Perspective # 34 – Indian Telecom Innovations

Indian Telecom Innovations: India crosses 600 Million Mobile Users!! The recent Industry report says India will cross 1 Billion by the end of 2013, making it the world’s largest mobile market beating China.If you look at the TRAI numbers we will hit the Billion mark as early as 2012. This means India will have more than 100% teledensity by 2012 from the current teledensity of 54.10% – means, more mobile connections than number of people living in India!

This blog story is thought provoking."Years ago in 1992, at a Paris telecom conference the CFO of VSNL was worried about his $90 per diem (including lodging, boarding and transportation) and the poor chap did not have enough money to cover his Paris hotel bill!!! And now in 2010 ITW conference, about a hundred TATA/VSNL Communications employees wined and dined more than a thousand guests at the Museum of Fine Arts in Washington, DC."

How the world has changed! And it is not only Indian consumers who are winning,this growth sector will generate employment opportunities for 10 million people by 2012! That is lots of jobs – more than the population of Sweden. Arun Sarin who was on verge of getting ousted earlier was given $33 million as salary and perks during 2007 for India performance.. and that is classic win win :)

The revolution is helping the cops too! Recently the absconding Swami Nithyananda who was hiding in a remote village was caught as his cell phone ditched him – trapped by waves from heaven :) :)

No wonder that though most Telco’s have heavy debts, the recent 3G license led to jaw dropping 100000 crores to govt kitty out of thin air… Let us dig into the innovations that led to the great Indian telecom revolution.

Recently Prof. Vijay Govindarajan wrote in HBR about reverse innovation success in Indian Telecoms with the Bharti example "Bharti has innovated a management model — the virtual corporation — that has enabled the company to manage an enormous subscriber base and still grow cost effectively. Mittal and his top management team came up with the revolutionary idea of completely handing over to vendors the responsibility for building up and managing the company's telecom and IT network.

"When the proposal was originally put on the table," said Mittal, "most of our board members jaws dropped, and they thought we had gone crazy."

Bharti Airtel now offers mobile telecom service at $.01 to $.05 per minute, perhaps the lowest in the world. Despite very low prices, Bharti has enjoyed compounded annual growth in sales revenues of 120 percent and growth in net profits of 282 percent per year between 2003 and 2010. Also by transforming the telecom infrastructure, Bharti was able to offer additional value-added services on the mobile platform. For instance, its Music Bharti is now the largest music company in India."

The famous 1994 outsource of ‘percieved core’ of Bharti to Ericsson and IBM is a case study worldwide.As Bharti did not have any telecom legacy the writing in the wall was clear! Yes,the 'network' is an important 'hygiene' factor - but not the core. Period. Dig this profound interview - "The network has moved from a delight factor to a dissatisfaction factor because expectations have increased. Second, look at impact scores relative to customer satisfaction. A few years ago network might have been 70 per cent of the impact score, then you’d have service, sales and marketing, billing all below that. Today the impact of network has reduced and the others have come up. Customers are more concerned that their bills are accurate, they’re on the best plan, customer services answers the phone and quickly and resolve the problem. Network is still the most important factor, but relative to the others it has less impact today."

There were other radical innovations at play which helped India win the telecom race .. read on …

The concept of ‘satisfice’. Satisficing describes the situation where people settle with a solution to a problem that is ‘good enough’ - Herbert Simon who invented this won a Nobel Prize.I had worked with Cable & Wireless for over seven years – one of the oldest Telecom operators which was founded in 1860s. We always strived for ‘Telco Grade’ – the mental model which told us that telecom systems should be ‘mission critical’ (read over engineering, expensive) – and we ‘knew better’ as we were in 150+ countries over 100 years! Bite this - When Reliance India Mobile launched the disruptive Rs. 500 deal, they did not have a proper billing system in place (these are sacrilege in telecom world obsessed with Five 9 reliability) but who cares – for 500 bucks you get a handset and connection..you want six sigma quality billing system also? C’mon :) In other words Reliance satisficed the masses.The challenge for marketers in India is to meet the psychological price-point 'no 5' ! The 50 paise candy,Rs 5 chocolates- Gems, Kit-Kat, 5 Star etc., Rs 5,000 refrigerators are examples. The innovation called satisficing is the only option left! Chocolate puritans may say that the 5 Rs Kit Kat taste like chalk,but at 11 cents how can someone sell a quality chocolate sir? You should be kidding :).Also note that in these killing fields - we cant position them as loss leaders .. as nothing in the backyard can be sold as 'premium' later in this age of commoditisation.

I recall those days in C&W... We were happy with the 60% vendor discount we managed, flaunting our global purchase and muscle power :) ask any vendor here in India - the discounts start at 80% ,are made to sit late nights (yes!) and still they lose competing with chinese gear and open source!!! Bharti's famous 'I will pay you only if I make money' - the pay as you grow model was the most innovative concept ever!

Many telecom pundits are baffled .. India has the lowest ARPU for mobile users in the world but they make phenomenal profit.. Hozzat? Indian telecom firms have no ‘ARPU mental models’ to struggle with – they focus on good old principles – ‘cost’ and ‘utilization’ and won! KPIs and Metrics sometimes mislead you..Beware..

The speed of execution can beat the movie speed! Recently Reliance launched their 10,000-crore GSM project within a year six months ahead of schedule after they were awarded spectrum. Superman feats like these are not achieved by good old 'hardwork' - they had global brains on the job looking at innovative ways to get the job done. This also is a great example of ‘learning cycle’ – Note that earlier working at breakneck speed, from 1999 to 2002 Reliance had built the 60,000 kilometres of fibre optic backbone, crisscrossing the entire country.Truly agree with what Chaudhary said “We completed the GSM project in 15 months what other operators have taken 15 years to do” ..and this is no exaggeration.mind it!

Tower sharing was another disruptive innovation. Recently Etisalat signed a 10-year 10,000 crore tower deal which helps Etisalat leapfrog to the game which in turn helps Reliance cut prices further!

Tata DoCoMo fired another crazy innovation salvo. The industry billing globally is on a 60s pulse, which means that even for a 1 second call,the user is charged for the entire minute. Tata DoCoMo started the 1 second pulse and a 1p per second tariff revolution and rest of Industry followed.

As we hit the Billion mark three questions are worth pondering .....

1. How to leverage the telecom miracle to help other sectors?

One of the answers lies in the interview of K.V. Kamath of ICICI “Agriculture is a growth opportunity. We have been talking about it for about three years and I must admit that this is one area where growth has not been as quick as I thought it would be. Taking a viable banking proposition to 600 million people is a challenge and it has still not been successfully met. The challenge can be met through technology but (for this) the technology has to evolve. What is giving us hope now that we could do it in next 18 to 24 months is the advent of cell phones. Now cell phones are there in almost every village in India. Along with this, if we can bring in quasi-branches, which Reserve Bank of India (RBI) has allowed, we will have the ability to service this sector.”

2. India’s Broadband penetration is low with only 1% people in India having broadband connections.

It is now proven that Broadband growth is directly proportional to GDP growth . Yes Broadband is truly the road to 21st century economic growth – thanks to societal ‘killer apps’ including tele-education, tele-medicine, e-governance etc. However this area where we are weak may change – Mukesh Ambani has bagged the Wi-Max broadband wireless auction and secured 20 MHz of spectrum in every single one of India’s 22 telecom circles. Expect miracles from Reliance soon!

3. How can we learn and replicate the miracle in other sectors which badly needs rejuvenation?... Like Healthcare and Primary education? No answers yet….. :( :( :(