Bharti - MTN: The making of a Telco Behemoth

The Indians are going places and they are doing it fast and furious. The case in point is Bharti which has now emerged as a front-runner for equity stake in South African MTN. This would make Bharti-MTN the 4th largest Telecom Operator in the world leap frogging big names such as Verizon, AT&T and the likes. Only the Chinese Telcos would have more subscribers than Bharti MTN. One of the most important reasons for Bharti to emerge as a frontrunner for equity stake in MTN is its leadership position in the Indian Telecom market.

After almost an year, India's Bharti Airtel and South Africa's MTN Group are back to the talking table. The duo have restarted merger talks to create $20 billion telecom entity. In fact, at a time when global giants are complaining about a cash crunch and putting ambitious plans on hold, Bharti Airtel has relaunched its audacious merger bid with MTN that could create a $61-billion transnational telecom Goliath with combined revenues of $20 billion and over 200 million subscribers across Africa, Asia and Middle East.

The Bharti-MTN deal, if it goes through, will usher in the next round of the Indian telecom M&A story. At an estimated ticket size of $23 billion, this will be the biggest cross-border deal that India Inc has been involved in, and twice as much as what British telco Vodafone paid to acquire a little over half of Hutchison Telecom International’s Indian operations in early 2007.

The Proposed $23-29 bn deal would be biggest ever M&A transaction involving an Indian company, almost double the previous highest of $13bn paid by Tata Steel for Corus. It would be the third largest deal in the world in 2009 so far, after Pfizer’s $64bn buyout of Wyeth and Merck’s $46bn deal with Schering-Plough Excluding pharma, Bharti-MTN deal would be the largest in world this year so far. Bharti-MTN’s combined subscriber base of 200m would make it the world’s 4th-largest telecom entity, and largest outside China. The top 3 are China Mobile (472m), China Unicom (247m) and China Telecom (237m). If the deal goes through this time, it will make Bharti the largest telecom entity in the world (by number of subscribers) outside China. Add MTN’s 100 million subscribers to Bharti’s 100 million, and the combined figure of 200 million will see Bharti comfortably leapfrog US giants Verizon (122m) and AT&T (108m), among others.

Fund managers with exposure to Bharti feel that with the Indian telecom market showing signs of saturation, the stock-swap deal will be critical for the company’s next phase of expansion. The deal is a good opportunity for Bharti to enter into a lesser-penetrated market like Africa, especially when the company is generating free cash flows.The valuations that have been offered by Bharti may be at a premium to MTN’s share price, but its valuations are cheaper than Bharti’s.

Should i use a netbook?

Nokia’s decision to get into the Netbook space raised a few speculations but then it was the vindication moment of the fact that Netbooks are here and they are here for good as a communications device of the future. The Netbook space is heating up quick and fast and the production lines at the Chinese ODMs are perhaps running on overdrives.

A Netbook is different than a notebook or laptop. It's built for web browsing, emailing, and word processing. You can also remote in to the office and use applications remotely. They are small, lightweight, and have a low processing power. They generally cost much less than a normal laptop at around $50 - $350. They come with a small screen, small keyboard, and a wireless connection. Nearly all laptop work is made up of email, surfing, spreadsheets and a few power-points and since, there is a fair bit of travel involved for the user, the slot for a mobile SIM card would set up the machine for a complete communications and computing solution.

However, the need for a notebook purchase has to be analyzed well, since these are personal devices. (It is bit like choosing your own wand in the Harry Potter series: You need to check the compatibility between the device and your habits/usage).Consider the following:

1. Screen Size: We are used to 15 – 17 inch screen sizes and it can be difficult for the eyes to adjust to a 8 inch monitor.
2. KeyBoards: The smaller keyboard can cramp the hands very easily
3. With its limited processing power, running MS Office any other productivity-type application, may return disappointing performance
4. Another critical drawback is in terms of security systems. With the available processing power, you can either run firewall, antivirus and anti-spyware apps or cut that out in favour of other applications.

Thus it is important that before your next Netbook purchase you analyze your requirements. If you think that your planned activity will involve running applications locally at all, you should consider a lightweight laptop, and there are few of these available which are real good (maybe a Vaio or a MacBook Air). If the applications are all "cloud"-based or remotely accessed, your Netbook would be able to do justice to you. With improvements in the cloud computing space, Netbooks will come of age in sometime and will be equally adept (like a Notebook) in handling computing and communications with all its bells and whistles.

Indian Telecom story (part VIII): Telco's Mobile Number portability woes

Mobile number portability is one of the most debated topics in the perspective of the Indian Telecom Industry. It was first announced in 2007 and TRAI submitted its first recommendations on the MNP in April 2008. Given the intense lobbying that one has seen form the industry at large, the introduction date has been shifted from June 2009 to August 2009 and now September 20th, 2009. The first regions to be able to test this service by September will be Karnataka, Andhra Pradesh, Tamil Nadu and Kolkata. MNP will cover the other places in these regions by March next year. The other sginificant part of the story is that Consumers may not have to pay more than Rs 300 to change from one mobile service provider to another while keeping the phone number intact. Other unofficial reports put the MNP charges to be Rs.200, which would be peanuts to consuners who want to change their service provider. It is suspected (not confirmed), that lot of the MNP churn would be the top 9% consumers who contribute 29% of the revenues and 45% of the Telco Margins!

Mobile Number Portability along with other factors such as Infrastructure Overcapacity (and sharing of Infrastructure), entry of new players into the Sector, Reduction in Call termination charges, is expected to reduce the call tarriffs in the country.The fall in tariff may add boost to the fastest growing Telcom Market in the world and may also help in reaching new records in subscriber additions. However, it is the Telco margins which are under pressure and there is not much that the Telcos are doing about it except probably for vehement lobbying.

Netbooks: The new species

The convergence of personal computing and mobile communications is a near reality as different companies use different platforms to marry these services together. The driving force today is the internet"ization" of business, economy and life as a whole. This creates exciting opportunities in the market today in terms of innovation, platform building, product development and the development of the single window of access to the digital world. It is widely believed in the technology space that most of the first time users in the developing states will experience Internet for the first time on their mobiles.

With that background, one can see the technology war heating up in the internet access device space. On one side you have the mobile technology players: Nokia, Samsung, Sony Ericsson, Motorola who are migrating mobile usage from a talk/SMS centred one to a complete internet experience. On the other hand you have computer majors such as Apple, Acer, Dell who are venturing into the smartphone space. There is a niche of eco-system players like Google and Microsoft who are owning up the content eco-system in a very unique way by leveraging services. Software and Services is another platform which companies such as Apple, Google, Nokia, RIM and Palm are focussing their strategies upon to create stickiness!

The Hardware/Services Evolution

Presently the communication and computing spectrum is split under the Lap Tops and Smartphone space. Going forward it is unlikely that either of these devices is going to be out moded completely. Both have their own utility and it is unlikely that any new device would radically substitute them or take their space completely! There will be stages of evolution on the Lap Top and Smartphone eco-systems as technology would evolve.

However, we would also see the evolution of Netbooks, a fusion between Lap tops and Smartphone providing the Internet solution on the go. The change into the 3G/4G technology and the advent of Cloud Computing and other services: SaaS, PaaS would enable this evolution. The Netbook would be an improvement over the smartphone in terms of its internet and software capabilities, screen and convenience, but wouldnot provide the whole host of features that the lap top would provide. Essentially it would be lesser than Lap Tops on memory and its primary use would be to access the internet. Apart from its memory capacity, it would use the cloud as its hard drive. Thus the three categories of internet devices would be so positioned:
Smartphone: Internet enabled voice communication devices. It would offer Social Networking, Navigation as value adds to its basket of services. It would essentially be based on Portability.

Lap Tops: The full monty on computing with data storage, internet access etc.

NetBooks: The internet device per se which would bridge the Smartphone and Lap Top capabilities.

The following table depicts the growth rates expected in the Lap Top versus Netbook across the world.



Whether the Netbook will replace the Lap Top or not will depend upon these three factors:
1. 3G/4G data evolution providing fast computing
2. Advent of Cloud Computing and the ability to use the internet as a enabler and dump for all software services
3. Security perceptions and concerns about data in the internet

e-Commerce: Gaining Traction in India

e-Commerce was a non starter in India in the early days. That was before IRCTC stepped in with its online booking. I remember the long painful queues in front of the railway booking counters before the online booking system of IRCTC stepped in. A railway ticket in those days could be booked only by an agent or else, the whole activity of booking a train ticket used to be a half day ordeal in itself. All that changed with the advent of IRCTC train ticket reservation. How easy it was booking a ticket by simply clickinginto the website and doing the needful. The long sweaty queues were now relegated to history.

Led by train and flight reservations online ticketing has been the most successful force in online E-commerce industry. This also supplemented by the fact that today online travel industry constitutes 78% of the total E-commerce industry in India.

IRCTC contributes to 1/3rd of the total e-Commerce revenues in India. The e-Commerce revenues are slated at Rs. 9000 crores and IRCTC contributes Rs.3400 crores in that. 45 million tickets were sold in FY 2008 and it has seen a jump of 100% YOY. However the potential for IRCTC is still higher and it can yet add more revenues to itself. A few steps to increase the online ticketing activity:

1. Reduce additional charges for i-tickets and e-tickets to increase penetration and induce more people into a internet based ticket purchase. This helps since the service is mostly used by agents who charge additional commission apart from charges levied by IRCTC from their customers this again limits the penetration level and if the users are given more payment avenues it could propel many to go for direct transactions.

2. Allow booking of rail cargos and other railway services on a large scale then it can definitely garner more traction in terms of higher transaction size and remove bottlenecks at the same time attracting SME to the fold.

3.Association with commercial banks may help in getting more traction especially if rail cargos and other services are introduced through IRCTC.

The growth today is good, but it could get much better if these simple steps are also taken up. For Railways, it would reduce process costs of maintaining a bulky ticketing department.

The other large player which can simply multiply its value add by online transactions is India Post. It currently delivers 1,575 crore mails every year linking every nook and corner of the country through a network of 1,54,149 post offices and 5,64,701 letter boxes. The government owned services like India post if implements E-commerce in a serious way then India could definitely remove the barriers of E-commerce industry.

Terminator to take over Twitter

Sony pictures has launched a game release on Twitter for its soon to be released movie, Terminator Salvation. The game would allow Twitter users to join the human resistance against the machines in Sony Pictures Releasing its first-ever game created for the social networking platform.

This initiative is unique in many ways, since it Is Sony Pictures first attempt at advertising their product by using Social Networking tools which directly speak to their TGs. Sony Pictures International executive vice president marketing Sal Ladestro said, “We think this is the perfect environment for the Terminator game as it allows users to interact with the movie, their friends and other game players instantaneously.” A viral marketing campaign of this scale is one to be watched from the perspective of user involvement, engagement translating into a creating awareness and achieving a vital objective (making the Terminator Franchise successful).Needless to say, if the game catches the fancy of the public it would be a great promotional move for the movie and may ignite similiar actions in future.

Sony denied any monetary compensation to Twitter but Twitter can certainly leverage its property as a new means for advertisers and marketers to promote their products in the future, rather than the passive and traditional method of displaying banner ads.

Will low user retention cap Twitter's growth?

This is my century posting on this blog. It has been 9 months since i started this blog and i appreciate your patronage to my ideas, thoughts and feelings.

A study conducted by Nielsen reveals that 60% of Twitter users fail to return to the micro blogging site a month later. In other words the user retention rates of Twitter languish at 40%! Whats more worrying from Twitter's perepective is Nielsen's forecast that at 40% retention, Twitter wont grow its internet reach at more than 10% per annum. The retention- reach model that has been used is based upon regression analysis and the following is its pictorial depiction.

Although a high retention rate doesn’t guarantee a massive audience, but it is a prerequisite. There simply won’t be enough new users to make up for defecting ones after a certain point.

There are two arguements in favour of Twitter are:

1. The majority of Twitter use happens away from the site, on mobile phones and apps like Tweetdeck, and it’s theoretically possible to be an avid Twitterer but never visit Twitter.com after you sign up

2. A lot about Twitter is a huge amount of Media mouthing as well from Obama to Ashton Kutcher to Oprah Winfrey, Lance Armstrong and more.. In essence there is lot of hype and expectation bubble around Twiter, which otherwise left to itself is doing pretty decent.

However young, it may be, Twitter's illustrious record pits it against the behemoths: Facebook and My Space in terms of Internet traffic. But the, compared tpo the boom period of Facebook and My Space, Twitter still fails to score points on Reach and Retention.

The study clearly states that retention levels at social network behemoths was double of Twitter even in their early boom phase and that retention only went up, and both sit at nearly 70 percent today.

The chart below shows the retention rate comparison with early years of Facebook and Myspace.

The answer to this may lie in the perception and usage of Twitter and its user profile. Poor retention, in other words -- just like the characteristics Nielsen attributes to Twitter traffic.The consumer value of a social-status service like Twitter resembles the value of "news" as a service. It is incidentally important, but not always important, and never all important to any one person. The intervals between incidents that you or I might deem important defy any prediction. Hence, a Obama election may form a Twitter peak, but a economic overhaul simply may not. Is this a question on supply as well? (May be another Obama-esque Twitter centric campaign or a Hudson landing will create the refresh for Twitter. Will it? We will watch this space.