Creating the Next Multibillion-Dollar Online

Transcription

Creating the Next
Multibillion-Dollar Online
Opportunities in Telecoms
With India on the threshold of an Internet explosion,
a joint Google-A.T. Kearney study pinpoints the
opportunities that hold the most value.
Creating the Next Multibillion-Dollar Online Opportunities in Telecoms
1
All estimates contained in this report are for information purposes only and should not be
relied on for any other purpose. Any reliance third parties choose to make on these estimates
is an independent decision made exclusively by such parties entirely at their own risk. Neither
A.T. Kearney nor Google is under any duty to update or revise this report in any way.
India’s online revolution is on the edge of an exciting phase. At the turn of the century, the
country had only 5 million Internet users, largely on dial-up connections delivered through
fixed-line networks. In 2009, Internet use took off as mobile penetration grew and telcos began
to invest in data networks. By 2013, mobile Internet usage had overtaken fixed line, and mobile
devices had become the sole access device for many people. Today, 230 million Indians are
online, with 155 million of them using mobile devices.
This is just the tip of the iceberg (see figure 1). In the next three years, the country will see
another mobile explosion as the online community more than doubles to 480 million. By 2017,
385 million people will have smartphones, six times more than today, and the number of online
transactors will explode to 160 million—eight times as many as today.1 Data consumption will
triple, and consumers will be buying five times as much content. This transformation will
happen at an unprecedented pace. For Indian telcos, a world of value-creating opportunities
is about to emerge.
Figure 1
Mobile explosion in India between now and 2017
Expected volumes in 2017
480 million
Internet users
Evolution between 2015 and 2017
3x
data
consumption
per user
Cumulative revenue
potential of
385 million
smartphones
160 million
online transactors
5x
$8 billion
paid content
consumption
per user
Note: Visitor location register adjusted mobile subscribers
Sources: Pyramid Research 2013, Cellular Operators Association of India, Telecom Regulatory Authority of India; A.T. Kearney analysis
Google and A.T. Kearney conducted a joint study to pinpoint the best opportunities for Indian
telcos to pursue to capitalize on this explosion in the mobile Internet user base. The results
show the industry can generate additional cumulative revenues of $8 billion and EBITDA of
$2.9 billion over the next three years.2
This paper presents Google and A.T. Kearney’s view on the mobile Internet market and the
expected structural changes, opportunities for telcos, and strategic and operational imperatives
for success. With unprecedented digital opportunities emerging over the next three years, now is
the time to act.
Online transactors are users who make payment transactions online, using Internet banking or cards.
1
EBITDA is earnings before interest, tax, depreciation, and amortization.
2
1
Indian Telcos Poised to Leapfrog into Digital
The country’s telecom industry grew by 13 percent CAGR between fiscal year (FY) 2012 and FY14
and has reached total revenues of $25 billion, driven primarily by an increasing voice subscriber
base (see figure 2). Industry EBITDA has held steady at around 15 percent, although it varies
significantly between players. By FY17, the industry is expected to reach $35 billion in revenues.
Voice share is expected to decline as a result of subscriber saturation in urban areas and ongoing
pricing pressures. Non-voice, on the other hand, is expected to grow at 29 percent CAGR; within
non-voice, data revenue will grow at around 70 percent per year and new digital VAS streams are
expected to emerge and grow exponentially, whereas SMS and traditional VAS revenues will
remain flat or decline.3
Telcos can push data consumption up by
as much as 250 MB per user per month.
While this is a substantial shift, it is not unique. Global markets have seen similar shifts as they
matured from voice to messaging and from data to digital. The shift from data to digital is
occurring as more digital content and services are introduced and adopted. Markets such as
Japan and Korea have taken up to 10 years to move from data to digital, but we believe it will
happen much faster in India. The country has already embraced the Internet, as seen by the
massive adoption of social networking and the recent e-commerce boom. Mobile phones are
emerging as the online access device of choice, and smartphones are expected to proliferate,
allowing for wider and deeper use of the Internet and applications (see figure 3 on page 3).
As a result of this extraordinary confluence of consumer behaviors, we believe India will
leapfrog into online and digital services over the next three to five years—opening up an
extraordinary opportunity for telcos to become the primary gateway to the digital life.
Figure 2
India’s telecom industry is seeing unprecedented growth
Indian telecom industry revenue growth
($ billion)
+13%
20
25
5
20
Subscribers (million)
35
CAGR
10
29%
25
7%
FY12
FY14
FY17e
683
773
944
Non-voice
Voice
Notes: Visitor location register adjusted mobile subscribers. FY is fiscal year.
Sources: Pyramid Research 2013, Cellular Operators Association of India, Telecom Regulatory Authority of India; A.T. Kearney analysis
VAS is value-added services. SMS is short message service.
3
2
Figure 3
Mobile data use set to skyrocket in India
Consumer behaviors
Exploding Internet users
220
million
Booming online transactions
45%
480
million
in FY14
of railway
bookings done
on IRCTC website
by FY17
transactors by FY17
Services ecosystem
Device ecosystem
100 million
on Facebook in April 2014
on YouTube every month
as of September 2013
online commerce
by FY17
160 million online
Mobile
data use
55 million
>$30 billion
Smartphone prices to drop under $50
48 million
50%
of Google
and YouTube searches
on mobile
on WhatsApp in
April 2014
385 million
smartphones
by FY17
Notes: Online transactors refers to users who make payment transactions online using Internet banking or cards. FY is fiscal year.
IRCTC is the Indian Railway Catering and Tourism Corporation.
Sources: press research, Cisco Visual Networking Index (2013-2018), “India’s Mobile Internet 2013” by Avendus, IDC 2013, MediaNama; A.T. Kearney analysis
Figure 4
Telcos have had mixed success with digital content and services
Contribution of digital content and services to total revenues
(%)
16%
Safaricom
10%
Docomo
M-PESA’s contribution, growing 43% in 2011
Includes smart services: content, advertising
SK Telecom
5%
SK Planet: digital services strategic business unit
Telefónica
5%
Digital services contribution
KDDI
Tigo
SingTel
4%
3%
2%
Consumer value-added service contribution
Mobile financial services, online entertainment and information
Group Digital Life strategic business unit: advertising, content business
Note: 2012 data, contribution of revenue generated by all digital services and content
Sources: company presentations, Bloomberg; A.T. Kearney analysis
3
A Wealth of Opportunities
Digital opportunities typically fall into two categories: customer engagement (e-store and
e-care) and content and services.4 Many leading global telcos are succeeding in e-store and
e-care transformations but, so far, have had varying degrees of success with digital content and
services (see figure 4 on page 3). In fact, there are no straightforward, proven models. Several
challenges have caused this variability:
• Migrating to new digital services (such as m-payments, e- and m-healthcare, and e- and
m-education) often requires massive changes in behavior and substantial investments in
consumer education.
• Ecosystems are still nascent and often fragmented, demanding significant efforts in ecosystem
integration (as with m-payment integration across banks, payment providers, and telcos).
• Consumer polarization around a few global online players limits plays for new entrants.
(Consider the preeminence of music and video hubs such as iTunes and YouTube.)
• The onslaught continues from innovative over-the-top (OTT) players that are more focused
and agile than telcos.
• Consumers have a limited willingness to pay for new digital services, especially when there
are free (albeit illicit) alternatives—as in content.
The outlook for digital customer
engagement, which can unlock
massive opportunity in e-stores
and e-care, is extremely positive.
This has caused players to adjust their digital strategies, using three approaches:
• Wait and watch. Observe and learn from others while focusing on driving data. For example,
Orange Money in Kenya launched mobile banking and money transfers almost three years
after Safaricom.
• Focused plays. Pursue select opportunities that are relevant to key consumer groups. For
example, Verizon is focusing more on connectivity solutions for residences and enterprises,
including digital home, connected cars, and machine-to-machine (M2M) communication,
instead of competing with OTTs in online consumer businesses.
• Broad-based plays. Diversify play across a number of services and geographies. For example,
SK Telekom is present in every area of digital life and has developed services for entertainment,
banking, m-commerce, payments, education, and many other lifestyle verticals.
India’s telcos can start off with a near-clean slate. A.T. Kearney and Google collaborated with
several Indian telcos to identify the core focus areas, using a structured approach to generate and
Content refers to information or publications that can be consumed digitally, such as music, movies, and books. Services refer to
offerings that enable customers to perform personal or business tasks and transactions digitally, such as cloud services and m-payments.
4
4
prioritize ideas. We began by examining consumers’ lifestyle needs, telcos’ internal digitization
capabilities, and applications supporting digitization to compile a list of about 40 ideas. From
there, the ideas were condensed to the 12 with the most potential (see figure 5). The answers to
several questions helped to distill the most promising opportunities in terms of attractiveness,
ease of implementation, and EBITDA impact:
• What is the extent of the consumer need?
• Does it bridge an infrastructure gap?
• Does it align with telcos’ core operations?
• What is the existing and emerging competitive intensity?
• Is there high potential for value?
Figure 5
Prioritizing digital opportunities for Indian telecoms
High
Internal digitization
Idea attractiveness
Media services
Low
Mobile apps
for SMEs
M-education Online activation
M-payments
M-health
Wealth management
Devices e-tailing
Low
Online
recharge
Online customer
service
Content and services
2–3 year
opportunities
3–5 year
opportunities
>5 year
opportunities
Home security
E-governance
Medium
High
Ease of implementation
Notes: Bubble size indicates the total EBITDA equivalent for each opportunity in fiscal year 2017. SME is small- and medium-size enterprise.
Source: A.T. Kearney analysis
A shortlist of four top-priority ideas emerged (see figure 6 on page 6). Focusing on these areas
could allow telcos to capture $8 billion to $10 billion of cumulative value between FY15 and FY17.
• E-store and e-care. Online recharges for prepaid mobile phones, online customer services,
and online acquisitions offer a massive opportunity to cut costs and create revenue from
cross-selling and upselling.
• Media content and services. This opportunity to lead the nascent Indian market could create
more than $6 billion in additional data and content revenues.
• Mobile business apps for SMEs. In this untapped market, telcos are in a prime position to
drive widespread adoption and capture $1 billion in revenue.
• M-payments. Though a smaller opportunity, m-payments enable e-store, paid content, and
apps transactions.
5
Figure 6
Four areas hold vast potential for telcos
Area
E-store
and
e-care
Cost
saving
Description
• Rapidly move recharges, acquisition,
and customer service online
0.8
Total
Revenue EBITDA
0.4
1.0
Online business
in FY17
• $7.4 billion in recharges per year
• 15% of customer service calls
• Give critical priority with immediate
benefits
• 15% of acquisitions
Media
content
and
services
• Assess risk appetite, and emerge
as major content player (music and
video)
Mobile
apps for
SMEs
• Drive widespread adoption of apps,
data, and devices in the untapped
SME market
–
1.2
0.3
• $0.7 billion per year in untapped
market opportunity
M-payments
• Enable e-store and m-commerce
transactions through wallet and
carrier billing
–
0.2
0.05
• $0.6 billion of recharges for
online users
0.8
8.0
2.9
–
• Boost data usage
6.2
1.5
• 3x data consumption per user
• $1.6 billion per year in paid content
• Fuel online transacting behavior
Total
Notes: Value over fiscal year (FY) 2015 to FY17 has been calculated taking into account the rising number of Internet users and greater adoption of digital
services (FY15: about 30 percent of potential value, FY16: 50 to 60 percent of potential value, FY17: 100 percent of potential value). Total EBITDA impact is the
sum of direct cost savings plus EBITDA arising out of incremental revenue (calculated using telecom industry EBITDA margin of about 25 percent). SME is
small- and medium-size enterprise.
To put it into perspective, these four opportunities alone could drive 30 percent of incremental
revenue growth over the next three years, leading to 10 percent higher industry revenues and
$1.5 billion in additional EBITDA by FY17.
Three dark horses also have potential: m-education, m-health, and gaming. Although this report
does not cover these topics, we believe they could emerge as significant opportunities in the
medium term.
E-Store and E-Care: Disruptive Improvements
to Engage Consumers
In the highly competitive Indian telecom industry, mounting cost pressure, changing consumer
habits, and greater expectations about quality are strong incentives to engage digital customers
and take hold of the massive opportunity of e-stores and e-care. The outlook for digital customer
engagement is extremely positive for several reasons:
• The number of Internet and smartphone users is about to explode.
• Alpha users already exist, as seen in banking and travel. For example, 45 percent of railway
bookings are done through the Indian Railway Catering and Tourism Corporation’s website,
and 57 percent of all travel reservations in India are made online.
6
• Telcos are investing in enhancing online user experiences and offerings. Some have even
introduced partially digitized acquisition processes within the existing regulatory framework
(with lead generation and order placement online).
Considering the current digitization levels compared to global benchmarks, Indian telcos have
a tremendous opportunity to drive an aggressive but realistic step change in penetration levels.
The online channel’s lower delivery costs as opposed to traditional dealer commissions and
calls to service centers can yield cumulative cost savings of between $720 million and $860
million over the next three years. In addition, e-store and e-care provide opportunities for
cross-selling and upselling that could add cumulative revenues of $400 million (see figure 7).
Figure 7
Telcos could drive a digital step change in India
E-store and e-care potential in FY17
Digitization
opportunity
Current online
penetration
Online
recharges
2–4%
Online
customer
services
Online
acquisitions
Global
average
Global
best-in-class
Target
for FY17
Total potential
FY15–17
20% of total
subscribers
(180 million)
• $320 million cost savings
70%
13–15% of total
customer services
• $160 million
cost savings
45%
15–20% of total
acquisitions
• $240–380 million
cost savings
20–25% of
total subscribers
70%
2–4% of total
customer service
tickets
30% of total
customer services
Less than 1%
10–12% of total
acquisitions
• $410 million incremental
revenue
Notes: Best-in-class benchmarks exclude players that have a completely online model, such as Giffgaff in the United Kingdom. FY is fiscal year.
Sources: discussions with industry players; A.T. Kearney analysis
The adoption of e-store and e-care is likely to come in stages, with online recharges and
customer service being the first step. Acquisitions will follow as customers become more
comfortable with online transactions.
Online recharges
Online recharges in India are low—only 2 to 4 percent of all recharges—primarily because of
user experience issues and the low prevalence of online transactors for telecom services. This
contrasts sharply with the global level of 20 to 25 percent and with best practices of 70 percent
in advanced prepaid markets such as Portugal.
Our survey of 3,452 mobile Internet users in 14 Indian cities examined awareness and adoption
levels of digital services, including online recharges.5 The insights reinforce the promise of
AC Nielsen conducted a market research survey with 3,452 Internet users across 14 cities in April and May of 2014. The survey compared
people across age groups, location types, Internet and mobile device ownership, and usage behaviors. The survey was conducted in
five metros, four tier 1 cities, and five tier 2 cities. Metros included Delhi, Mumbai, Chennai, Bangalore, and Kolkata. Tier 1 cities
included Ahmedabad, Chandigarh, Kochi, and Mysore. Tier 2 cities included Patna, Indore, Bhubaneshwar, Jalandhar, and Bhavnagar.
5
7
digital. Awareness is not the problem: 64 percent of respondents were aware of online recharge
avenues, but only 18 percent had ever tried them. The gap can be attributed to a traditional
discomfort with online transactions. Further, a significant share of people who had tried online
recharges had significant problems, such as network access or speed issues and an inability to
understand the online process.
Most importantly, 70 percent of Internet users who have not yet undertaken online recharges are
willing to try because of problems with traditional channels. The distance to stores (50 percent)
and limited operating hours (43 percent) are the main pain points, along with unavailability of the
desired recharge denomination (36 percent).
Naturally, to drive up online recharges, the pool of online transactors needs to grow significantly
from the current 10 percent. Our research indicates that more than 160 million consumers will be
equipped with both debit cards and Internet banking and comfortable with online transactions
by FY17. This compares with other emerging economies such as Brazil and China, assuming a lag
of four to five years. Notably, it also implies that nearly all of the targeted 20 percent future
rechargers will be covered (see figure 8).
Figure 8
The popularity of online recharges for prepaid mobile phones is expected to rise
Online transactors
(million)
180 million
(FY17 target of 20% online recharges)
>230
160
15–25 million
(current online rechargers)
20
Smartphone users
(million)
FY14
FY17
67
385
FY18
80 percent of Internet
users on smartphones
Note: FY is fiscal year.
Sources: Internet Mobile Association of India, press research, A.T. Kearney’s 2013 Global Retail E-Commerce Index
Encouraging online recharges will hinge on enhancing users’ experience, awareness, and
comfort levels. Achieving a level of 20 percent online recharges by FY17 will lead to $320 million
in cumulative cost savings and $400 million in incremental revenues between FY15 and FY17 by
stimulating upselling and cross-selling to e-store users.
Online customer service
Companies around the world are shifting from traditional, offline modes of customer service
to e-care. Leading telcos such as Telstra have demonstrated how it should be done—with
intuitive functionalities and interactive customer service with 24/7 live chat and crowd
support for problems.
8
In India, online customer service is again plagued by user experience and adoption issues.
Sixty-one percent of customers are aware of online customer service, but only 21 percent have
tried it. (Interestingly, 32 percent of those users have tried online customer service for banking.)
Nearly 60 percent say that responses are not understandable, more than half say the turnaround
time is too long, and a third cite network access issues.6
Because digital customers will soon demand high-quality online customer service, it is time to
up the ante. The financial benefits are clear. Many requests and complaints are related to
prepaid balances, payments, and other service calls (see figure 9). Thirty percent of these—15
percent of overall requests and complaints—can be resolved online. Naturally, the profile of
online tickets is also expected to include a greater share of service inquiries and requests for
assistance in technical problem solving. These are likely to be more effort-intensive and have to
be factored into managing the shift to online and calculating the resulting savings potential.
Figure 9
Many telecom customer service tasks can easily shift online
Categories of customer service tickets
(% of total tickets)
8–12%
Recharge offer inquiries
Difficult to deliver online
4–6%
General details
3–5%
2G, 3G data inquiries
Inquiry on value-added services
Moderately difficult to deliver online
5–8%
Caller tunes
3–5%
Balance-related complaint
7–10%
Payment query or complaint
7–10%
4–8%
Service calls
SIM-related
Others
Easy to deliver online
2–3%
45–55%
Notes: Caller tunes includes activation and deactivation, song change, and inquiries about charges, monthly rent, profile, and song list. General details
includes calls from other telecom customers and inquiry calls about roaming, stores, call centers, websites, dealers, and distributors. Service calls are related
to do-not-disturb services, system errors, feedback on customer service, and responses to marketing texts or calls.
Shifting 13 to 15 percent of customer services requests and complaints to the online channel
could save $150 million to $160 million.
Online acquisitions
Leading telcos are offering customers the possibility to sign up online for new connections.
For example, in the United Kingdom, Giffgaff has an online-only approach, where customers
can order a SIM card and activate it themselves with just five simple steps.
Based on a Nielsen market survey of 3,452 mobile users (across five metros, four tier 1 cities, and five tier 2 cities) who have had active
Internet connections in the past six months
6
9
In India, however, regulatory requirements are hampering digital acquisition as employees must
verify physical signatures and proof documents. Several Indian telcos have developed partially
digitized processes to place orders and pay online. However, SIM delivery and the documentation process occur at the customer premises. This allows telcos to reduce the variable costs
of subscriber acquisition by almost half, but very few acquisitions are carried out this way.7
Players that push this model could target 15 percent of acquisitions online and capture
cumulative cost savings of $240 million over FY15 to FY17. If regulations ease to allow a fully
digitized process, variable costs could be reduced by an additional 30 percent to capture
further cumulative savings of $140 million over FY15 to FY17.8 The large-scale rollout of India’s
unique identity card, Aadhaar, could be the game changer here.
Success factors
A winning model for e-stores and e-care will entail building a superior user experience,
creating awareness for various online avenues, and building a compelling value proposition,
including incentives for customers to go online. Players will also need to manage the transition
of traditional retail channels, which might perceive the new model as eating into their income
stream (see figure 10).
To accelerate their digital journeys, Indian telcos will also need to reinforce and elevate their
digital approaches and move to a truly “digital-first” organization.
Figure 10
Success factors for e-store and e-care in India
Build a superior
user experience
• Educate customers
about multiple
avenues of recharges
and services
• Build awareness about
ease, convenience,
and incentives
• Educate and promote
online modes of
payments, including
m-payment, to
address security
concerns
• Ensure quick and convenient recharge
option (low number of screens)
• Have a well-designed portal to facilitate the process
• Use customer analytics to upsell and cross-sell
Create
awareness
of online
avenues
Winning
themes in
digitization
• Offer incentives vis-à-vis traditional
channels to create pull
• Have categories of incentives: cash back,
direct discounts, free value-add services
or data usage, bundled incentives
Manage
channel
transition
• Reassess channel
commission
structures based
on revised store
economics
• Institutionalize
online KPIs for
internal sales and
customer service
teams, in addition
to overall KPIs
Build a compelling
value proposition
Note: KPI is key performance indicator.
Telcos can avoid channel commissions but will incur incremental fees for agents to deliver SIMs to customer premises, file and verify
customer application forms, and transfer documents back to the telco’s offices.
7
Through a fully digitized process, telcos can further avoid delivery agents’ fees for completing applications and verifying documentation.
8
Creating the Next Multibillion-Dollar Online Opportunities in Telecoms 10
Media Content and Services: Triggering the
Next Wave of Consumption
Entertainment is the most important media category in India, with videos and music representing
the largest subcategories (see figure 11). The Indian market is also highly vernacular, with 93
percent of time spent on videos consumed in Hindi or other regional languages.
Figure 11
Entertainment is India’s most popular online search category
Online searches in India
(% of total, 2013)
Total
Content consumption
(Time spent, 2013)
Entertainment
12%
6%
1%
8%
English vs. vernacular
2%
4%
7%
30%
8%
31%
32%
61%
10%
11%
63%
English
14%
Entertainment
News and info
Consumer electronics
Finance
Education
Health
Social networking
Others
Video
Games
Hindi
Music
Other
Other regional languages
Live TV
Notes: Based on the number of Google search queries by category across computers, mobile devices with full browsers, and tablets with full browsers.
Others includes jobs, vehicles, real estate, and gifts. Language of content based on video consumption across the Top 100 YouTube channels.
Sources: Google; A.T. Kearney analysis
India’s data and paid content consumption is much lower than global markets. Per capita data
consumption is only one-sixth of U.S. levels, and paid content consumption per user is a tenth
of U.S. levels (see figure 12 on page 12).9 Consumption is held back by several factors:
• Low digitized content availability, especially in entertainment categories such as
music and video
• Low content accessibility because of the lack of an easy-to-use, vernacular gateway
• Poor user experience as a result of network issues
• Traditional low willingness to pay because of budget consciousness and availability
of free content
Paid content revenue refers to total revenue (telco share + content owner share) monetized only through direct payments by consumers,
excluding advertising and caller ringback tones. Content revenue per user for the United States and Western Europe has been adjusted
from actual values by 75 and 80 percent respectively to account for differences in nominal pricing levels.
9
Figure 12
Indians do not use much data or buy much content
Per capita data consumption by
Internet users in 2014
(MB per month)
~220MB
20–25%
~1,400 MB
5–10%
10%
5–10%
10%
5–10%
15–20%
Content revenue per user
($ per user per year)
8.0
Others
Email
Music
5–10%
60–70%
Videos
35–40%
India
5.3
Social networking
0.8
United States
India
Western
Europe
United
States
Notes: Data consumption pattern for India based on behavior among smartphone users; U.S. pattern based on all Internet users. Includes total revenue
(telco share plus content owner share) monetized only through direct payments by consumers. Excludes advertising and color ringback tones. Content
revenue per user for the United States and Western Europe have been reduced from actual levels by 75 and 80 percent respectively to account for
differences in pricing levels.
Sources: Cisco, Skyfire, eMarketer, Nielsen; A.T. Kearney analysis
The confluence of drivers (as discussed earlier) and the increasing 3G adoption will cause
current data and paid content consumption to double organically by FY17 to 470 MB data per
user per month and $1.6 in content revenue per year. Nevertheless, this will still be significantly
lower than in other developed markets.
Telcos have the opportunity to significantly expand the pie by catering to unserved demand,
especially in online music and video. According to our survey, 73 percent of mobile data
consumers would be willing to spend more time online if more entertainment content were
available in an engaging format.
Importantly, the monetization tide is changing both globally and in India. The global paid
content market, plagued by copyright infringements over the past decade, is showing signs of
recovery, and consumers are more willing to pay for quality content. Rights owners are taking
notice, too, and are throwing more weight behind digital delivery:
• Spotify, a recommendations-based music streaming service, grew its paid subscribers from 2.5
million in September 2010 to 6 million in December 2013, or 25 percent of its overall user base.
• Netflix invested $100 million to produce two seasons of House of Cards, a political drama
series exclusively released on Netflix.
• Beyonce’s latest album had a one-week exclusive release on iTunes before its record release,
smashing all previous download records.
Even in India, 30 percent of consumers are willing to pay for quality and customized content,
according to our survey. Furthermore, there are supply-side opportunities:
• The ownership base is fragmented, with more than 750 TV channels and 140 movie
production houses but no clear winners.
• There is a distribution shortage. Half of all Bollywood movies are not screened because of a
shortage of theater screens.
Telcos are uniquely positioned to address these adoption challenges and expand the overall pie
because they have wide consumer reach and deep insights into consumer behaviors.
Depending on their risk appetite, telcos can capture a large share of the content market.
However, they must act now or run the risk of getting crowded out by other players, especially
emerging OTTs. The question is how. Overall, there are three business models to choose from,
each with varying levels of “bigness” (see figure 13).
Figure 13
Telecom business models
Telco role
Suggest
Recommendations
engine
Engage
Customer engagement
platform
Description and implications
• Rely on an OTT player to develop a content hub
• Cutting-edge customer analytics promote
all traffic to one hub
• Build open API platform with app developers with
fantastic user experience
• Effective and flexible alliances with providers
and carrier billing
• Fairly complex, requires innovative capabilities and
deep consumer insights
Content hub
• Last.fm capabilities in YouTube
channel recommendations,
promote data packs through SMS
• Might not be sufficient to create step change in usage
• Drive significant usage, allow telco to experiment,
understand market, and stay relevant to consumers
Aggregate
Examples
• Develop a library of high-quality, paid content
• Most significant value potential
• High risk of failure, need to go for the win (typically
no more than two players can succeed)
• Singtel’s inSing and deFIND
are gateways for everything
about life in Singapore
• SK Telekom’s SK Planet is an
all-encompassing lifestyle
and entertainment hub and an
app store
• SK Telekom’s Melon is the
market leader for music content in
Korea, offering music downloads
and streaming
• Might need to consider industry collaborations
Notes: OTT is over-the-top. API is application program interface. SMS is short message service.
Given the awareness and vernacular access challenges, the best base approach is consumer
engagement platforms (CEP). This will require developing a vast, dynamic set of offerings within
a complex ecosystem of alliances. SingTel’s inSing and deFIND and SKT’s SK Planet are
examples of leading CEPs.
An extensive content hub offers the most value potential but comes with significant investments and risks. To succeed, telcos can learn from leading content hub players such as iTunes.
Four moves will be essential:
• Develop a distinctive, interactive user experience.
• Build comprehensive libraries by partnering with the right content providers.
• Create winning customer analytics capabilities to present curated content recommendations.
• Use carrier billing as a strategic advantage.
Depending on the role chosen, there is a clear opportunity for telcos to push data consumption
up further by 250 MB per user per month. Most of the latent demand—more than 80 percent—is
in videos, which can lead to incremental cumulative revenues of up to $2.7 billion in FY17 and
$5.6 billion between FY15 and FY17. There is also room to increase content revenue per user by
$2.4 to $2.6 per year if telcos partner with content publishers to undertake a large-scale content
play. This can drive total paid content consumption in FY17 from $0.6 billion to $1.6 billion,
leading to an additional content revenue share for telcos of up to $280 million in FY17 and
a cumulative $600 million over FY15 to FY17.10 Overall, the total cumulative value creation
potential over FY15 to FY17 could reach $6.2 billion.
Business Apps for SMEs: Make a Compelling
Value Proposition
Globally, SMEs across verticals have adopted an array of mobile business applications (MBAs) to
drive operational efficiencies. In 2013, about 45 percent of the world’s SMEs were using MBAs—
and it is expected to jump to 60 percent by 2016.
In India, the SME market is enormous, with 50 million companies in operation in 2013, of which
2 million have more than 10 employees. SME spending on information and communications
technology (ICT) has also been growing steadily over the past two years, at a CAGR of 15
percent to $7 billion in 2013. A large part of this comes from larger SMEs, which spend $3,500
per year on IT services, mostly on telephony and connectivity services. Little of this spending
goes toward mobile business apps. Adoption has been hampered by security concerns, the
cost of data-enabled devices, and a lack of employee Internet literacy, according to our
survey. However, SMEs are willing to use apps if there is a compelling value proposition.
Telcos have a unique opportunity to drive and monetize MBA adoption among SMEs, along with
data connectivity revenues, by capitalizing on their unique strengths:
• Existing sales relationships with SMEs and SME employees, far deeper than any app providers
• An established billing platform
• Insights into SMEs’ business needs and relevant mobile apps
• The ability to extend ICT service support to other services, including mobile device
management and security solutions
Success will hinge on identifying and developing the right mobility-oriented and cloud-based
smartphone apps to help SMEs improve their operational productivity. A focused sales effort
will also require pinpointing where apps can add the most value. Using a structured approach
to find the most promising apps and verticals, we identified five categories of apps for four
industries (see figure 14 on page 15).
Indian telcos should source or develop MBAs for these industries and focus their sales efforts on
providing the larger SMEs with compelling business cases. Showcasing select M2M applications—
for example, in security or in vehicle or asset tracking—can be a powerful way to demonstrate the
value proposition of mobility and cloud-based apps.
Assuming telco content revenue share at 30 to 40 percent, in line with global trends
10
Figure 14
Business apps have great potential for four industries
Potential mobility and cloud applications
Focus
verticals
Workforce
management
Description
Banking,
financial services,
and insurance
Sales
improvement
Supply
chain
management
Customer
services
Data
collection
• Asset management
• Insurance agents
• Courier delivery
Logistics
• Transport providers
• Pharma
Healthcare
• Pathology
• Clinics and hospitals
• Snacks manufacturers
Consumer
goods
• Handicrafts
manufacturers
Low potential
High potential
Sources: CRISIL Research, Zinnov Research, press research; A.T. Kearney analysis
Figure 15
Telcos have work to do to get SMEs to embrace apps
Drive device
connectivity
Increase use of
mobile business apps
Drivers
Challenges
Potential action
Convince SMEs
of sustainable
value proposition
• SMEs hesitate to adopt without
tangible benefits
Integrate with
existing IT
systems
• Standalone IT systems are used,
typically for accounting
Structure, educate,
and incentivize the
salesforce
• The telco salesforce focuses on
traditional services (voice and
connectivity) because they are
easier to sell
• Modify the incentive structure to focus
on mobile business apps
• Devices are expensive
(more than $80)
• Offer free or discounted data packs for
a limited time to push plan upgrades
• Employees who are not Internet
savvy see little merit in data
• Waive or postpone app charges if
employees upgrade devices or plans
Enable employees
to upgrade to data
devices and plans
• SMEs are concerned about
after-sales support
• Align with best-in-class providers
• Demonstrate capable after-sales
support
• Focus on apps that increase productivity
and not on replacing or adding to existing
systems and software
• Train salesforce to promote apps
• Engage channel partners
• Finance devices (for example,
reimburse for prepaid)
Note: SME is small- and medium-size enterprise.
If telcos can mobilize their sales force and drive adoption, they could gain incremental
cumulative revenues of $490 million to $1 billion by FY17, of which 50 to 55 percent would come
from mobile apps and 45 to 50 percent would come from higher data consumption (driven by
higher device and M2M connectivity).
Getting SMEs to adopt MBAs will require helping them throughout the selling and adoption
process, as outlined in figure 15 on page 15.
M-Payments: Enable Online Transactions to
Drive Usage Maturity
Mobile payments can serve a range of objectives, including supporting digital recharges,
person-to-person (P2P) transfers, utility payments, online payments through payment gateways
or carrier billing, and over-the-counter point-of-sale payments. Globally, m-payments have
grown at an impressive CAGR of 49 percent to reach $235 billion in 2013. However, most of
these transactions are toward top-ups (65 percent) and P2P transfers (34 percent). Telcos are
still investing in consumer education and ecosystem development to aid adoption.
In India, m-payments are still nascent and are hampered by several challenges:
• Regulatory restrictions. There are limited cash-out facilities for m-wallets. Telcos must
partner with banks to offer cash out, and carrier billing offers restricted functionality.
• Ecosystem infancy. The agent network for loading m-wallet accounts is limited. For example,
Safaricom Kenya has 80,000 M-Pesa agent outlets, but Airtel Money has only 15,000 outlets in
India. Few vendors accept m-payments, especially in travel and e-commerce.
• User experience and concerns. USSD- and SMS-based services are cumbersome, with slow
response times and frequent session timeouts.11 Security is also an issue, with 59 percent of
our survey respondents saying it is a concern for online transactions.
However, as discussed earlier, m-wallets might be important for Indian telcos to provide an
interim means of undertaking e-store transactions while online transacting via debit cards and
Internet banking matures over the next two to three years. M-wallets will allow users with
security concerns to experiment with lower-value wallets.
M-payments can generate incremental revenue for telcos by acting as a payment instrument
for micro payments in e-commerce, utility bill payments, and purchasing apps. By offering
m-wallet and carrier billing as simpler alternatives to Internet banking and cards, telcos have
much to gain:
• Twenty-five percent of utility bill payments of Internet-enabled households (potentially $2.5
billion transaction value in FY17 on m-wallet)
• Five percent of e-commerce transactions ($1.3 billion transaction value in FY17 on m-wallet)
• Ninety percent of paid apps purchases (more than $200 million transaction value in FY17 on
carrier billing)
Depending on the service, telcos can earn up to a 2 percent commission on m-wallet transactions
and possibly more than 10 percent revenue share on apps purchases.
USSD is unstructured supplementary service data.
11
Several moves can build a strong foundation for m-payments:
• Invest in building the ecosystem. Improve the ease of use for products and offerings, and
establish a large network of cash-in and, when allowed, cash-out outlets.
• Invest in consumer education. Build awareness, and drive adoption.
• Build trust. Use brand strength and existing billing relationships to give consumers confidence
about telcos handling their money. Collaborate with banks and other payment gateways to
gain consumers’ trust.
If Indian telcos can deliver on these factors, they could earn cumulative revenues of $180 million
between FY15 and FY17.
Strategic Decisions: Determining the Future
Digital State
Forward-thinking players will develop their digital vision and determine their own position on
the risk-reward curve of digital plays. Based on the breadth of digital offerings and intended
aggressiveness (extent of diversification, scale of investments, extent of alliances), there are
four states to choose from (see figure 16).
After determining this vision, telcos need to make decisions in three areas to define their
digital road map:
• Business model and approach. Determine which and how many opportunities to pursue,
with what risk appetite, and what the differentiating value proposition will be.
• Capability building and alliance strategy. Develop in-house capabilities, or establish
alliances with multiple partners.
Figure 16
Four strategic visions for the telco digital venture
Aggressiveness
Innovators
Multi-players
Aggressive promotion of niche services
portfolio through innovative models and
strategic investments and alliances
Aggressive diversification and
investment decisions; partnership
with different stakeholders to drive
ecosystem integration
Cautious followers
Experimenters
Wait and watch, pursuing select digital
services adjacent to core offerings and
requiring short-term bets
Wide range of digital services but more
adjacent to core offerings with small
incremental investments
• Extent of diversification
into new business
opportunities
• Scale of investments
• Partnerships with
ecosystem players
Portfolio of offerings
Breadth of digital services being offered
• Organization structure. Create one centralized digital business unit to drive all digital
initiatives, or use multiple smaller decentralized teams to pursue individual initiatives.
Conclusion
The Indian online market is about to explode, and telcos will be able to pursue an unprecedented
array of large digital plays. Telcos have the opportunity to create $8 billion to $10 billion in
cumulative value over the next three years, especially in four areas:
• E-store and e-care. Significant push and facelift in offerings and user experience
• Media content and services. Innovative platforms to drive data and paid content
• MBA for SMEs. Four to five key service apps with a concerted effort to encourage consumers
to use data, devices, and apps
• M-payments. Promotion of m-wallet, enablement of carrier billing
India is set to witness unparalleled Internet momentum, and telcos are uniquely positioned to
take full advantage of it. It is time to get going and be digital.
A.T. Kearney
Google
Nikolai Dobberstein, partner, Mumbai
[email protected]
Aditya Gaurav, industry head of
telecom, Gurgaon
[email protected]
Ajay Gupta, principal, Mumbai
[email protected]
Shalini Poddar, principal account
manager, Mumbai
[email protected]
Vignesh Shankar, consultant, Mumbai
[email protected]
Arpit Jaiswal, principal industry analyst,
Gurgaon
[email protected]
The authors would like to thank Smita Singh, Manan Shah, Neeraj Gupta, and Rakesh Mahajan for their valuable
contributions to this paper.
A.T. Kearney is a leading global management consulting firm with offices in more
than 40 countries. Since 1926, we have been trusted advisors to the world's foremost
organizations. A.T. Kearney is a partner-owned firm, committed to helping clients
achieve immediate impact and growing advantage on their most mission-critical
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Creating the Next Multibillion-Dollar Online

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