 60,000 mobile subscribers from the US, customers in the age bracket of 18 to 34 have increased their text messaging to 845 messages per month from 138 messages per month between the first quarter of 2006 and the fourth quarter of 2009. During that same time, their voice minutes decreased to 943 from 1,094.

Back home, similar trends can be seen. Although many service providers such as Reliance Communications introduced the unlimited SMS concept, it did not show any real increase in the number of subscribers just because of access to unlimited messages. Apart from SMS, not many mobile operators focus on other data-based services. While all operators claim to provide uninterrupted calling service, due to lack of superior network coverage, the same is not true for data-based services.

Over the years, lack of spectrum or rather uneven allocation of spectrum and competition has resulted in poor network performance which has not kept pace with increased demand. To gain market share, these operators resorted to price wars and reduced their tariffs to such an extent that today India has the lowest average revenue per user (ARPUs) at Rs150.23, in the world.

“Indian service providers are in a frenzy to capture market share as quickly as possible. Thus, new service providers will find it difficult to gain market share in the crowded wireless market. They will face challenges in terms of high subscriber acquisition costs, lower ARPU customers and lack of adequate spectrum quality. Getting superior network quality and communicating the same to the consumers will prove helpful,” said Shankari Panchapakesan, executive director for telecom practice, Nielsen, in a research report.

Given the aggressive bidding for 3G auctions, BWA auctions are also attracting equal attention from operators. Ratings agency CRISIL feels that winning 3G spectrum blocks in their key circles will help the players retain their market positions, reduce congestion in traffic through the use of additional spectrum and thereby enhance the quality of their services. Besides the higher spending and lower returns estimates, telecom operators will have to face the impact of mobile number portability (MNP) and 2G spectrum management and licensing norms.

MNP, which allows subscribers to retain their existing mobile telephone number when they move from one access provider to another, has been delayed for the third time. According to industry experts, implementation of MNP will not happen before 3G. They say with 3G, all major operators would upgrade their existing networks, technologies and prevent high-value subscribers from migrating to other operators. (see: http://www.moneylife.in/article/8/5586.html)

The telecom industry is going through an unprecedented phase of hyper-intensive competition resulting in a sharp fall in operating metrics, slowing down of revenue growth and declining profitability.

However, one thing is sure. The rollout of 3G will put data-based services on a fast track. Looking at the way ARPUs have been falling across subscribers and given the present call rates, mobile service providers will soon have to explore other avenues in order to earn money. The possibility of massive increase in data-based services give operators an opportunity to create products and tariff plans with data-based services as base products instead of voice-based services, thus unlocking new revenue segments.

Another way mobile service providers can take advantage of these paradigm shifts in the long run is to switch to offering total communication solutions, especially for families, from just selling subscriber identification module (SIM) cards to individuals. Till date, not a single operator has targeted a family to sell a complete communications package, including mobile, broadband internet, Internet Protocol Television (IPTV) and so on. With 3G, they can even add video calls in the package.

Whether mobile operators can explore new opportunities to earn revenues will be revealed in the next few months. Those who can, will survive. The rest will be merged with some player who is earning money through innovative product offerings.

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    Tata Motors total revenue grows by 30.5% in FY10 over previous year to Rs92,519 crore

    India's leading auto company, Tata Motors reported a net profit of Rs2,571.06 crore during the year 2009-10 against Rs2,505.25 crore loss in the previous fiscal. Its total revenues were at Rs92,519.25 crore posting a growth of 30.5% over Rs70,880.95 crore in the previous year. However, the company said that the consolidated financial performance is not comparable to the previous year 2008-09 on account of the acquisition of Jaguar Land Rover in June 2008.

    In a regulatory filing, the company said in domestic market its commercial vehicles sales increased by 41% to 373,842 units leading to a market share of 64.2%, up from 63.8% of last year. In the passenger cars and utility vehicles segment, the company reported an annual sale of 260,020 units in the year ended March 2010 over 207,512 units in 2008-09. There has been strong volume growth both at Tata Motors and at Jaguar Land Rover.

    On Thursday, Tata Motors shares ended 4.74% up at Rs742.90 on the Bombay Stock Exchange, while the benchmark Sensex closed 1.70% up at 16,666.40 points.

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    NIIT launches training on Microsoft Azure Platform

    Asia's largest IT trainer, NIIT Ltd said it launched a cutting edge training program based on Microsoft Azure Platform.

    The initiative by NIIT will allow students to look at the next generation development opportunities and job roles as 'SaaS' (Software As A service) becomes more prevalent and applications are created for the Cloud, the company said in a regulatory filing.

    A large talent of skilled manpower with the ability to develop "Cloud Ready Applications" is key to the success of this momentum, the company said in a statement.

    On Thursday, NIIT shares ended 1.96% up at Rs59.90 on the Bombay Stock Exchange, while the benchmark Sensex closed 1.70% up at 16,666.40 points.

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