1. Need for new revenue streams
Since the telecom boom in 1994, India has seen a steep rise in the number of companies entering the telecom industry. The industry has seen a lot of changes since then like the allocation of licenses in 2001 followed by the scam being revealed in 2008 and finally 122 licences getting cancelled in February 2012. But now the trend of the boom seems to fade away. The following graphs show some of the statistics about the telecom industry in India.
Trends of Telecom Industry in India
As we can see that during the last two quarters the change or increase in the gross revenues is hardly anything substantial. So is the increase in the subscriber base. The recent auctions have shown that the relation between the telecom service providers and the Department of Telecom is not as good as it was before the cancelling of licences. The regulatory bodies also have played their part of the game. The stagnation of the revenues is an alarming situation for the telecom industry. It can be said that there is no other industry which requires a push of innovation than telecom. Telecom players must not only invest in the infrastructure but should also concentrate on optimizing and monetizing the infrastructure. This simply means that telecom companies must get busy with innovation thereby diversifying their services to deliver more value to customers and increase opportunities for new revenues. This will ensure their continued sustenance and hence result in the growth of the whole sector.
2. Possible Revenue Streams
Until few years back it was believed that voice will be the major source of revenue for all telecom companies. This notion was changed and now it is believed that it is data and not voice that will be a source of continuous revenue for the telecom companies. So for the past years we have seen that the telecom players have increased their penetration in the rural areas from a tele-density of 24.29% to 40.46% during the last two years. [1] The players have started providing Value Added Services (VAS) which forms about 11% of the total revenues of the telecom industry as on year ending March 2012. [2] Another way of generating revenue for the telecom players has been the way of DTH services. In spite of all this services being present already the revenues have not grown according to the expectations.
The following can be some of the ways in which the telecom service providers improve their revenues.
2.1 Cloud Computing
2.2 Machine to Machine communication (M2M)
2.3 Augmented Reality
2.1 Cloud Computing
The National Institute of Standards and Technology (NIST), U.S. defines cloud computing as “a model for enabling convenient, on-demand network access to a shared pool of configurable resources (e.g. networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.”
Cloud computing is generally said to be the future of all the existing technologies and is said to revolutionize the way people work. For a telecom company it is easier to use their existing global network and database in order to deliver services using the cloud technology. They can form a service delivery platform using their already existing infrastructure. Hence the capital expenditure is much controlled as the initial investment in the infrastructure is reduced greatly. In short they can provide Infrastructure as a Service (IaaS) [4] where the customers can run software and applications in any host instrument available. Even operating systems can be stored on the cloud along with other data.
However the challenge that the providers face is the estimation of demand, as it can highly fluctuate, this being a new terrain for them in this business. However, using proper analytical models once the initial data is available can reduce the uncertainty to a significant extent. Using queuing models can be of great significance as capacity planning will play a very important role. Since this technology is comparatively new in India, the telcos can have an introductory offer for their existing customers for a limited period at low rates in order to educate the people about the technology. Further down the line they can use the Service Level Agreements in a segmented format or can use the block pricing method in order to reap the consumer surplus.
The benefits of cloud computing include flexibility, cost reduction and the speed. This is the reason that a premium can be charged by the telecom companies by providing services like utilization of the IT resources and capacity planning. Providing the software platform can also be a lucrative option. Considering all these benefits this can be a good way to earn revenues.
2.2 Machine to Machine communication (M2M communication)
Machine to machine communication refers to the ability of two machines to communicate in a wired or a wireless network. This can be called the newest technology not only in India but in the whole world. In such a communication there are three components-the meter or a sensor, the network and a software application. All of these work in co-ordination to make two machines communicate. This is a way to make all machines smart enough to control their functions in order to achieve a lot of saving of resources.
Telecom companies inherently have a huge network and hence can be used as a way of generating huge revenues. Companies like France telecom, Vodafone, Deutsche Telecom have put to use their networks for some small services within an office. It is estimated that the number of connected devices will reach 12 billion by 2020 and that this will be a $933 billion business by 2020.
Telecom companies have a great opportunity as only 1% of the machines in the world are yet connected through this technology. [6] The telecom companies can act as service providers for the hardware as well as the software and the interfaces between them. However, the difficulty in this method is that the pricing will be difficult. This service does not include machines with SIM cards as in case of Mobile phones and hence pricing can be a great difficulty. The telecom industry has to address the issues of many specific industries and understand the needs of all these industries. For example in case of letting a car and the alarm system in a hospital communicate, it is necessary to understand the reasons how the accidents take place along with the damage that can occur to the hardware components. So, the market is far more complicated than it seems. Apart from these, the regulatory norms have to be followed in different countries.
However the telecom companies can take up a JV with the energy companies to design a smart grid. A smart grid is one in which different nodes are in contact with each other and also with the appliances used at commercial places and homes. Power outages can be detected easily and hence can avoid any kind of power grid failure like the one that happened in July 2012 in northern India. Moreover, as the grid is in constant communication with the appliances, the best time to use these appliances is when the power load is least can be used which can reduce the cost and hence save energy.
The telcos can provide the network and basic connectivity. The meters and hardware can be provided by the utility or the telcos. The back office can be maintained by the utility. The carrier will then bill for the services it provides. The network and infrastructure can be leased so that the capital expenditure can be reduced further. There can be incentives for volumes and hence strike better deals.
2.3 Augmented Reality
By definition augmented reality (AR) is a live, direct or indirect, view of a physical, real-world environment whose elements are augmented by computer-generated sensory input such as sound, video, graphics or GPS data. It is related to a more general concept called mediated reality, in which a view of reality is modified (possibly even diminished rather than augmented), by a computer.
Telecom companies can enter the AR market along with the companies providing the applications for augmented reality. Telecom companies can then earn revenues from the application. Augmented reality finds a good place in education. It also serves the purpose of fusing the real and the virtual world thus creating an altogether new experience.
The value chain of Augmented Reality contains many levels. They are- Merchants (or Brands), Content Providers, Enablers, Packaging and Delivery. The following is a diagrammatic representation of the different levels of the value chain and shows where the telecom companies lie in the value chain.
The telecom companies can distribute the applications through the application store using the existing network. They can earn revenues from the end user in the way of download fees charged from them. Thus Augmented Reality can also be a good source of revenues for the telecom companies.
3. Conclusion
The above are but a few ways in which telecom companies will be able to generate revenues apart from the traditional voice revenues. These methods may suggest that the percentage of revenues from the above methods might surpass those from voice. Seeing the potential for the growth of the telecom industry it is necessary for the regulators in the country to act accordingly keeping both the consumer interest in mind and the profits of the telcos. Telecom industry forms one of the core indicators for the growth of a nation and hence must always keep growing and not stagnate.
Parth Pandya
SYDENHAM INSTITUTE OF MANAGEMENT STUDIES
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