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Need for innovative business models

November 16, 2010

With the completion of the 3G and broadband wireless access (BWA) spectrum auctions, the sector is gearing up to replicate the success of mobile telephony in broadband. The potential of BWA technologies is evident from the fact that the auctions fetched the government over seven times the reserve price per block. tele.net recently organised a conference, “BWA in India”, to provide a platform to discuss the potential and challenges associated with these services. The following section on Business Models and Pricing brings forward the views of Jaideep Ghosh, Partner, KPMG India...

Broadband wireless access (BWA) is transforming the way customers use broadband services, but it also throws up a number of challenges that need to be addressed.  Appropriate technology and a supporting business model are essential to increase the uptake of BWA services.

Drivers for BWA business models

The uptake of new, bandwidth-intensive services is set to increase significantly. Three key factors will determine the operators’ ability to generate sufficient returns on investment for BWA deployment. These include creating capacity to handle the growth in mobile data; leveraging BWA technologies to achieve greater capacity and a lower operating cost per megabit; and finding new revenue streams.

Capacity drivers

Creating capacity to attract customers and then increasing it to handle the growth will impact the operators’ ability to deliver a successful BWA offering. For instance, globally, the advent of 3G cards and smartphones has led to a significant change in user behaviour over the past few years. Given that an average smartphone, for example an iPhone, generates the same amount of traffic as 30 basic cellphones, and that these devices have become quite popular over the past few years, mobile usage has also undergone a major change. During 2007-09, mobile music consumption increased by 65 per cent in the case of smartphones, 35 per cent in the case of iPhones and only 11 per cent in the case of average cellphones.

Cost drivers

Network costs: BWA technologies can offer high speed broadband services at considerably lower costs per megabit due to the flatter and more integrated architecture of the networks. In the case of LTE technology for instance, base stations rather than the RAN (radio access network) control functions such as handoff, authentication and loading, thereby resulting in more efficient routing of traffic and significantly reduced transmission costs. Business and operational costs: BWA allows a fundamental transformation of business, different from the siloed department structure that focuses on specific lines of business. This can improve operational costs substantially as it optimises business support areas such as marketing, product management, finance, human resources, sourcing and procurement.

Revenue drivers

Four areas of revenue enhancement are available to mobile network operators.

New service development: This includes paid services such as multi-user gaming, MMS videos, mobile blogging, user-generated content; mobile advertising as well as e-governance and community-related services.

New pricing schemes development: There can be a number of approaches to pricing data service offerings. These are unlimited and tiered flat-rate plans categorised by speed, data volume and time (hours/days); per unit pricing for ad hoc users or those exceeding data volume limits; and value-added services plans for services such as navigation and on-demand music.

New measurements development: The average revenue per user becomes less relevant except as a performance indicator in the case of BWA services. The goal is mostly to maximise total revenues across different channels using a portfolio of services, applications and content across different networks and devices. Track performance and profitability are therefore measured by the average margin per subscription, average connections per user, and customer lifetime value that maximises profits across all users.

New partnership development: Partnerships with application developers and content providers are a key revenue driver. It is, thus, imperative to open the network for creating new delivery partnerships.

BWA applications in the Indian market

BWA will be used to offer data-intensive applications for residential use in urban areas and for providing broadband connectivity to common service centres (CSCs), health centres and other initiatives in rural areas. In urban areas, BWA will provide basic connectivity to residential customers, especially in underserved and unserved regions. Moreover, its usage will be more towards bandwidth-intensive/interactive applications like television services, video-on-demand, and last mile virtual private network solutions to enterprises. BWA may be deployed by some carriers for backhaul applications as well in urban and metro areas for carrying high-bandwidth 3G traffic.

On the rural side, BWA will provide connectivity to CSCs, which would enable access to web-enabled e-governance services, education, health, telemedicine and entertainment, among other services. If BWA base stations are installed in the 100,000 villages under the CSC programme, the shared access will help to expand the BWA user base significantly. BWA will also solve the problem of connectivity and bandwidth for private initiatives such as ITC’s e-Choupal.

Conclusion

There is a need to re-evaluate the business models of traditional telecom operators. The focus should be on understanding how the telecom business has evolved over the years; more so, because the scope for new bandwidth-intensive services is set to grow enormously, requiring innovative business models to monetise them. Finally, on the supply side, network operators need to look at their partner management so as to broaden the scope of services that can be offered.

 
 

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