And now, wallet-phones

At 1.5 billion minutes a day for the last year, there has been a lot of talking on market leader Bharti's phones, by the 94 million subscribers it has today. But, as a news feature in this newspaper on Monday points out, these minutes are growing at a slower and slower pace—from 17 per cent in the first quarter of 2008-09 to 5 in the last quarter of the year. Should Bharti be worried? After all, the bulk of new subscribers have to come from rural India, where users have lower incomes and have less of a network of people to call. More important, should others in the telecom industry be worried, especially newcomers who, unlike Bharti, do not have a running cash flow? Thanks to Bharti’s huge volumes and low-cost operations, the lower call-minutes as well as the lower realisations from those minutes (prices have fallen by around a sixth in the last year) have not resulted in a situation where Bharti is selling minutes below cost. Average tariffs are 60 paise a minute; Bharti's President Manoj Kohli told this newspaper three years ago that the company was working at remaining profitable even if prices fell to 50 paise.

 

For the industry as a whole, especially newcomers, the operating dynamics could be quite different. As telecom becomes more of a commodity play, firms need very large volumes in order to remain profitable. The business model for newcomers would seem to hinge on bagging a huge premium by selling the scarce spectrum that they got at bargain-basement prices—the high-decibel ad campaign by a few of them is aimed at ensuring they don’t have to make distress sales, and also to keep the government from cancelling their licences for failing to meet rollout obligations. In the long run, however, there is little doubt that the industry needs to broaden focus, from just voice traffic to include more value-added services. To some extent, this has already happened, and ring tones, caller tunes and other downloads comprise around a tenth of industry revenue today; this needs to double or more in the next five years. While there will be costs attached, a lot more of revenues will go straight to the bottom line than is the case today.

Market leaders like Bharti, Reliance Communications and Vodafone are already working hard on this. While Reliance’s strategy seems to be one of leveraging its entertainment network, from producing movies to distributing them, to give consumers more movies/songs, Bharti is working on developing an m-commerce platform, to transfer money, and to pay for pizza and airline tickets (your phone becomes your wallet); several successful pilots have already been tested. Tata Teleservices is trying to provide all manner of citizen services at a price—it has a pilot where fishermen are provided live information on wave heights, best fishing areas and prices at various markets; this is free right now, but eventually the idea is to charge. In short, as Bharti’s deputy CEO Sanjay Kapoor told this newspaper recently, the company's strategy for getting the second 100 million subscribers will have to be very different from that used to get the first 100—not only does the marketing language now have to take into account India’s hundreds of dialects, the company needs to provide entertainment, m-commerce and other facilities. In other words, tomorrow’s phone will have to be much more than a talking device.