How can Indian telcos increase $8 bn revenue by going digital?

Indian telcos can generate additional cumulative revenues of $8 billion and EBITDA of $2.9 billion over the next three years by going digital says Google-AT Kearney joint study conducted to pinpoint opportunities for Indian telcos.

In 2017, India will have 480 million online users, 385 million smartphone owners, online transactors will explode to 160 million, eight times as many as today. All this will lead to tripling of data consumption and consumers buying five times as much content.

By FY17, the telecom 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.

Markets such as Japan and Korea have taken up to 10 years to move from data to digital but it will happen much faster in India.

Digital Strategy of Telcos
Digital opportunities typically fall into two categories: customer engagement (e-store and e-care) and content and services. Four top-priority have emerged which will help telcos to capture $8 billion to $10 billion of cumulative value between FY15 and FY17. Focus should be on E-store and e-care, media content and services, mobile business apps for SMEs and M-payments.

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: Indian market could create more than $6 billion in additional data and content revenues

Mobile 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: M-payments enable e-store, paid content, and apps transactions

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. m-education, m-health and gaming can also emerge as significant opportunities in the medium term.

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.

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 in India are quiet low — only 2 to 4 percent of all recharges. 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.

In India, online customer service is again plagued by user experience and adoption issues. Shifting 13 to 15 percent of customer services requests and complaints to the online channel could save $150 million to $160 million.

In India, however, regulatory requirements are hampering digital acquisition as employees must verify physical signatures and proof documents. Players that push this model could target 15 percent of acquisitions online and capture cumulative cost savings of $240 million over FY15 to FY17. The large-scale rollout of India’s unique identity card, Aadhaar, could be the game changer here.

Entertainment is the most important media category in India, with videos and music representing the largest subcategories. The Indian market is also highly vernacular, with 93 percent of time spent on videos consumed in Hindi or other regional languages.

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.

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 FY17.11 Overall, the total cumulative value creation potential over FY15 to FY17 could reach $6.2 billion.

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.

Success will hinge on identifying and developing the right mobility-oriented and cloud-based smartphone apps to help SMEs improve their operational productivity.

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.

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.

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); and 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. If Indian telcos can deliver on these factors, they could earn cumulative revenues of $180 million between FY15 and FY17.

All these will definitely help telcos in the long run only if they opt for switching to online or digital.

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