Wireless technologies that will impact India significantly in 2009

(2G,3G, Wimax and WiFi/VoIP: My choice of wireless technologies that will impact Indian telecom scene in 2009. However, more than the technology and its acceptance, I have focused on the stumbling blocks and hence what to expect out of these technologies.)

In 2009, India should see a great deal of activity happening in the telecom sector. 1. 2G would continue its unabated subscriber addition with another 100 million new users.
2. After a few years since its been in the horizon, 3G would finally see the light of the day.
3. Wimax would see some metro action in the second half of the year.
4. Wi Fi/ VoIP would serve the enterprise segment as the most favored data/voice transfer mechanism

However in terms of mass absorption and usage, more than 98% of the consumers will depend on the 2G network and fixed line access for communications and internet. The consumer acceptance and usage rates would directly depend upon the cost of ownership or per unit costs of communication. From a technology, infrastructure and company’s perspective, the government policy structure, licensing fees, USO levies and usage charges need to be more transparent and less inhibiting. 2009 is going to be an election year in the country, which would mean truck loads of populist measures. The exchequer would try and recover the money from the licenses, levies and usage charges in the sectors such as telecom. If that happens, then the roll out of these technologies could be seriously impeded.

Going back to the discussion on technologies:

2G with its rock bottom tariffs would be the choice of the majority who use mobiles for little more than voice and texting. We have been adding close to a 100 million users for last three years in succession and this trend will continue till 2012. All this subscriber addition would happen through the 2G (GSM and CDMA) technologies.

BSNL 3G services would start by the end of Jan – Mar 2009 quarter and over the next 9 months, we would see the 3G roll outs in most of the metros and some mini metros. However, the Rs.4040 crore 3G license is prohibitorily priced. In these days of recession, companies may not want to bid on this price. I do not see a profitable standalone business case for pure 3G services for any operator in India. Evidence from around the world is overwhelmingly against such a 3G business case. From the consumer perspective, there are a limited number of high profile, high ARPU consumers who would buy into the 3G, but that is a significant minority.

Wimax also suffers from similar licensing issues. The services are pegged at a licensing fee of Rs.2020 crores and there isn’t even a proper policy structure in place. Tata and reliance which have bought Wimax states, are currently limiting their efoorts to metros and Class A cities at present.

Wimax offers wireless broadband access to a 30 Kms radius. This is of significant importance in a terrain like India to increase internet connectivity and in the years to come Wimax may be the technology which will enable internet savvy panchayats. It will beat 3G in costs, but will be limited in its coverage compared to 3G which will have a greater carpet area.

Given the state of legislations, it will perhaps be a year or more, towards the mid/end of 2010, that mobile communications will feature in Wimax.

Wi Fi and VoIP will power the enterprise segments and the growth in this segment will be directly proportional to the office space and lap top sales.

The introduction of these technologies is heavily subject to two other factors

Mobile Number portability which would increase churn at the high end of the users. This has a profitability impact for incumbents
The spectrum release by the government. Chronic shortage of spectrum spaces and their interplay with the defense forces will impact launch dates.

Net of all things, 2009 will be a year which will be remembered as the launch of 3G. However, I doubt whether there will be a large scale activity in the Wimax and 3G space. 2010 may turn out to be the year when real time activity on field happens with these new technologies. A pro active government intent and policy could make a lot of difference to the sector. Our policy makers and leader would need to take a out of leaf of the Chinese government which is doing the 3G full Monty, full steam across the country.

As an after thought, I would like to add a comparison and analogy between Wireless technologies and The railway system in India.
2G would be the general railway (the way we know it, serving majority of the nation)
3G would be the Shatabdi and the Rajdhani, for a select few who are discerning.
Wimax would be the Local trains (The electric ones) connecting smaller parts of a geography.
Wi fi would be the metro rail connecting cities and businesses (Enterprise segment)

Indian Telecom Story (Part I): Up Up and Away!

Exhibit 2

Exhibit 1

Exhibit 3

Exhibit 4

In Q 4 , 2007 India became the fastest growing telecom sector in the world leaving China, US, Indonesia and Pkaistan behind. In fact Indian telecom market added a subscriber base that was equal to the new subscribers of China and US combined. The pace of sub adds has not slowed. Refer to exhibit 4 for details.

In the first quarter of 2008, India surpassed US as the second largest wireless market in the world. It eneded the year with354 million mobile subscribers (both GSM and CDMA combined). In penetration terms, mobile penetration is close to 35%. The September 2008 figures for teledensity was 72.5% for urban areas and 12.7% for rural areas. This figure of 354 million would go to 741 million by 2012 (COAI/TRAI estimates). Thus, the telecom market in India is going to steam ahead at 100 million new subscribers for the next 4 years unabated. That is 25% CAGR. Refer to exhibit 3 for details

At $.02 per call, Indian consumers get the lowest mobile tariffs in the world. (Refer to exhibit 2 for details). Incidentally, the minutes of usage is also amongst the highest in the world. (Refer to exhibit 1 for details.)

Only some time back, the market leader in the Telcos, Airtel (33% market share in India) was voted amonst the 25 most valuable telecom service provider brands. If the top 25 list of telco service providers be drawn by subscribers, BSNL, Idea, Vodafone India would also feature in them!

The next 100 million and three more hundred millions would be rural additions. There seems to be no doubt on this fact as far as TRAI, DOT, Ministry of Telecom and the Telcos are concerned. However, all is not pink in this booming industry. In the next part of this blog, we will examine ARPU trends and Infrastructural bottle necks in this sector.

Nokia's North American troubles continue

Barely 12 hours since i posted my article on North Amercia (NA) being the Achilles Heal for Nokia, my observations stand vindicated by Fortune the magazine. Here are the excerpts:

http://money.cnn.com/2009/01/12/technology/hempel_nokia.fortune/index.htm?postversion=2009011209

To revise the first lot of observations:

1. Over the last 2 years, Nokia has conceeded 50% of its market share in NA to competition. A fall from 15% to 8% to the Blackberry's and iPhones of the world says it all. To cut it short: Nokia has not been able to get its act together in the NA market.

2. Nokia's hopes of being recognized as a technology leader would underfall if it is not able to place the right bets in the NA market. Afterall the NA is the world's fastest growing smartphone market. Moreover, by being a marginal player in this market, it is loosing the attention of software and application developers.

3. Nokia's venture across the Atlantic had a false start in terms of getting the design element right which is where Razr stole the show.

4. Nokia's pre disposition of being directly in touch and controlling its consumers doesnot go well with the NA market dynamics where operatos bundle device with services and lead the launch. Thus operators dont carry any of the Nokia smart phones in North America even though N 95 and E 71 are one of the smartest devices these days.

5. Presently Nokia seems to be missing the technology bus where i Phone and Blackberry are driving off smartly. A latecomer to the "touch technology", even after 1.5 years of iPhone Nokia doesnot boast of a multitouch phone (The 5800 is not a multi touch phone)

The N 97 as a device and Ovi as a service looks to break the NA jinx and this is one front that could well decide Nokia's future. If Nokia's products in NA fail in 2009, it should probably focus on the developing markets more and cream them as a mass player instead of playing as a technology player.

How Nokia Blinked in America: The classic Sun Tzu (Part I)

The second statistic up there is the more relevant one to the point. Worldover Smartphone sales jumped 11.5% 07 to 08 and yet Nokia lost 3.1% in the race. Thats a swing of 15% that Nokia will not be too happy about.

Nokia enjoys 38% of the global mobiles market and for the 2008 calendar year, it sold a combined total of Samsung and Motorola and Sony Ericsson sales. Thats big by any yard stick. Thats enviable and thats some leverage, they have there. However, Nokia's market dominance has been more pronounced in Developing countries in Asia, Africa, Middle East, Asia Pacific and China. To be precise it is its total dominance in India and High market shares in China, that Nokia is able to garner its 38% of the global pie.

However, the story in North America is distinctly different. In essence, Nokia has not been good in developed markets and operator strong economies. Its not as if the it lacks the technology edge: N 95 and E 71 are one amongst the favourite smart phones around the globe. However, Blackberry and i Phone and from the looks of it Google Android have made greater impacts in the operator markets.

An analysis of the Nokia weaknesses from the Sun Tzu perspectives (from Sun Tzu: Art of war)

1. Nokia straddles all segments in the market and is present all across the 6 continents. Thats some size and some leverage. However, as the industry multiplies and proliferates, it could become the fatal flaw as well. In the NA (North American) context, there were segments of the population which needed more specialized services. Something that Nokia missed and other capitalised upon.

2. Sun Tzu emphasizes knowledge of the battlefield/terrain/other conditions. Thats Nokia's first undoing in NA, where the technology preference is CDMA and not GSM which is where Nokia is at home. Inadequacy in technology had a very important role to play in the sense that it did not allow Nokia to get a foothold in NA.

3. Sun Tzu emphasizes alliances. Sadly, while Nokia phones are fielded by most of the major operators in NA, the alliances are mostly very loosely transaction, product bundle based. Operators in NA believe in working with the OEMs in terms of product development from the scratch before putting the steam behind those products through their network.

4. Sun Tzu emphasizes Moral Influence: This sounds strange in the NA context, but there is a inclination to the RIM Blackberry and the Apple iPhone because of their Americaness. Controversial? Yeah Right. You need to look at the previous best: Motorola to understand how the Americans probably favour Americans.

5. Sun Tzu emphasizes Flexibility: Back in 2006 Motorola was whipping Nokia in the market with a single product called the Razr. It went to become one of the most cherished line of phones (After which Moto could not keep with the market). Nokia was selling candybars and kept selling candibars and still kept selling candibars 1.5 years after Steve Jobs came with the ground breaking IPhone. In retrospect the inability to flex their product lines to keep up with consumer choices gave Nokia the Grand dad image.

Has Nokia got its CWM strategy wrong?

http://uk.gizmodo.com/2009/01/06/nokia_comes_with_music_not_sha.html#comments

This discussion is about Nokia's Comes with Music. It follows the above given web clip on the "Nokia CWM not shaping up as expected".I have always believed Nokia CWM initiative to be flawed. But Can Nokia make such a monumental mistake or is there something bigger at hand.

Original report: www.theregister.co.uk/2007/12/05/nokia_free_music_analysis/ (5th December 2007); www.reghardware.co.uk/2007/12/04/nokia_comes_with_music (4th December 2007)

Six months back, i had read up a lot about Nokia and its CWM (Comes with Music) strategy. Essentially, it was an attempt by Nokia to boost its standings in the Music space. Well, if you are thinking, what has Nokia got anything to do with Music, its time to think again. Over the last 2 years or so, Mobiles have become the primary convergence device and Nokia has significant stakes in the mobile handset space which it needs to hold on to. Towards this objective Nokia has emerged strongly into the convergence space making its high end devices more internet friendly, with the ability to carry more music, videos and multimedia content. In doing so, it challenged Apple which had a very elaborate music download portal in its portfolio, where in consumer could buy their music and keep it on thier iPods and iPhones. ( At a later date, Apple was to subvert the mobile industry rules of the game by releasing its iPhones).

Back to Nokia for now, Nokia had tied up with Universal and Sony BMG to offer tracks under these banner to its users. Its users could download the tracks from the Music store (A part of the Ovi services platform). CWM came later. Its USP was that it provided free music to the user of certain mobile handsets for an year. The cost of this was factored into the $100+ premium charged over the price of the phone. The devices so long carrying CWM are 5310, N 95 and N 96. Users could opt to pay the extra money and download as much music as they could for an year. The constraint was that the music could not be shared and its usage was limited to the Nokia phone and a computer of choice.


Pretty neat on the surface untill you got into the mathematics. It was reported that the premium for the CWM service for the consumers was $129.95 (at the time of purchase). While Nokia didnot make public its deal details with Universal and Sony, it was assumed that the price per download that Nokia had to pay to the music labels was around 90 cents. Apple it seems pays the same for a single track download. Assuming some hard ball bargaining, this floor price of such a deal would be 70 cents. Thus the consumer using the service was paying for 129.95/.70 = 185 track downloads! And more, Nokia would be paying 70 cents to the music labels for every 186th and onwards track downloaded in a calendar year. Did the Finns leave their brains around somewhere? Nokia was doing a Hoover!
www.theregister.co.uk/2008/04/17/nokia_comes_with_music
www.theregister.co.uk/2008/05/01/nokia_defends_music_giveaway/
www.theregister.co.uk/2008/04/28/nokia_comes_with_hoover/

In providing the consumer unlimited music of his choice, did Nokia goof up on the break even canculations. How could that be? (Apple had a pay per song as you download charge to the consumers)

There was speculation about the profits. It was assumed that such a liberal promotion could really eat into the operating profits of the Finn gaint! Apparently, there was also a lot of dissatisfaction with the operators as well, who were not at all figured in this deal. It would be understandable if Operators and Nokia would have done this in a partnership with the operator making money out of the downloads through their channel.


It was difficult to understand why Nokia would be a part of such a deal apart from its desperation to get into the music space as a serious challenger to Apple iTunes. Even that wouldnot have warranted these losses. It was on a discussion with a higher up at Nokia, that i understood the rationale of this strategy. Nokia had it seems worked on an insight that only one out of every five people availing the CWM would actually use it in terms of heavy downloads.


Well, this did not sound to me to be quite a reason. Basically, it is undoing of the base idea, which is to get maximum people hooked onto the CWM. However, the pricing and the break even is a math that is confounding.


However, over some time now, Nokia has not actively promoted this idea with marketing money. This leads me to think:

Is this really a mistake that Nokia doesnot want to support and hence the silence?

Or is there a bigger strategy (probably Ovi led) which will unfold in the future?


That i think, only time will tell though i think the Finns have stepped on this without adequate coordinates on what they should be doing and how to go about doing it.

Nokia Oyj: Why would a market leader follow?

Originally published on October 29th 2008, i had taken this blog off because of some professional reasons. I am happy to be able to re publish it yet again.)

Nokia Corporation is the 5th most valuable brand in the world with a brand value of $ 36 billion (sales of $50 billion and more) and has been consistent in the ratings for over 6 years now in the Interbarnd survey. In fact it is one of the very few European Brands in a list that reads excessive US Brands. Yet everything is far from Hunky Dory with this Telecom giant which sits at 40% of the world market pie. Its stock price hasnot been buzzing for some time now and as with all market leaders it is the favourite passtime of analysts over the world to point out to whats-not-right sort of thing with Nokia. It is trading with a P/E ratio close to 1 in the stock markets which is very average compared to Google, Apple, RIM. It is much better than Motorola though.It had over an year back made certain allusions about a fundamental move in its thinking towards services and internet with its fledgeling brand, Ovi. This was a forward looking step towards a world of convergence! There was a organizational restructuring that happened soon after. The stock markets applauded the efforts as being forward looking. There also have been pro active steps with acquisition of Navteq and Symbian, which indicate that the company is securing its end to end business structure. This is again positive.Yet there are seeds of doubt... RIM is gaining ground in the eMail space as is Apple with its breakthrough I Phone. Google is muscling its way into the Mobile space with its Android. Then there are other more competitors like Samsung and HTC which have been more innovative. Bottomline: Nokia seems to have lost a bit on its innovation leadership position to its nimbler competitors.I am not debating whether Nokia has lost of any of that bit or not... it definitely has. It has not created a wow in the market for some time. There was N 95 and there was E 71 and thats about it for almost 2 full years. To me, E 71 and 5800 Tube are just improvements over a market standard. Hence these are not what i would call innovations. There has been some buzz with the Ovi, but it has not been significant.

The strength @ Nokia is its diversified portfolio. However, straddling over so many segments with such a large portfolio can also be a fatal flaw. While Nokia is a world leader in Mobiles, especially in Asian and African markets, it has hedged itself on Music, e-mail, gaming, Navigation, Internet space, other market services and more. This adds a huge layer of complexity to the structure which is good in terms of all round consumer facedness and bad in terms of diffusedness of the focus. Lately, there is a thought running thru the leadership of the corporation, where in they are selling off functions not immediately relevant to its future. Case in point is, Nokia letting go development of its business mobility solutions which it can primarily source from the market. Another aspect, where Nokia and Google have been playing similar strategies is the development of Open Source architecture (something that Microsoft and Apple do not have). Thus the point i am trying to make in here is that, Nokia has a large offering base within different portals, which makes it less dynamic. However, there is a move within the organization to integrate critical business structures (NAVTEQ and SYMBIAN) while offloading non critical structures (development of Business Mobility solutions).

Before i proceed further, there are two charts that i would like to revisit. One being the age old SWOT analysis (Exhibit 1) and the second one being the Competitive context (Exhibit 2:havent used Porter here).Each of the Portals is a investment game where you need to develop the market and create the demand. Most of these portals have gestation periods and the early birds with deep pockets would survive gestations. Given that Nokia chiefly works on its ability to massify platforms, it makes sense that it waits for the any other organization (innovator, ex. Apple for Touch phones) to first create the market and then moves in quickly to massify the platform ( Tube 5800). The ability to massify comes from its end to end business models, supply chain integration, direct presence in markets, economies of scale which lead to cost leadership. So while Apple could skim the market with its $700 I Phone, its Nokia 5800 Tube which takes the Touch technology deeper into the masses with attractive price points like $395.It may well be that markets such as America and Japan which are technically advanced have a different view of this approach, but Finns are known to place safe bets and raise the moolah.

That probably makes them lag at the early game, but with their might and bulk they are able to cpitaulate on opportunities mid game onwards. Only Recently i heard Olli Pekka, Nokia CEO admit that Nokia has been late to wake up to the "Touch Trend". However, from looks of it, Nokia will play catch up and massifywith its 5800 codenamed the Tube and then mid next year, you can expect that N 97, which could redefine tech leadership in the mobile phone space!

Nokia Oyj: Why would a market leader follow?

Originally published in early November, i am re releasing this post , which serves as an addendum to the first part on Nokia Oyj.

I shared my thoughts on the SWOT analysis of Nokia, which has been featured in my earlier blog with a friend of mine. His additions to the list of weaknesses are as follows:1. Understanding of business models is a threat -- Nokia thinks of monetizing first, Google builds scale first and then monetizes . Web 2.0 is all about mostly free services2. Being device lead is a threat in itself3. There is no culture of innovation - and there is no localization. Google creates nimble products for each market4. Current implementation of EMS is not a strength.I would agree wholly to Points 2,3 and 4. There are weaknesses in the system that do not enable Nokia to be a swift and nimble entity. Instead there are organizational layers. What ever and how ever one sees it, points 2,3,4 are somewhat beyond question in terms of weaknesses.As far as the business models (point 1) is concerned, i think it is debatable.