creating the next multibillion-dollar online opportunities in telecoms

8/10/2019 Creating the Next Multibillion-Dollar Online Opportunities in Telecoms

1/211Creating the Next Multibillion-Dollar Online Opportunities in Telecoms

Creating the NextMultibillion-Dollar OnlineOpportunities 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.


2/21

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.



Indias online revolution is on the edge of an exciting phase. At the turn of the century, the

country had only million Internet users, largely on dial-up connections delivered through

fixed-line networks. In , Internet use took off as mobile penetration grew and telcos began

to invest in data networks. By , mobile Internet usage had overtaken fixed line, and mobile

devices had become the sole access device for many people. Today, million Indians are

online, with million of them using mobile devices.

This is just the tip of the iceberg (see figure ). In the next three years, the country will see

another mobile explosion as the online community more than doubles to million. By ,

million people will have smartphones, six times more than today, and the number of online

transactors will explode to millioneight times as many as today.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.

Note: Visitor location register adjusted mobile subscribers

Sources: Pyramid Research , Cellular Operators Association of India, Telecom Regulatory Authority of India; A.T. Kearney analysis

Figure

Mobile explosion in India between now and

Expected volumes in Evolution between and

millionInternet users x data

consumptionper user

Cumulative revenue

potential of

billion

xpaid contentconsumption

per user

millionsmartphones

milliononline transactors

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 billion and EBITDA of

. billion over the next three years.

This paper presents Google and A.T. Kearneys view on the mobile Internet market and theexpected 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.

1 Online transactors are users who make payment transactions online, using Internet banking or cards.

EBITDA is earnings before interest, tax, depreciation, and amortization.



Indian Telcos Poised to Leapfrog into DigitalThe countrys telecom industry grew by percent CAGR between fiscal year (FY) and FY

and has reached total revenues of billion, driven primarily by an increasing voice subscriber

base (see figure ). Industry EBITDA has held steady at around percent, although it varies

significantly between players. By FY, the industry is expected to reach 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 percent CAGR; within

non-voice, data revenue will grow at around 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.

Telcos can push data consumption up byas much as 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 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 areemerging 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 on page ).

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 yearsopening up an

extraordinary opportunity for telcos to become the primary gateway to the digital life.

Notes: Visitor location register adjusted mobile subscribers. FY is iscal year.

Sources: Pyramid Research , Cellular Operators Association of India, Telecom Regulatory Authority of India; A.T. Kearney analysis

Figure

Indias telecom industry is seeing unprecedented growth

Indian telecom industry revenue growth

( billion)

FY

%

CAGR

%

FY FYe

+%

Subscribers(million)

Non-voice

Voice

3VAS is value-added services. SMS is short message service.



Notes: Online transactors refers to users who make payment transactions online using Internet banking or cards. FY is iscal year.

IRCTC is the Indian Railway Catering and Tourism Corporation.

Sources: press research, Cisco Visual Networking Index (-), Indias Mobile Internet by Avendus, IDC , MediaNama; A.T. Kearney analysis

Figure

Mobile data use set to skyrocket in India

million in FY

millionby FY

millionon WhatsApp in

April

of Googleand YouTube searches

on mobile

millionsmartphones

by FY

Mobile

data use

Consumer behaviors

Services ecosystem Device ecosystem

Exploding Internet users

Smartphone prices to drop under

of railwaybookings done

on IRCTC website

billiononline commerce

by FY

milliononlinetransactors by FY

millionon Facebook in April

Booming online transactions

million on YouTube every month

as of September

Note: data, contribution of revenue generated by all digital services and content

Sources: company presentations, Bloomberg; A.T. Kearney analysis

Figure

Telcos have had mixed success with digital content and services

Contribution of digital content and services to total revenues

(%)

%

%

%

%

%

%

%

Safaricom

Docomo

SK Telecom

Telefnica

KDDI

Tigo

SingTel

M-PESAs contribution, growing 43% in 2011

Includes smart services: content, advertising

SK Planet: digital services strategic business unit

Digital services contribution

Consumer value-added service contribution

Mobile financial services, online entertainment and information

Group Digital Life strategic business unit: advertising, content business



A Wealth of OpportunitiesDigital opportunities typically fall into two categories: customer engagement (e-store and

e-care) and content and services.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 on page ). 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) alternativesas in content.

The outlook for digital customerengagement, which can unlockmassive opportunityin e-storesand 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 (MM) 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.

Indias 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

4Content 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.



prioritize ideas. We began by examining consumers lifestyle needs, telcos internal digitization

capabilities, and applications supporting digitization to compile a list of about ideas. From

there, the ideas were condensed to the with the most potential (see figure ). 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?

Notes: Bubble size indicates the total EBITDA equivalent for each opportunity in iscal year . SME is small- and medium-size enterprise.

Source: A.T. Kearney analysis

Figure

Prioritizing digital opportunities for Indian telecoms

Idea

attractiveness

Ease of implementation

High

Low

Low Medium High

Devices e-tailing

M-health

E-governance

Wealth management

M-education

Home security

M-payments

Online activation

Mobile appsfor SMEs

Media services

Onlinerecharge

Online customerservice

Internal digitization

23 yearopportunities

Content and services

35 yearopportunities

>5 yearopportunities

A shortlist of four top-priority ideas emerged (see figure on page ). Focusing on these areas

could allow telcos to capture billion to billion of cumulative value between FY and FY.

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 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 billion in revenue.

M-payments.Though a smaller opportunity, m-payments enable e-store, paid content, and

apps transactions.



To put it into perspective, these four opportunities alone could drive percent of incremental

revenue growth over the next three years, leading to percent higher industry revenues and

. billion in additional EBITDA by FY.

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 ConsumersIn 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, percent of railway

bookings are done through the Indian Railway Catering and Tourism Corporations website,

and percent of all travel reservations in India are made online.

Notes: Value over iscal year (FY) to FY has been calculated taking into account the rising number of Internet users and greater adoption of digital

services (FY: about percent of potential value, FY: to percent of potential value, FY: percent of potential value). Total EBITDA impact is thesum of direct cost savings plus EBITDA arising out of incremental revenue (calculated using telecom industry EBITDA margin of about percent). SME is

small- and medium-size enterprise.


Figure

Four areas hold vast potential for telcos

Area DescriptionCostsaving Revenue

TotalEBITDA

Online businessin FY

E-storeande-care

Rapidly move recharges, acquisition,

and customer service online

Give critical priority with immediatebeneits

. . .

Mediacontentandservices

Boost data usage

Assess risk appetite, and emergeas major content player (music andvideo)

. .

Mobileapps forSMEs

Drive widespread adoption of apps,data, and devices in the untappedSME market

. .

M-pay-ments

Enable e-store and m-commercetransactions through wallet and

carrier billing

Fuel online transacting behavior

. .

.Total . .

. billionin recharges per year

%of customer service calls

%of acquisitions

x dataconsumption per user

. billionper year in paid content

. billionper year in untappedmarket opportunity

. billion of rechargesforonline users



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 havea tremendous opportunity to drive an aggressive but realistic step change in penetration levels.

The online channels lower delivery costs as opposed to traditional dealer commissions and

calls to service centers can yield cumulative cost savings of between million and

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 million (see figure ).

Notes: Best-in-class benchmarks exclude players that have a completely online model, such as Giffgaff in the United Kingdom. FY is iscal year.

Sources: discussions with industry players; A.T. Kearney analysis

Figure

Telcos could drive a digital step change in India

E-store and e-care potential in FY

Digitizationopportunity

Current onlinepenetration

Onlinerecharges

%

Onlinecustomer

services

% of totalcustomer service

tickets

Onlineacquisitions

Less than %

Globalaverage

% oftotal subscribers

% of totalcustomer services

% of totalacquisitions

Globalbest-in-class

%

%

%

Targetfor FY

% of totalsubscribers( million)

% of totalcustomer services

% of totalacquisitions

Total potentialFY

millioncost savings

millioncost savings

million cost savings

million incrementalrevenue

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 lowonly to percent of all rechargesprimarily because of

user experience issues and the low prevalence of online transactors for telecom services. This

contrasts sharply with the global level of to percent and with best practices of percent

in advanced prepaid markets such as Portugal.

Our survey of , mobile Internet users in Indian cities examined awareness and adoption

levels of digital services, including online recharges.The insights reinforce the promise of

5AC Nielsen conducted a market research survey with , Internet users across cities in April and May of . 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 cities, and five tier cities. Metros included Delhi, Mumbai, Chennai, Bangalore, and Kolkata. Tier cities

included Ahmedabad, Chandigarh, Kochi, and Mysore. Tier cities included Patna, Indore, Bhubaneshwar, Jalandhar, and Bhavnagar.



digital. Awareness is not the problem: percent of respondents were aware of online recharge

avenues, but only 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, 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 ( percent)

and limited operating hours ( percent) are the main pain points, along with unavailability of the

desired recharge denomination ( percent).

Naturally, to drive up online recharges, the pool of online transactors needs to grow significantly

from the current percent. Our research indicates that more than million consumers will be

equipped with both debit cards and Internet banking and comfortable with online transactions

by FY. This compares with other emerging economies such as Brazil and China, assuming a lagof four to five years. Notably, it also implies that nearly all of the targeted percent future

rechargers will be covered (see figure ).

Note: FY is iscal year.

Sources: Internet Mobile Association of India, press research, A.T. Kearneys Global Retail ECommerce Index

Figure

The popularity of online recharges for prepaid mobile phones is expected to rise

Online transactors

(million)

FY

percentof Internet

users on smartphones

million

(FY target of % online recharges)

million

(current online rechargers)

>

FY FY

Smartphone users

(million)

Encouraging online recharges will hinge on enhancing users experience, awareness, and

comfort levels. Achieving a level of percent online recharges by FY will lead to million

in cumulative cost savings and million in incremental revenues between FY and FY 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 donewith

intuitive functionalities and interactive customer service with / live chat and crowd

support for problems.



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 percent have

tried it. (Interestingly, percent of those users have tried online customer service for banking.)

Nearly percent say that responses are not understandable, more than half say the turnaround

time is too long, and a third cite network access issues.

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 ). Thirty percent of these

percent of overall requests and complaintscan 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.

6Based on a Nielsen market survey of , mobile users (across five metros, four tier cities, and five tier cities) who have had active

Internet connections in the past six months

Notes: Caller tunes includes activation and deactivation, song change, and inquiries about charges, monthly rent, proile, 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.


Figure

Many telecom customer service tasks can easily shift online

Categories of customer service tickets

(% of total tickets)

%

%

%

%

%

%

%

%

%

%

Recharge offer inquiries

Caller tunes

General details

2G, 3G data inquiries

Inquiry on value-added services

Balance-related complaint

Payment query or complaint

Service calls

SIM-related

Others

Easy to deliver online

Moderately diicult to deliver online

Diicult to deliver online

Shifting to percent of customer services requests and complaints to the online channel

could save million to 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.



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 documen-

tation 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.

Players that push this model could target percent of acquisitions online and capture

cumulative cost savings of million over FY to FY. If regulations ease to allow a fully

digitized process, variable costs could be reduced by an additional percent to capture

further cumulative savings of million over FY to FY.The large-scale rollout of Indias

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 ).

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.

Note: KPI is key performance indicator.


Figure

Success factors for e-store and e-care in India

Winningthemes in

digitization

Managechanneltransition

Build a compellingvalue proposition

Educate customersabout multipleavenues of rechargesand services

Build awareness aboutease, convenience,

and incentives

Educate and promoteonline modes ofpayments, includingm-payment, toaddress securityconcerns

Ensure quick and convenient rechargeoption (low number of screens)

Have a well-designed portal to facilitate the process

Use customer analytics to upsell and cross-sell

Offer incentives vis--vis traditionalchannels to create pull

Have categories of incentives: cash back,direct discounts, free value-add servicesor data usage, bundled incentives

Createawarenessof onlineavenues

Build a superioruser experience

Reassess channel

commissionstructures basedon revised store

economics

Institutionalizeonline KPIs forinternal sales andcustomer serviceteams, in additionto overall KPIs

7 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 telcos offices.

8Through a fully digitized process, telcos can further avoid delivery agents fees for completing applications and verifying documentation.



Media Content and Services: Triggering the

Next Wave of Consumption

Entertainment is the most important media category in India, with videos and music representingthe largest subcategories (see figure ). The Indian market is also highly vernacular, with

percent of time spent on videos consumed in Hindi or other regional languages.

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 YouTube channels.

Sources: Google; A.T. Kearney analysis

Figure

Entertainment is Indias most popular online search category

Online searches in India

(% of total, )

Content consumption

(Time spent, )Entertainment English vs. vernacularTotal

English

Hindi

Other regional languages

Video

Music

Live TV

Games

OtherEntertainment

Consumer electronics

Education

Social networking

News and info

Finance

Health

Others

%

%%

%

%

%

% %

%%

%

%

%

%%

%

9Paid 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 and percent respectively to account for differences in nominal pricing levels.

Indias 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 on page ).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



The confluence of drivers (as discussed earlier) and the increasing G adoption will causecurrent data and paid content consumption to double organically by FY to MB data per

user per month and . 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, 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 ofrecovery, 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 .

million in September to million in December , or percent of its overall user base.

Netflix invested million to produce two seasons of House of Cards, a political drama

series exclusively released on Netflix.

Beyonces latest album had a one-week exclusive release on iTunes before its record release,

smashing all previous download records.

Even in India, 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 TV channels and movie

production houses but no clear winners.

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 and percent respectively to account for

differences in pricing levels.

Sources: Cisco, Skyire, eMarketer, Nielsen; A.T. Kearney analysis

Figure

Indians do not use much data or buy much content

Per capita data consumption by

Internet users in

(MB per month)

Content revenue per user

( per user per year)

India

%

~MB

%

%

%

United States

%

~, MB

%

%

%

%

Others

Email

Social networking

Music

Videos

India

.

Western

Europe

.

United

States

.

%



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 ).

Notes: OTT is over-the-top. API is application program interface. SMS is short message service.


Figure

Telecom business models

Telco role

Suggest

Recommendations

engine

Engage

Customer engagement

platform

Aggregate

Content hub

Description and implications Examples

Rely on an OTT playerto develop a content hub

Cutting-edge customer analytics promoteall traic to one hub

Might not be suicientto create step change in usage

Build open API platformwith app developers withfantastic user experience

Effective and lexible allianceswith providersand carrier billing

Drive signiicant usage, allow telco to experiment,understand market, and stay relevant to consumers

Fairly complex,requires innovative capabilities anddeep consumer insights

Develop a library of high-quality, paid content

Most signiicant value potential

High risk of failure,need to go for the win(typicallyno more than two players can succeed)

Might need to consider industry collaborations

Last.fmcapabilities in YouTubechannel recommendations,

promote data packs through SMS

Singtels inSing and deFINDare gateways for everythingabout life in Singapore

SK Telekoms SK Planetis anall-encompassing lifestyle

and entertainment hub and anapp store

SK Telekoms Melonis the

market leader for music content inKorea, offering music downloadsand streaming

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. SingTels inSing and deFIND and SKTs SK Planet are

examples of leading CEPs.

An extensive content hub offers the most value potential but comes with significant invest-

ments 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 MB per user per month. Most of the latent demandmore than percentis

in videos, which can lead to incremental cumulative revenues of up to . billion in FY and

. billion between FY and FY. There is also room to increase content revenue per user by

. to . per year if telcos partner with content publishers to undertake a large-scale content

play. This can drive total paid content consumption in FY from . billion to . billion,

leading to an additional content revenue share for telcos of up to million in FY and

a cumulative million over FY to FY.Overall, the total cumulative value creation

potential over FY to FY could reach . billion.

Business Apps for SMEs: Make a Compelling

Value PropositionGlobally, SMEs across verticals have adopted an array of mobile business applications (MBAs) todrive operational efficiencies. In , about percent of the worlds SMEs were using MBAs

and it is expected to jump to percent by .

In India, the SME market is enormous, with million companies in operation in , of which

million have more than employees. SME spending on information and communications

technology (ICT) has also been growing steadily over the past two years, at a CAGR of

percent to billion in . A large part of this comes from larger SMEs, which spend ,

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, thecost 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 on page ).

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 MM applications

for example, in security or in vehicle or asset trackingcan be a powerful way to demonstrate the

value proposition of mobility and cloud-based apps.

10Assuming telco content revenue share at to percent, in line with global trends



Snacks manufacturers

Handicraftsmanufacturers

Consumer

goods

Sources: CRISIL Research, Zinnov Research, press research; A.T. Kearney analysis

Figure

Business apps have great potential for four industries

Focusverticals Description

Asset management

Insurance agents

Potential mobility and cloud applications

Workforcemanage-ment

Salesimprove-ment

Supplychainmanage-ment

Customerservices

Datacollection

Low potential High potential

Banking,

inancial services,

and insurance

Courier delivery

Transport providers

Logistics

Pharma

Pathology

Clinics and hospitals

Healthcare

Note: SME is small- and medium-size enterprise.


Figure

Telcos have work to do to get SMEs to embrace apps

Drivers

Convince SMEs

of sustainablevalue proposition

Integrate with

existing IT

systems

Structure, educate,

and incentivize the

salesforce

Challenges Potential action

SMEs hesitate to adopt withouttangible beneits

SMEs are concerned aboutafter-sales support

Standalone IT systems are used,typically for accounting

The telco salesforce focuses ontraditional services (voice andconnectivity) because they areeasier to sell

Align with best-in-class providers

Demonstrate capable after-salessupport

Focus on apps that increase productivityand not on replacing or adding to existingsystems and software

Train salesforce to promote apps

Modify the incentive structure to focuson mobile business apps

Engage channel partners

Enable employees

to upgrade to datadevices and plans

Devices are expensive

(more than )Employees who are not Internet

savvy see little merit in data

Offer free or discounted data packs for

a limited time to push plan upgradesWaive or postpone app charges if

employees upgrade devices or plans

Finance devices (for example,reimburse for prepaid)

Increaseuseof

mobilebusinessap

ps

Drived

evice

connectivity



If telcos can mobilize their sales force and drive adoption, they could gain incremental

cumulative revenues of million to billion by FY, of which to percent would come

from mobile apps and to percent would come from higher data consumption (driven by

higher device and MM connectivity).

Getting SMEs to adopt MBAs will require helping them throughout the selling and adoption

process, as outlined in figure on page .

M-Payments: Enable Online Transactions to

Drive Usage MaturityMobile payments can serve a range of objectives, including supporting digital recharges,

person-to-person (PP) 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 percent to reach billion in . However, most of

these transactions are toward top-ups ( percent) and PP transfers ( 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 , M-Pesa agent outlets, but Airtel Money has only , 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.Security is also an issue, with 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 .

billion transaction value in FY on m-wallet)

Five percent of e-commerce transactions (. billion transaction value in FY on m-wallet)

Ninety percent of paid apps purchases (more than million transaction value in FY on

carrier billing)

Depending on the service, telcos can earn up to a percent commission on m-wallet transactions

and possibly more than percent revenue share on apps purchases.

11USSD is unstructured supplementary service data.



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 million

between FY and FY.

Strategic Decisions: Determining the FutureDigital StateForward-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 ).

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

Four strategic visions for the telco digital venture

AggressivenessExtent of diversiication

into new business

opportunities

Scale of investments

Partnerships with

ecosystem players

Portfolio of offerings

Breadth of digital services being offered

InnovatorsAggressive promotion of niche services

portfolio through innovative models and

strategic investments and alliances

Multi-playersAggressive diversiication and

investment decisions; partnership

with different stakeholders to drive

ecosystem integration

Cautious followersWait and watch, pursuing select digital

services adjacent to core offerings and

requiring short-term bets

ExperimentersWide range of digital services but more

adjacent to core offerings with small

incremental investments



Organization structure. Create one centralized digital business unit to drive all digital

initiatives, or use multiple smaller decentralized teams to pursue individual initiatives.

ConclusionThe 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 billion to 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]

Ajay Gupta,principal, Mumbai

[email protected]

Vignesh Shankar,consultant, Mumbai

[email protected]

Aditya Gaurav,industry head of

telecom, [email protected]

Shalini Poddar,principal account

manager, 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.


21/21

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