The Hindu Business Line : Off course, for now

The gap between expectations and reality in the telecom arena seems to be getting wider. Innovation with insight is required to bring growth on track.

THE telecom industry is in a state of upheaval. With the adoption of the fledgling GSM (Global system for mobile communication) as the standard, across Europe and Asia, the US suddenly found that its entire cellular network was no longer compatible. GSM is being rolled out in a small way now in the US and is gaining momentum. The rapidly evolving nature of the cell-phone technology presents unique issues for business strategy. This article suggests that if sales are to keep pace with hopes about the convergence of computing and telephony, then cell-phone manufacturers must reinvent their business strategies in order to remain profitable.

Hype versus reality

The GSM standard (2G) is also called the 2nd generation and that is the system that most of us use today. The 3rd generation of mobile telephony (3G) is just beginning to be rolled out. 3G is seen as the convergence of communication and computing. The bandwidth available through 3G would make your cellular phone a veritable mobile computer.

The cost of installing 3G is huge and handset manufacturers have partnered with infrastructure equipment suppliers to bring this to the marketplace. All they now desire is that the carriers (mobile service operators) buy the equipment and offer it to their customers.

Meanwhile, worldwide, Governments who had originally held on to monopolies in the telecommunication area found that they could access some easy income through licensing and avoid the headache of continued management of such enterprises (as has already been pointed out in these columns.) European 3G licences were auctioned at unbelievable prices. However, suspicions about the timeline for the arrival of 3G have augmented the problems of European telecommunication bidders many of whom are now unable to complete their licence obligations and are facing bankruptcy.

Who'll pick up the bill?

As they waited for 3G technology to arrive, the handset manufacturers and the equipment manufacturers plotted an interim service, the GPRS (General Packet Radio Service). Dubbed the "2.5 G," it serves as part of the effort to get the consumer hooked onto the idea of using the mobile for computing. It is the consumer who will have to pay the price, as is always the case. The handset manufacturers will offer you a GPRS-enabled handset, and hope that for the services that they offer you will discard your old handset.

This, of course, assumes that you would like to download data and perhaps read your e-mail or transact with your corporate database. GPRS enables you link up your laptop or palmtop to the cell-phone, which now acts as a mobile link to the Internet. GPRS offers you speed of up to 115kpbs, and may well find acceptance in India, since even a DSL line rarely offers you that kind of speed. By the time you get used to downloading data, 3G would have arrived with the promise of blistering speed going up to 2 Mbps. Typically, once 3G arrives, a whole lot of new functionality will be made available to customers, and your existing cell-phone will resemble the Ambassador car. But hang on to your wallet for a moment.

The assumption here is, of course, that you desire to download data through your mobile phone. Do customers really want mobile computing? The truth is, that there are few indications that mobile users want to download data. The US is an advanced Internet market and there may appear to be a substantial data and voice convergence market. Certainly in a country like India, where the Internet penetration itself appears to be miniscule, the "hope" that voice customers would seek to download and pay for data, appears at the moment a bit far-fetched. Worldwide where 400 million cellular handsets were sold per annum, only 12 million PDAs (Personal Digital Assistants) were sold, serving as a possible indicator that the customer is not that keen on computing when mobile. Yet, all the players in the telecom industry have a lot riding on this convergence of computing and telephony.

More issues at stake

The issue is not only whether consumers want to download data while they are mobile and whether they would be willing to pay extra for this service and if so, how much. Based on similar assumptions, WAP (wireless access protocol) was flaunted as the second "coming" of the Internet. As we all know, WAP was a marketing disaster. There was no relation between the value of the service and the total cost to the customer. Every player in the value chain addressed his end of the solution and left glaring gaps in the "total" customer solution. WAP and the WAP phones went into extinction even before they could barely get started, incrementally providing, however, the conditions for a more enlightened GPRS launch. The stakes, however, for all the partners in the mobile business are high.

Lurking on the sidelines is a new technology of Wireless Fidelity, also known as WiFi. This creates "hot spots" within a prescribed area, and allows you to connect and download data wirelessly. This means that at railway stations and airports and at the offices, you could connect wirelessly through your laptop, or PDA or any other gizmo that you are carrying. WiFi enables speeds of up to 11 Mbps, leagues ahead of the promise of the 2 Mbps that 2G promises. No doubt, the rollout of WiFi is still a long way off, and there are several unanswered questions. So is the case with 3G.

Tough questions to answer

The growth for the handset manufacturers will, therefore, have to come from new subscribers, whose primary reason for adoption will be voice. Yet, the income for the carriers will need to come through services "other than voice". Herein lies the challenge. Is the telecom industry at a major inflection point? Is the old business model of obtaining their income from the main service going to become extinct? We have any number of examples in front of us.

For instance, in the media industry, advertisements allow for the low cost of the newspaper or a television subscription. The solution in the case of the telecom industry is not so obvious. New business models will have to emerge. For new business models to emerge, the telecom industry will need to bring in new capabilities, which, in turn, means new technologies. Not only must 3G or its successor 4G arrive, but the industry must innovatively come up with revenue-generating solutions that will enable it to subsidise the voice traffic. In the Indian context, with the launch of the much-heralded WLL service, one can expect the voice call rates to only head southwards. Something dramatic had better happen in terms of innovative ways of revenue generation. Income from voice alone can no longer be relied upon to go anywhere.

The author is a Strategic Marketing consultant who can be reached at rnaru@nett10.com

Photo by R.M. Rajarathinam

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