Over the past few years, there has been sea change in telecom operators’ product portfolios. Rather than providing plain vanilla voice services, the major companies are shifting their attention to value-added services (VAS) and telemedia as well as customised packages and products for rural and enterprise clients. Some operators are also expanding their footprint overseas.
The key driver of the diversification and expansion initiatives is saturating revenue in the voice segment. For instance, though Bharti Airtel’s subscriber base rose nearly 49 per cent in April-June 2009 over the corresponding quarter in 2008, the mobile minutes of usage (MoU) grew just over 34 per cent. Similarly, for Reliance Communications (RCOM), MoU grew 34 per cent as compared with 56 per cent growth in the subscriber base over the same period. Idea Cellular’s MoU grew at 47 per cent as compared to the 57 per cent rise in the subscriber base. The reason behind the drop in usage is that a large chunk of subscriber additions is coming from the semi-urban and rural markets, which mainly comprise low-end users.
Faced with this situation, operators are pulling out all the stops to reinvent their offerings in the Indian market as well as to make their presence felt internationally. In addition to voice services, the companies have expanded into mobile and telemedia, individual and enterprise, passive infrastructure and other non-voice services.
This, in turn, has started reflecting in the operators’ revenue composition.While voice still accounts for a major share, other services have started showing up in the revenue pie. The share of revenue from global operations is also on the rise for some operators.
At Bharti Airtel, for instance, telemedia, enterprise services and the hived-off tower group have been contributing significantly to the balance sheet. Similarly, RCOM derives a significant proportion of its revenue from global operations.
tele.net takes stock of the major telecom operators’ revamping and restructuring efforts to boost their income and obtain new revenue streams…
Enterprise: Untapped potential
While the enterprise segment has so far had a minor share in Indian telecom operators’ revenue, there is a big scope for growth.Airtel’s enterprise segment witnessed 47 per cent growth in revenue in 2008-09 on a year-on-year basis as against 39 per cent growth in the mobile services division.
While the enterprise segment has been dominated by players such as Bharti Airtel and Bharat Sanchar Nigam Limited, new companies are looking to make their presence felt. For instance, Vodafone Essar has decided to jump into the fray. Moving away from being a pure-play mobile operator in the country, the company is replicating its European business model, in which enterprise services account for a significant share of revenue. Globally, about a fourth of Vodafone’s revenue comes from enterprise services.
Vodafone Essar’s operations will be divided into mobile and enterprise services. Its product portfolio will include fixed lines, internet services, software solutions and packages, online security services, and national and international bandwidth for corporate customers in India.
The company expects the new enterprise division to account for 20 per cent of its sales in India in 2009-10. This translates into an additional revenue of $1 billion (about Rs 50 billion) for the Vodafone Group from its India operations.
Voice versus data
Globally, data services account for 25-30 per cent of the total telecom revenue. The US and Canada have witnessed the fastest growth in the share of data revenue since 2006. In India, on the other hand, the share has remained at around 10 per cent over the past two years. This, however, is set to change, with industry analysts estimating that the share of data services in India will touch 20 per cent over the next three years.
The main service expected to contribute to the growth is SMS-based VAS.Currently, over 45 per cent of VAS revenue comes from peer-to-peer SMS, followed by caller ringback tones and ringtones (40 per cent). Growth of non-SMS data revenue is yet to take off.
The VAS market in India is estimated to grow at a compounded annual growth rate (CAGR) of 50 per cent to reach $348.8 million by the end of 2009.
Successful diversification
Bharti Airtel
Bharti Airtel is structured into three strategic business units: mobile services, telemedia services and enterprise services (carriers and corporate). In 2008, the company hived off its passive infrastructure business into a separate company, Bharti Infratel, which now contributes significantly to the topline.
Though mobile services continue to account for 80 per cent of total revenue, enterprise, telemedia and passive infrastructure have begun to show growth. In fact, telemedia (direct-to-home [DTH] and internet protocol TV [IPTV]) is among the most profitable services at Airtel. The average revenue per user per month for the telemedia segment is Rs 1,027, as against Rs 278 for mobile services (as of June 2009).
Enterprise has become pivotal in Bharti Airtel’s overall growth strategy, and has posted the second highest revenue and EBITDA growth after mobile services.Revenue from the enterprise business grew to Rs 21.33 billion in the quarter ended June 2009 from Rs 19.57 billion during the same period in 2008, registering a rise of 9 per cent. The growth in EBITDA was 21 per cent. In contrast, revenue growth from the mobile business, which accounts for a large part of total revenue, was 19 per cent over the same period, from Rs 69.15 billion to Rs 82.28 billion. EBITDA growth was 28 per cent.
The phenomenal growth in the enterprise segment is despite the fact that the business did not receive any major investment from Bharti Airtel in the quarter ended June 2009. The company invested Rs 68 billion (13 per cent of total investments) in carriers and Rs 7.27 billion (1 per cent of total investment) in corporates. On the other hand, Rs 307.81 billion (49 per cent of total investment) was spent on mobile services and Rs 72.96 billion (12 per cent of total investment) on telemedia services.
Voice services account for almost 90 per cent of Airtel’s total revenue. For the quarter ended June 30, 2009, non-voice revenue accounted for 9.7 per cent of total revenue. However, after the rollout of 3G services, the share of non-voice revenue is expected to rise to 25-30 per cent.
Bharti Airtel is also establishing a global footprint. It has launched mobile services in Sri Lanka. Its planned merger with MTN, which has been called off, was also an attempt in this direction.
RCOM
Owing to its aggressive overseas forays, the share of global business in the overall revenue of RCOM is much higher than that of Airtel. RCOM derives over 33 per cent of its revenue from the global and enterprise data businesses. Under its global business, the company provides domestic long distance connectivity to operators such as Vodafone Essar, Idea Cellular, Tata Teleservices and Aircel, and derives 40 per cent of its national long distance (NLD) revenue from these operators. The volume of business from this segment is likely to grow as new operators begin to offer services.
Within RCOM’s global business, the international connectivity division is witnessing considerable growth, through the organic (through Flag) as well as inorganic modes (through the acquisition of the Vanco Group in Europe and Yipes in the US). This division caters to 1,400 customers for data connectivity as well as 750 carriers.
In the domestic enterprise segment, RCOM is the second largest player, according to a recent study by Frost & Sullivan. RCOM serves 900 corporate customers across India and enjoys an EBItDA margin of 42.2 per cent.
Apart from its global reach, the dual network (GSM and CDMA) in India has given RCOM an added advantage. It recorded the highest monthly wireless subscriber addition in the world, at 5 million, in the first month of its GSM launch. Dual networks will also help the company gain an edge over the competition once mobile number portability is implemented in India.
For RCOM, the contribution of the GSM non-voice revenue segment to total revenue is currently about 10 per cent.However, with the launch of 3G, the share is likely to increase.
The way forward
Going forward, voice revenues are likely to come down as the entry of new operators leads to an increase in competition and rural expansion results in a further drop in ARPU. In such a scenario, higher adoption of VAS will stimulate growth in the urban as well as rural markets.
The future performance of operators will also depend upon how well they manage to sell new services such as DTH and IPTV. If these offerings are successful, the companies could find an effective counterpoint to mobile services, which is now by far the biggest source of revenue.
Though a major proportion of revenue for telecom operators will continue to come from voice services, data services too will emerge as a high-growth segment in the telecom industry.
