by karan on February 21, 2009
in Business
The mobile phone today, is as ubiquitous as a wristwatch was for most of the 20th century. It is, in fact, on its way to pretty much replacing the wristwatch as the one item you never leave home without. It has already become our center of communication (whether for calling or writing) and is one the way to becoming the center for information and eventually entertainment. This shift in consumption of services on the mobile platform is very significant as the mobile population of the world is in the billions! I explore the effect of this shift on the various participants of the mobile business ecosystem.
Value Addition
Voice and text (SMS or Short Messaging Service) are the bread and butter of a mobile phone. These are known as basic services. Every single phone sold today MUST be able to provide at least this level of functionality. Voice and text, however, are the ultimate in commoditized services (i.e. - no one has a competitive advantage. Talking on one phone vs. the other is essentially the same) and therefore are very low margin products. Most operators, therefore, have to rely on what is known as Value Added Services or VAS to increase revenues and margins. VAS includes data access, email, various information services (sports scores, news alerts etc.), content (ringtones, caller back tones, wallpapers etc.), games (all of you know Snake or Brickbreaker), applications (ticket purchases, banking, money transfer) and so on. All of these services are differentiators for operators. They are used not only to attract customers, but also have much higher margins. The current size of the VAS market in India is estimated to be about $1.8 billion (Rs. 9000 Crore) and expected to grow to $3.5 billion (Rs. 17000 Crore) over the next 12 months. That’s a HUGE 70% growth rate.
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by karan on February 4, 2009
in Business
Bharti Airtel Limited (the holding company for the Airtel brand and service) is one of India’s 5 largest companies by market value (the actual rank goes up and down a bit everyday depending on the stock price). Airtel is also a relatively new company (started in the mid-nineties in its current avatar). It was also not always the huge success it has turned out to be. Sunil Mittal, founder and Chairman of the company, has stated in many an interview that for a number of critical years, the company was paradoxically on the cusp of both bankruptcy and great success. Through a combination of business sense, sheer hours and of course, luck, it fell on the right side of the net.
Airtel today, however, is probably one of the best run companies in the world (most definitely in India). It is the largest telecom player in the country and has the advantage of both massive size and a very high-growth industry. It’s worth about $25 billion and growing fast.
The secret of its success (at least in my view) has been its model. Airtel focuses only and solely on two things - customer acqusition & servicing (retention) and business development/expansion. ALL other functions - hardware, network management, backend applications (billing etc), value added services and even telecom infrastructure - are outsourced. Airtel pioneered this in the Telecom game. It was the first to give up network management to companies like NokiaSiemens and Ericsson, IT and backend applications to IBM, billing to someone else etc. It was also the first to divest it’s hard assets, i.e. - its telecom towers - to a separate company and lease them back themselves as well as monetize surplus bandwitdh by selling to other operators. This was the ultimate act in putting the faith in the brand rather than in iron and steel.
Of course, having seen Airtel succeed with this, a number of the other operators are now trying to follow in some way or the other.
Because of this focus on the customer experience and on business development, Airtel has been not only the fastest growing but the most innovative of operators. It has realized the importance of having access to the consumer at all levels, and therefore is going from core mobile to landline internet, Digital TV (DTH) and even digital cinema (theaters). Its taking AT&T’s triple play and making it quintuple (5x)-play and more.
It is also one of the few companies that has realized the importance of value added services (VAS) early on in the game and is gearing up to provide compelling applications and content for when the explosive subscriber growth in India eventually slows (as it surely will).
Airtel is a company I greatly admire. As a disclaimer, I don’t currently hold this stock but have in the past (profitably) and plan to do so in the future. I’m pretty sure this is a great bet going forward.
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