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When Lt. Colonel Hardeep Singh Bedi started Tulip Telecom in 1992 as a software reseller, little was expected of him or his business. In 1999, Bedi entered the domain of wireless technology and the rest, as they say, is history. Tulip is today a celebrated case in the Indian telecom entrepreneurial journey.

“There is a big gap between the growth of broadband and telephone density and the growth of the economy. It is a large sector which in turn feeds other large sectors of the economy and, therefore, there is tremendous opportunity for entrepreneurship in this sector. The Indian telecom network, with about 723 million subscribers in 2010, is the second-largest in the world and growing at about 45 percent year-on-year. It is expected to double with every passing year,” says Bedi.

According to him, many new developments are taking shape in the sector. “Data is likely to be the center of all attention, especially for 3G and wireless broadband. We will also see a lot of growth in content and applications systems,” says Bedi.

Lt. Hardeep Singh Bedi of Tulip Telecom

The national e-governance plan is giving a further impetus to delivery of services to every citizen of the country. “Corporations across the world realize the huge untapped potential in rural areas and are working towards steadying their growth in these areas. The future will see a lot of new technologies come in the wireless, applications, mobile space and networks. We will witness a well-connected India which will bridge the urban-rural divide. Low PC penetration has been one of the reasons for the low broadband penetration. This will change with the advent of handheld devices,” feels Bedi.

The current scenario
According to Jasmeet Gandhi, Head, Devices OPM & Services Marketing, Nokia, the opportunity will arise or multiply when there are precursors to scale. “In the last few years, certain positive things have happened. Firstly, phone technology is now rapidly available across price bands, which means consumers have the ability to do more.

Secondly, flattening out of voice has pushed operators to get innovative about revenue streams. Till now, Value-Added Services (VAS) revenues were small but that will not cut any ice as the amount of money they paid for 3G also has to be recovered. There is demand from consumers and the need to be innovative from the operators’ side,” says Gandhi. “When you think of telecom, the most obvious aspect which comes to mind is the telecom service provider and the big brands which are providing these services.

Having said that, a telecom service is a large-scale, large-investment game and the service providers are actually your tier I segment,” says Jaideep Ghosh, Executive Director, KPMG.  According to Ghosh, the ecosystem also consists of network equipment makers, infrastructure like towers, which again requires large-scale investment and form the tier II of the sector.

Ghosh adds that if we immediately look at the other side of the tier II ecosystem, we have applications and the entire gamut of value-added services. “This has been traditionally the favorite place for a startup or an entrepreneur to operate in,” he says.

For Arvinder Singh Gujral, DGM, New Products & Innovation, Aircel, with 3G and BWA, the prospects in the sector will multiply. He also feels that India is a hyper-competitive market in the telecom sector.

“Nowhere in the world will you find 14 telecom operators in one country. This leads to enhanced marketing, high decibel promotions and lower RPUs. Of course, every operator wants to be differentiated from the others in the pack and this cannot be done by only playing the tariff rate game. Having gone past that pricing war and with no one having the national mandate in 3G to create any particular price points, every operator is now looking at partnerships for new products and services,” says Gujral.

VAS space
“We are looking at certain partnerships with entrepreneurs where we bring the differential products and services that you have created. With 3G, we will have new vistas opening up but I would also urge entrepreneurs not to burn their resources only on 3G,” says Gujral.

For Rajesh Razdan (top pic), Co-founder, mCarbon, the key to success is that as a packaged provider, you should be able to categorize the so-called VAS to get traction. “Here is an opportunity for all entrepreneurs to enter a domain which is beyond voice and data in the form of enterprise-based VAS and utility-based VAS at the click of a button,” says Razdan.

Charge right
Razdan says that entrepreneurs need to note a few points for their service to be successful. The first is to charge for their product. “India is not a credit card economy and hence it will be important to understand how to make the customer pay,” says Razdan.

Connectivity
The second aspect is connectivity. “User experience is a major issue. The moment a customer clicks on a product or service, the content should be engaging enough for the customer to use again and again. The stickiness of the service with the device or service provider kicks in and differentiation will start playing a major part,” says Razdan.

Started in 2007 by Brijmohan Mahendru and Razdan, mCarbon did not believe ringtones, picture messaging or wallpapers was the real market. “A service which is very popular with the consumer where telco may or may not be an enabler was what we had in mind,” says Razdan. Within three months of its inception, mCarbon landed itself a deal with Airtel for its Call Manager service.

The VAS market
For some time now we have been hearing about VAS contributing about 20 percent of revenues for a telecom operator but in reality the figures have been stuck at about 8-10 percent.

“The 20 percent revenue mark for an operator from VAS products was always a bloated figure. Earlier, telcos never really bothered about VAS as voice and data fetched a good margin. Over the last 2-3 years, they have started to think about applications and platforms in a different way. This has happened because RPUs are diminishing from purely voice and data. Today, operators have realized they have to tear down walls and make applications and platforms more accessible to consumers and the developers,” says Razdan.

The math is quite simple. Out of much talked-about 600-700 million mobile users in India, around 200 million people, in the name of VAS, pays Rs.45 a month, which amounts to a Rs.9 billion-a-month market or a Rs.135 billion market each year. This will only increase as tele-density increases. If 50 million such users start spending about Rs.90 per month, we will see a significant jump in market size.

“It is no longer a mere urban phenomenon. For example, if someone launches an iPad for sub-Rs.10,000, the target market will be a tier II or III town. Telecom and mobile towers have penetrated even remote villages and as soon as devices which enable data is accessible to people in towns other than metros, there would be takers for it. With prices coming down across the board, and data-enabled devices making inroads to Indian hinterland, there is a tactical shift which is happening,” says Razdan.

mCarbon expects revenues to touch Rs.12 crore-Rs.15 crore at 300 percent growth y-o-y and expects to touch Rs.30 crore next fiscal.

Challenges

The challenges for startups are to control the information overload, change it into smart applications and disseminate information properly. What is lacking in this industry is classification and categorization. Secondly, very little has been done in terms of utility-based applications and enterprise applications are also completely missing. The impetus has to be on what a consumer wants rather than what a startup wants to do and then pushing that service on a handset.

“VAS is a fairly difficult space and beyond caller tones and text messaging services, nothing much has really happened,” says Ghosh.

Is there a killer app? “There is no killer app. Any app which is able to do a multiplier factor of 6-7 million downloads or unique users a month, giving you Rs.30-Rs.50, is a killer app,” says Razdan. He says while for mCarbon the call manager has prove to be the money minting app, it will be of no relevance to a rickshaw-puller for whom a Color Ring Back Tone (CRBT) makes much more sense. It is hence essential that a company does not focus on a single product.

Nokia's Jasmeet Gandhi

“If you have an idea, it has to be taken to the masses. An idea without a customer base is no good. It is not enough that you do certain applications for a certain set of people. Affordability and scale will be two big concerns. An application has to be for the masses, have scale, should be affordable, sticky and engaging. If you are assuming that the western model of pay per dollar will succeed, it can for a certain amount of time, but it will also quickly flatten. The challenge for entrepreneurs in this sector is to create solutions which are flexible in its business model,” says Gandhi.

Supportive ecosystem
According to Razdan, for smaller companies to take off, the ecosystem—which includes the handset makers and operators—has to be supportive. Gandhi feels that it is important for startups to be part of a large distribution channel like that of Nokia’s. “We already have young guys who are developing java games and working with us. Similarly, Nokia Ovi store can help entrepreneurs reach millions of customers. It is important for us to give back as much as possible to sustain these small teams to help them grow big and scale,” says Gandhi.

At Aircel, the company has an interesting concept of on-net, near-net and off-net. “I meet 10 new companies every day which ask us to integrate their product into our network and launch it to our subscribers. The question now arises how many companies can I integrate in our network and how many products can I offer. Of the 10 that we meet everyday, about nine will have similar services to offer. If 14 mobile operators make it a hyper competitive market, the mobile VAS market is even more competitive with innumerable small and big players,” says Gujral.

New focal areas
For the entire telecom infrastructure like towers, it would mean resources have to be deployed to check the proper working of equipment, working of generators in remote locations and providing security services across locations in India. There could be opportunities in the equipment maintenance business, which may not be very glamorous but is the brick and mortar side of the telecom business.

Jaideep Ghosh of KPMG

In the devices space, the handsets and the tablets are typically investment-heavy and largely player-driven. “We may continue to see Indian brands powered by Chinese technology in the immediate future but this is a very competitive space to be in. Of the 200 brands that are registered, there must be around 80 brands which are available in the market which makes it a limited opportunity in a satiated market for a startup,” says Ghosh.

Opportunities in servicing
There could be opportunities in servicing the millions of handsets that are sold every year. “Indian brands of handsets do not have a very strong service presence since they are focused on capturing market by bringing price down; they have to cut corners somewhere. There can be an opportunity for entrepreneurs to set up after-sales service networks in non-metro and rural India. The service station can be a common center for all handsets since basic components of mobiles are the same. If 120 million handsets are sold each year and 20 percent are Chinese brands, servicing such handsets is a lucrative business model,” says Ghosh.

©Entrepreneur April 2011

Tags:
3G, Aircel, Airtel, Arvinder Singh Gujral, Brijmohan Mahendru, broadband, BWA, Color Ring Back Tone, CRBT, Hardeep Singh Bedi, Jaideep Ghosh, Jasmeet Gandhi, KPMG, mCarbon, Nokia, Rajesh Razdan, telecom, Tulip Telecom