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With the availability of high bandwidth 3G networks and increasing smartphone penetration, telecom players will have to gear up to embrace m-commerce in a big way. Else, the sector might well become a sunset industry
The Indian telecom industry is at a crossroads. Unless it opts for innovation, it might well become a sunset industry. Companies will have to look much beyond consolidation — which almost seems like a given, considering the considerable advantages that will accrue to players who will tie up across various circles — to combat the varied challenges facing them.
Players have to take full advantage of technologies like 3G and offer more mobile value-added services (MVAS) that can generate more revenues. And most importantly, they will have to channelize their efforts into adopting mobile commerce (m-commerce).
Currently, some baby steps have been taken to promote m-commerce — but this is more because of the ingenuity of users rather than any foray from telecom operators. For example, fishermen from Kerala receive text messages from local markets which keep them informed on the daily prices of marine products — so that they can decide whether it is really worthwhile for them to take their trawlers out to sea on any given day. Similarly, a few banks have also initiated m-commerce gateways, where money is transferred to a payee when the beneficiary of a remittance displays the contents of a text message from the issuer, to a bank. But these are just minor developments in the field of domestic m-commerce — much more can and needs to be done.
According to industry body Associated Chambers of Commerce and Industry of India (ASSOCHAM), the MVAS industry is projected to register a turnover of Rs280 billion by 2013 — up from the current Rs97 billion, after the rollout of 3G services in India.
Over the past few years, mobile penetration in both urban and rural segments has been growing at a phenomenal pace. But despite strong growth numbers, all Indian telecom operators are facing falling average revenue per user (ARPU).
India is one of the fastest-growing telecom markets in the world. During 2009, total mobile subscribers in India (including GSM and CDMA users), crossed the 50-crore mark.
But fierce competition and cutthroat price wars have crashed ARPU numbers; last year, it stood at a measly Rs147 per month — the lowest in the world.
“The main reason for the drop has been intense competition to capture new accounts by predatory pricing and market saturation. Consequently, operators have increasingly focused on generating alternative revenue streams by providing value added services,” says a recent paper on m-commerce by consulting firm Deloitte Touche Tohmatsu Ltd (Deloitte).
Currently, mobile operators have restricted MVAS to basic services like caller tunes, ringtones and wallpapers. But these technologies are bare-boned and easy to replicate. Once an operator offers such low-end services, other players have no problems in following suit, and they are doing so.
Another issue is that these low-end MVAS can be easily pirated — which means the average Indian consumer, who has value-for-money on his mind, has been increasingly shunning ‘official’ services and is opting for cheap knock-offs.
As a result, mobile operators have failed to generate any significant revenues from these basic services. It is not that players have not been trying to stand out from the clutter. A few organisations, especially CDMA operators, have tried to leverage their technologies and offer MVAS like mobile TV services. But the response from consumers has not been encouraging, thanks to the level of technology which telecom companies currently have in their arsenal.
A few brokerages have tied up with telecom companies to offer mobile online trading facilities. Despite the obvious advantages that a facility like this kind can offer market traders, the response has been tepid at best.
Reliance Communications (RCom) is planning to offer live streaming, scores and commentary of the International Cricket Council (ICC) World Cup, 2011, on a mobile platform. However, this initiative would be operational only for a limited period; this one-off effort will not translate into a recurring source of income for RCom. The mobile services company is also planning to offer the World Cup 2011 theme song as a caller-tune — but that again is a basic service with hardly any value-addition. Subscribers are bound to stumble upon websites that will offer this caller tune as a free download.
But players in the Indian telecom space had better get their m-commerce act together, and soon. According to a research report from analyst firm Berg Insight, the worldwide number of users of mobile banking and related services is estimated to grow at a compounded annual growth rate (CAGR) of 59.2% to reach 894 million users in 2015 from 55 million users in 2009. “People who sign up for their first mobile subscription today will likely open their first bank account in the coming years and thus join the modern financial system. Mobile operators can play a vital role in this development and will have the opportunity to take an active part in the creation of some of tomorrow’s most important financial institutions based in Asia and Africa,” Berg Insight added.
Echoing the same view, Sachin Sondhi, leader, strategy and operations, Deloitte (India), said, “We believe the mobile e-commerce space provides tremendous opportunities to operators to increase revenues and drive profitability. While it is easy for telecom operators to build one side of the platform and acquire the consumers as they own the relationship, it will be challenging for them to get the merchants on the platform and consequently show value to them.”
But not everyone agrees that m-commerce, especially mobile payment systems, will take off in a hurry. In a recent report, market intelligence service provider International Data Corporation (IDC) has said that mobile payments would take off slower than many industry observers hope, due to the complexity and set-up costs for retailers.
However, strong growth in mobile banking will lay the foundations for growth in mobile payments, it added.
Today, Japan rules the world of m-commerce. Last year, mobile Internet shopping exceeded $10 billion. The US could manage only $1.2 billion worth of m-commerce for the same period.
In the case of India, one has to wait to see how the rollout of 3G and increasing smartphone penetration will help the nascent domestic m-commerce industry. But the high prices paid by various operators across different circles will put more pressure on operator profitability and shareholders will demand higher profits, says Deloitte.
Nine telecom companies, including Bharti Airtel Ltd, Vodafone Essar Ltd and RCom along with state-run MTNL & BSNL have paid Rs67,719 crore to the Indian government for 3G spectrum fees. All private telecom companies had participated in the 3G auction process, which went on for 34 days and ended on 19th May. However, because of intense competition, no single player could secure airwaves throughout the nation for a 3G rollout.
With the imminent implementation of 3G and mobile number portability (MNP), the competition is only bound to become more intense in the telecom space. While the department of telecom (DoT) is examining the possibility of allowing new entrants to merge with larger operators, other dominant players in the m-commerce space like device manufacturers, retailers and payment gateway providers are already finalising their plans.
This is bound to make the m-commerce forays of mobile operators that much more difficult. Mobile device based platforms like those developed by Apple, Google and payment networks like MasterCard and Visa already pose a clear and present threat to mobile operators in India.
The Deloitte report says, “With mobile operators in danger of getting disintermediated in the mobile e-commerce ecosystem, the telecoms need to change the way they look at their business and evaluate mobile e-commerce to help them monetise their assets to build a sustainable advantage. The answer lies in developing a two-sided platform which can enable operators to bring consumers and merchants together through a mediated commerce platform.”
So what can domestic players do to boost their m-commerce forays? “The solution lies in solving ‘hard jobs’ the consumers face by monetising data across platforms (DTH, mobile and broadband) and creating an effective ‘local search to sale capability’ for closing sales. The operators can then, over a period of time, expand their merchant network and command a share of closed sales. Else they risk getting relegated to (becoming) peripheral players — a ‘glorified pipe provider’, while others create and capture value,” said Deloitte’s Mr Sondhi.
According to research firm Gartner, by 2012, money transfer will be the top consumer mobile application, followed by location-based services, mobile search, mobile browsing, mobile health monitoring, near field communication services, mobile advertising, mobile instant messaging and mobile music.
This shows the growing need for Indian service providers to gear up for MVAS — with a special focus on e-commerce — to shore up their ARPU. That is the only way in which mobile service providers can ensure that they get back in the black. But will the industry wake up and smell the coffee?
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We dug deep into the coal behemoth’s seamier side. Though Coal India is flying high now on the back of its big-bang IPO, it really did not come up smelling of roses
Now that the hype about Coal India Ltd's (CIL) Rs15,000-crore mega initial public offer (IPO) is dying down, now it's time to look at the company's darker side.
For instance, there are about 615 proceedings pending against employees of CIL and its subsidiaries, including investigation by the CBI and the Central Vigilance Commission, (among other regulatory bodies) relating to corruption and other charges. Still, CIL firmly believes that these proceedings will not impact its financial results. The world's largest coal reserve holder, in its red herring prospectus, has not submitted a comprehensive list of legal proceedings.
In May 2010, MP Dikshit, ex-chairman and managing director of South Eastern Coalfields Limited (SECL), a subsidiary of CIL, was arrested by the CBI for allegedly accepting about Rs1.30 crore from two private firms. In 2003, the government suspended NK Sharma, CMD of CIL, on allegations of corruption. He was charged with misappropriation in the purchase of coal and allegedly favoured Bharat Earth Movers Ltd for awarding a contract.
The Centre is also fully aware about CIL and its subsidiaries' illegal practices but it looks like the government, and indeed, the coal behemoth itself, do not seem to be concerned, since the entity accounts for more than 80% of India's coal output.
Recently, Union coal minister Sriprakash Jaiswal had told reporters that the Centre has taken "adequate efforts" to curb corrupt activities in the coal sector, which had built up over the past 30 years. However, he did not miss the chance to blame state governments, saying that the Centre is "not getting help" from them in eradicating corruption.
As on 10 September 2010, nine public interest litigations, three criminal and ten income-tax cases have been filed against the company. Despite being a government undertaking, CIL is also facing allegations from other government departments. The Department of Central Excise and Customs has raised a claim of Rs6.40 million against the company (CIL did not provide the detailed information in its red herring prospectus).
There are 16 arbitration matters and 10 civil cases, which account for about Rs268.69 million and more than Rs100 million respectively, involving the company.
Additionally, there are about 160 cases relating to sales and marketing disputes filed by CIL's consumers. The company has also been charged for alleged encroachment of land for carrying on mining activities and 236 service matters have been filed by its employees.
CIL's subsidiaries are one step ahead as far as pending litigation goes. More than 250 criminal cases have been filed against Bharat Coking Coal Limited (BCCL), another subsidiary of CIL. One notable case has been the criminal case filed by the directorate general of mines safety, against BCCL officials, alleging that certain company officials had failed to take timely action to repair or replace badly-deteriorated pipelines which resulted in the death of three workers.
Six public interest litigations and a whopping 448 tax cases, relating to sales tax, service tax, royalties, rural employment and primary education cess, and bank guarantees which involve Rs5,696.27 million, have been filed against BCCL. A total of 868 civil, 843 service cases and 71 arbitration petitions have also been filed against BCCL.
Central Coalfields Limited, which has lost 11.26 lakh tonnes in production till June this year, is also facing allegations for illegally dumping hazardous waste, forceful occupation of land, violating environmental norms, evading electricity duty and various tax cases. The total amounts involved in tax cases and arbitration cases are Rs29,423.42 million and Rs478 million respectively. The directorate general of mines safety has also slapped accident cases against a few CCL employees.
Central Mine Planning and Design Institute Limited (CMPDIL), Eastern Coal Fields Limited (ECFL), Mahanadi Coalfields Limited (MCL), Northern Coalfields Limited (NCL), South Eastern Coalfields Limited (SECL) and Western Coalfields Limited (WCL) - all CIL subsidiaries - are facing thousands of cases relating to criminal, tax, encroachment and environmental issues amounting to billions of rupees. A molestation case has also been filed against a senior official of NCL.
A media report says that despite the company's safety and health measures, the situation is still poor. Major accidents were in the New Kenda Colliery (54 deaths) in 1994, Gaslitand mine (65 deaths) in 1995, and Bagdiggi mine (29 deaths) in 2001 and there is also a steady toll of smaller accidents. In the case of units under CIL, the annual number of deaths run at an average of 190, added the report.
Despite the company and its subsidiaries being charged with serious allegations, almost all market pundits and research firms have gone ballistic over the IPO citing the company's strong balance sheet, rapidly growing production and reserve capacity and increasing demand for the company's products.