1. Industry Background

Indian telecommunication market is one of the largest in the world, with the number of telecom subscribers second only to China's. In terms of infrastructure, India's telecommunication network is the third largest in the world on the basis of its customer base and it has one of the lowest tariffs in the world enabled by the hyper-competition in its market. The major sectors of the India telecommunication industry are telephony, internet and broadcasting. Indian telecom industry underwent a high pace of market liberalization and growth since 1990s and now has become the world's most competitive and one of the fastest growing telecom markets. India has the world's second-largest mobile phone user base with over 929.37 million users as of May 2012. It has the world's third-largest Internet user-base with over 121 million as of December 2011.

There are around 15 operators competing in the market for the telecom space in India. As per the latest annual report from Telecom Regulatory Authority of India (TRAI), the total revenue in the telecom service sector was INR 1,71,719 crore for the 2010-11 , growth of about 8.7% from the previous year. The capital employed in the sector increased from INR 2,86,837 crore in 2009-10 to INR 3,37,683 crore in 2010-11 i.e. an increase of 17.73 % indicating a healthy growth of investment in the sector.

2. Why is it a Red Ocean?

Market Saturation: The market is saturated with urban tele-density (number of telephones per 100 persons) reaching 167% and overall national average is 76%. Further increase of the customer base seems difficult in the coming years. (Figure 1)

Price War: The industry is one of the most competitive and has the lowest tariff rates than anywhere in the world. The call rates dropped from INR 16.80 in 1995 to INR 0.30 in 2012. Operators have been announcing new promotional schemes including reduction in tariffs for voice call, slashing roaming charges and many more such lucrative offers. Due to the fierce price war the profit margin and return of capital has been declining over the years (Figure 2).

Declining Revenue: Average revenue per user (ARPU) has been falling year on year and most of the major players have been losing between 10 to 20% in ARPU and going to decline further. This trend is having negative impact on the bottom-line of all the players. The EPS for almost all telecom companies are going down and a result share prices is in a declining path.The tariff war and the trend in declining revenue per user is not a sustainable model going forward as bottom line growth is seems muted in the coming years.

There are three types of players in Indian telecom services:

State owned companies (BSNL and MTNL)
Private Indian owned companies (Reliance Infocomm, Tata Teleservices,)
Foreign invested companies (Vodafone, Bharti Tele-Ventures, Idea Cellular, Uninor etc)

Foreign direct investment is increasing and new players are entering the market every year.

As-is strategy canvas of the Indian Telecom Industry

( Factors used to determine the Strategy canvas is described below)

Price – Due to competitive nature the price is very low
Traditional mobile services – Talk, SMS, MMS, Ringtones etc. .Rated High as these are standard offerings by the operators.
Network Quality and coverage – The mobile infrastructure in India is still not up to the mark and the Quality of service is effected (rated low based on TRAI report)
Internet and broadband services – Most of the major players are offering this service but the quality and reach is not high. Hence a rating of average is given for this.
Pay for what you use – While most of the operators offer full talk time, but most of time operators add value added services like ringtone, daily astrology reports etc without customer consent. TRAI report also shows that there is deterioration on QoS in metering and billing credibility. The rating has been given Low.
Roaming Charges – Roaming charges in India are quire erratic and just moving even within a state attracts roaming charges although the operator does not incur in cost.
Variety in Usage plans – Every operator has multiple usage plans for both post pad and pre-paid services. Hence the rating of very high is given for this.
Traditional Value added services- Standard value added services like call forwarding, itemized billing, caller ringtones, music downloads are now a standard in the Indian telecom industry. However there is lot of scope for adding more features and hence the rating given is average
M Commerce – Though most of the providers offer this services , the penetration is still low because of security and customer awareness issue.
Video Calls – New 3G players are only offering his service but the pricing is very high. So this parameter has been ranked low.
Entertainment (music download, IPTV) - Penetration is quite low and most of the subscribers do not see much value in the in this offering. The main reason behind is the higher pricing and content not meeting expectations. Hence is parameter is ranked low.
Customer Services – Normally the high customer base is managed by comparatively lower customer support executives; the QoS in this parameter is low.

3. Creating a Blue Ocean

Using the four action framework -Eliminate, Reduce, Raise and create following a following ERRC grid.

Eliminate Variety of usage plans Charges for Value added services like Call forwarding, Ringtones, itemized billing etc. Roaming Charges Video Calls	Raise Network Quality and Coverage Internet and Broadband services Pay for what you use Entertainment (Music , IPTV) M Commerce
Reduce Traditional Value added services (via SMS)	Create Private Networks Wireless Health Care applications Telco App Store

Eliminate:

1. The variety in usage plan can be completely eliminated and instead “pay for what you use “can be increased.

2. Customers do not consider some of the services which provider terms as value added , hence they should be eliminated

3. Most of the developed nations do not have roaming charges and India too can replicate that. If the subscriber is in a different mobile circle then a onetime nominal charge can be applied.

4. Video Calls requires high bandwidth usage and the locations where Indian subscribers use their mobile (on the go) is not suitable for Video chats. This segment can move to the internet service provides

Reduce:

1. Traditional Value Added Services: Some of the so called value added services by Telco’s are actually SMS based and not really value added. Most of these services are push based which subscribers do not always want. Hence reducing this offering.

Raise:

1. Network Quality and service – This is one area where most of the telco operators in India are not up to mark. Even major players like Bharti and Vodafone have signal, call disruption issues. Improving in this category will give higher customer satisfaction and customer retention.

2. Internet and Broadband services – The broadband services offered by telcos are not up to expectation as the speed is quite low and pricing on the higher bandwidth segment is comparatively high. Improvement is this offering can bring in new customers who are on the move and requires internet connections on the move.

3. Pay for what you use – New customer acquisition specially the mobile internet users is possible if this pricing policy is adapted.

4. Entertainment – The entertainment offering is mostly restricted to music downloads and mobile TV in a low scale. This segment can be expanded with online gaming, books improved mobile TV and affordable prices, etc.

5. M Commerce – M commerce (like Banking transaction, utility bill payment etc) have a big way to go as this offerings are at nascent stage. This will surely increase the revenue to telcos and acquire new customers.

Create:

1. Private Networks – Small and medium enterprises who cannot invest to have dedicated networks can buy this offering from telcos.

2. Wireless Heath Care applications – Personal aps such as patient monitoring systems, alerts, medicine refilling prescription etc can bring in new user base especially in the rural areas where mobile penetration is still low.

3. Telco App stores – Telcos can generate revenue by providing new apps (like secure mobile payment apps, gaming, entertainment, news etc.

The creation of these services does not require high investments from Telecom operators and existing bandwidth can be utilized.

To-be Strategy

4. Blue Ocean – Create New Service lines

The next wave of subscriptions will come from semi-urban and rural areas. The penetration of mobile phones in urban areas is already more than 150% and in rural areas it is ~ 38% (Figure 1) As the 3G spectrum is becoming operational , focus must be given on the Non-Voice offerings in the urban sector and extend the basic services in the rural sector to capture the market. The strategy should to align to the above goals.

The top five to six products such as game based applications, music download continue to form close to 90% of VAS (Value Added Services) revenues, and have become easily replicable. The other types of services such as governance, education, and commerce constitute only 10-15% of VAS revenues, leaving large scope for growth.

In the rural segment:

Selling and procurement information and support for farm commodities
Educating farming community on best practices
Delivery of healthcare and education to remote village via the mobile broadband network
Regional language content, and news
Access to government services on Mobile-Based Service (MBS) platform individually or on CSC (Common Service Centre) model

In the urban segment:

Mobile banking and commerce
Tele-education
Tele-medicine
Location information, Area maps etc.
Home based services such as home security monitoring and personal emergency services
Easy access to services such as government services, utilities etc can be potential successes.

The ERRC Grid will look like this

Eliminate Variety of usage plans Charges for Value added services like Call forwarding, Ringtones, itemized billing etc. Roaming Charges Video Calls	Raise Network Quality and Coverage Internet and Broadband services Pay for what you use Entertainment (Music , IPTV) M Commerce
Reduce Traditional Value added services (via SMS)	Create · Private Networks · Wireless Health Care applications · Telco App Store · Non Voice Services Real Time Agriculture information Banking Services (Remittance, Micro Payments) M-Governance M-Education Vernacular Content Location Information and area maps Home Based Services Home Security Monitoring Personal Emergency

The Extended Strategy Canvas will look as below

5. Conclusion

By using the framework we can conclude that “Blue Ocean” strategy can be applied to the Indian Telecom industry. The factors which come out are network quality and coverage, quality of customer service, Pay for what you use and better and more meaningful Value added services. .This new market strategy will help Indian Telecom operators to enhance their competitiveness in the existing market and capture new customers from the rural and semi-urban segment. Finally the implementation of India’s telecom industry has posed unique challenges for mobile operators. Although the market is competitive but there is lot more is possible to do enhance customer experience. Non Voice services are a great opportunity to rescue the industry from the declining ARPU.

However, stakeholders across the value chain will have to work collaboratively to overcome barriers and create a business ecosystem that generates fair rewards for all the players.

References:

http://www.Wikipedia.org

http://online.wsj.com/article/SB10001424052702303567704577518252781590644.html?mod=googlenews_wsj

http://www.economist.com/node/18836120

http://www.trai.gov.in/WriteReadData/PressRealease/Document/quarterly%20press%20release.pdf

http://www.trai.gov.in/WriteReadData/UserFiles/Documents/AnuualReports/ar_10_11.pdf