Five
Phases
of
Growth
of
Telecom

Companies

By
‐
Rahul
Deodhar



Telecom
Service
Providers
are
mass
consumer
high
technology
companies.
The
telecom

service
 provider
 does
 not
 simply
 grow.
 These
 companies
 transform
 from
 voice

telephony
operators
to
bandwidth
service
operators
and
finally
into
a
holding
company

for
 other
 telecom
 companies.
 The
 following
 IdeaPaper
 details
 those
 five
 phases
 of

transformation.
I
have
also
given
some
key
characteristics
of
each
phase.


Five
phases
of
Growth
of
Mobile
telecom
Operators

In
phase
I,
the
telecom
service‐providers
start
providing
convenience
of
availability
to

users.
 The
 service
 providers
 then
 mature
 to
 providing
 consistent
 voice
 bandwidth
 in

users
 hands
 in
 phase
 II.
 The
 game
 then
 slightly
 changes
 in
 phase
 III.
 The
 Company,

here,
 seeks
 to
 maximize
 bandwidth
 utilization
 by
 top
 consumers
 moving
 from
 a

telecom
 service
 business
 to
 bandwidth
 sales
 business.
 In
 phase
 IV,
 the
 Company
 has

fully
moved
into
the
bandwidth
business
mindset.
It
adds
other
bandwidth
sources
like

cable
 TV,
 wireless
 etc
 to
 consumers’
 hand
 and
 homes.
 Finally
 phase
 V
 transforms
 the

company
 totally.
 The
 Company
 is
 now
 in
 the
 business
 of
 owning
 and
 operating

bandwidth.
We
can
also
look
at
the
company
as
an
“asset
manager”
for
telecom
assets
–

i.e.
holding
company
for
telecom
companies
world
wide.




The
phases
may
be
summarized
as
follows:

Phase
I) Coverage
expansion

Phase
II) Target
market
expansion

Phase
III) Service
lines
expansion
(VAS)

Phase
IV) Usage
expansion


Phase
V) Bandwidth
service
business






©
Rahul
Deodhar
2009

www.rahuldeodhar.com



IdeaPaper
–
Growth
Phases
of
Telecom
Companies


Coverage
Expansion

This
phase
is
characterized
by:

• Geographical
coverage:
Expansion,
generally
measured
by
cities
or
towns
covered,

is
generally
the
target
of
the
company.


• Targeting
 consumer:
 These
 could
 be
 high
 volume
 users,
 high
 value
 users
 or
 pre‐
paid
users
(certainty
of
revenue).
Such
users
are
called
tier
I
users.

• Offering:
 Generally
 the
 plans
 offered
 are
 simple
 with
 higher
 base
 fee
 (committed

revenue)
and
free
minutes.

• SMS
are
given
free.

• Operator
 Selection:
 Consumers
 select
 operators
 based
 on
 coverage
 network

strength
and
billing
efficiency.

• Spectrum:
 Companies
 tend
 to
 manage
 on
 smaller
 spectrum.
 Usually,
 spectrum
 is

available
cheap
at
this
time
and
is
huge
asset
for
subsequent
deployment.

• Capacity:
Capacity
is
limited
in
this
phase
due
to
less
number
of
towers
and
smaller

spectrum
purchases.

• Assets:
This
phase
is
characterized
by
high
capital
deployment
to
create:

• Towers,
transmission
equipment,


• A
basic
billing
software

• Liability:
 The
 debt
 is
 higher
 at
 this
 moment.
 If
 revenues
 lead
 to
 reserve
 accretion

then
company
is
well
poised
for
expansion.

• Business
model
USP:
The
companies
provide
convenience
of
availability
to
users.



2



©
Rahul
Deodhar
2009

www.rahuldeodhar.com



IdeaPaper
–
Growth
Phases
of
Telecom
Companies


Target
Market
Expansion

Some
attributes
of
this
phase
are:

• Geographical
 coverage:
 Expansion
 frontier
 wow
 extends
 to
 tier
 II
 cities
 and

interconnection
zones
(main
highways,
railways
routes
etc)

• Target
 consumer:
 Target
 consumer
 now
 includes
 tier
 II
 user.
 These
 include
 lower

spending
post‐paid
and
smaller
value
pre‐paid
consumers.


• Offering:
The
tariff
plans
expand
with
few
options.


• Operators
 tend
 to
 play
 around
 with
 reducing
 base
 fee
 (committed
 revenue)

and
increasing
chargeable
minutes.

• SMS,
MMS
and
basic
services
(voice
mail
e.g.)
get
added
to
tariffs.

• Other
data
plans
(internet
access)
may
be
included

• Operator
 Selection:
 Consumers
 still
 select
 operators
 based
 on
 coverage
 and

network
strength.
But
new
plans
make
it
possible
for
certain
consumers
to
join
the

consumption.

• Spectrum:
Companies
tend
to
buy
additional
spectrum
in
this
phase.
New
spectrum

valuation,
however,
is
higher.

• Capacity:
Capacity
is
increased
primarily
driven
by
spectrum
as
towers
are
still
in

coverage
expansion
mode.

• Assets:
This
is
asset
expansion
phase.
Companies
often
go
in
for:

• Advanced
billing
and
CRM
software
(some
modules)

• Fibre
optic
bandwidth

• Liabilities:
 At
 this
 point,
 the
 company
 can
 still
 take
 more
 debt
 while
 maintaining

revenue
accretion
status.
This
separates
good
companies
from
bad.

• Business
 Model
 USP:
 The
 companies
 provide
 consistent
 voice
 bandwidth
 in
 users

hands.



3



©
Rahul
Deodhar
2009

www.rahuldeodhar.com



IdeaPaper
–
Growth
Phases
of
Telecom
Companies


Service
Line
Expansion

Key
attributes
are:

• Geographical
coverage:
This
is
now
stabilized.
Additional
coverage
for
tier
III
cities

is
planned
and
coverage
in
tier
I
cities
is
beefed
up.
The
cost
of
adding
coverage
v/s

incremental
revenues
becomes
balanced
or
negative.

• Target
Consumer:
Per‐paid
consumers
(these
are
tier
I)
are
given
preference
in
tier

III
 cities.
 Company
 also
 concentrates
 on
 adding
 small
 value
 pre‐paid
 users
 in

existing
 operations
 leveraging
 existing
 infrastructure.
 If
 company
 owns
 the

infrastructure
then
call
quality
tends
to
drop
a
bit.

• Offering:
Further
expansions
in
tariff
plans
lead
to
various
tiers
being
added
in
tier
I

and
tier
II
cities.


• Base
fee
tends
to
get
eliminated
with
revenues
being
charged
as
per
MOU.

• Companies
add
special
packages
for
SMS,
MMS,
news
alerts
etc
for
festivals

• Companies
add
game
shows
(SMS
drivers),
information
service
to
add
ARPU

• Operator
selection:
This
is
now
driven
by
consumer
contacts.
If
most
people
on
the

contact
lists
are
on
certain
carrier
then
(if
intra‐carrier
tariffs
are
lower)
that
carrier

is
preferred.

• Spectrum:
Spectrum
availability
plays
a
critical
role
in
this
phase.
Lower
spectrum

meaning
 more
 towers.
 Companies
 in
 this
 phase
 tend
 to
 over‐pay
 for
 spectrum
 if

they
don’t
have
enough.

• Capacity:
 Capacity
 is
 augmented
 with
 extra
 towers.
 The
 tower
 installation
 plan

gives
an
indication
if
the
company
is
adding
coverage
or
improving
quality.

• Assets:
Companies
tend
to:

• Unlock
value
in
tower
assets
through
co‐location.
These
may
be
transferred
to

new
companies
that
may
be
sold
off.

• Buy
submarine
cable
landing
capacity
(for
international
connectivity)

• Additional
data
mining
software
for
subscriber
analysis
and
tariff
plan
design

etc.

• Liability:
In
this
phase
company
is
trying
to
pay‐off
the
debt.
This
is
period
of
cash

flow
 directed
 to
 loan
 repayment.
 The
 company
 may
 go
 for
 equity
 offering
 for
 the

same.

• Business
model
USP:
The
Company
seeks
to
maximize
bandwidth
utilization
by
top

consumers.
This
is
first
time
the
company
moves
from
a
telecom
service
business
to

bandwidth
sales
business.



4



©
Rahul
Deodhar
2009

www.rahuldeodhar.com



IdeaPaper
–
Growth
Phases
of
Telecom
Companies


Usage
expansion

This
stage
is
characterized
by:

• Geographical
coverage:
Coverage
is
well
established
by
this
time

• Target
consumer:
To
leverage
its
network,
the
company
targets
everyone.


• Offering:
The
tariff
plans
comprises.


• Elaborate
plans
for
high‐value
post‐paid
consumers

• Pre‐paid
plans
for
below
average
users

• In
 later
 stages
 they
 add
 email,
 widgets
 and
 other
 means
 of
 regular
 data

download
initiators
to
increase
bandwidth
consumption.

• Data
plans
are
enhanced
(intended
to
drive
usage)

• Operator
Selection:
Typically,
voice
network
quality
is
not
an
issue
at
this
stage.
The

choice
 is
 driven
 by
 other
 considerations.
 The
 data
 requirements
 are
 subsequently

evaluated
(generally).

• Spectrum:
 The
 importance
 of
 spectrum
 is
 reduced
 a
 little
 and
 company
 tends
 to

compensate
spectrum
with
towers.

• Capacity:
 Voice
 Network
 Capacity
 is
 maintained
 more
 or
 less.
 Marginal
 expansion

happens
at
the
periphery.
Data
network
capacity
addition
starts.
This
goes
through

same
phases
as
the
voice
network
and
in
fact
ties
in
with
the
network
upgradation

schedule.

• Assets:
The
asset
profile
is
leaned
and
poised
for
change
in
this
stage.


• Mostly
cable
assets
are
focus
in
this
phase.

• Bandwidth
 touch‐points
 like
 cable
 TV,
 wire‐line
 (Fibre,
 DSL)
 and
 wire‐less

Internet
etc
advance
into
consideration
set.

• Liabilities:
This
stage
usually
is
for
accumulating
war‐chest
for
additional
business

lines.

• Business
 Model
 USP:
 The
 Company
 has
 now
 fully
 moved
 into
 the
 bandwidth

business
 mindset.
 It
 adds
 other
 bandwidth
 sources
 like
 cable
 TV,
 wireless
 etc
 to

consumers’
hand
and
homes.



5



©
Rahul
Deodhar
2009

www.rahuldeodhar.com



IdeaPaper
–
Growth
Phases
of
Telecom
Companies


Bandwidth
service
business

The
central
characteristics
of
this
phase
are:

• Geographical
coverage:
The
voice
coverage
is
established
and
data
coverage
is
being

pushed
into
tier
III
cities
and
beyond.

• Target
consumer:
Everyone
is
target
consumer.
These
are
segregated
by
tariff
plans.

• Offering:
The
tariff
plans
expand
with
few
options.


• Elaborate
data
plans
in
addition
to
normal
plans.

• Operator
 Selection:
 Consumers
 still
 select
 operators
 based
 on
 coverage
 and

network
strength.
But
new
plans
make
it
possible
for
certain
consumers
to
join
the

consumption.

• Spectrum:
Companies
tend
to
buy
additional
spectrum
in
this
phase.
New
spectrum

valuation,
however,
is
higher.

• Capacity:
Capacity
is
increased
primarily
driven
by
spectrum
as
towers
are
still
in

coverage
expansion
mode.

• Assets:
This
is
critical
part
of
this
phase.

• The
established
assets
tend
to
pay
for
themselves
and
leave
a
substantial
cash

generating
capability
and
the
war‐chest
is
well
developed.


• Typically
companies
look
for
acquisitions
(domestic
or
global)
at
this
stage.


• The
choice
of
target
determines
the
long‐term
success
of
the
company.


• A
good
choice
is
Phase
II
Company.
Phase
III
companies
tend
to
be
overvalued.

• Liabilities:
At
this
point,
the
company
has
comfortable
liabilities
position.

• Business
Model
USP:
The
Company
is
now
in
the
business
of
owning
and
operating

bandwidth.
 We
 can
 also
 look
 at
 the
 company
 as
 an
 “asset
 manager”
 for
 telecom

asset.












6



©
Rahul
Deodhar
2009

www.rahuldeodhar.com



IdeaPaper
–
Growth
Phases
of
Telecom
Companies


Notes
&
Disclaimers



Disclaimer

The
ideas
expressed
in
the
paper
are
based
on
my
observation
and
readings.
They
will

be
 revised,
 improved,
 and
 applied
 in
 various
 contexts
 not
 limited
 to
 this
 idea
 paper.

These
 may
 be
 contradicted
 or
 proved
 false
 by
 subsequent
 observations,
 research
 or

other
findings.

These
do
not
represent
suggestions
or
recommendations
to
buy,
sell
or
hold
any
stock.
I

do
not
guarantee
that
the
companies
discussed
or
hinted
in
this
paper
will
perform
well

as
 part
 of
 reader’s
 portfolio.
 The
 investment
 decision
 also
 depends
 on
 factors
 not

relating
to
the
company
itself
and
must
be
taken
on
careful
research.

These
do
not
comprise
the
complete
list
and
must
be
used
in
conjunction
with
standard

investment
and
valuation
procedures
and
practices.

Contact

I
would
love
to
debate,
discuss
the
ideas.
I
love
to
hear
contradictory
ideas
or
those
that

can
 extend
 my
 understanding.
 If
 you
 are
 reading
 this
 paper
 I
 love
 to
 hear
 from
 you.

Reach
me
at
rahuldeodhar@gmail.com

Rahul
Deodhar

http://www.rahuldeodhar.com

http://rahuldeodhar.blogspot.com






License




The
 work
 can
 be
 shared
 for
 non­commercial
 use
 through
 proper
 attribution
 as

explained
 in
 Creative
 Commons
 Attribution­Noncommercial­Share
 Alike
 3.0

Unported
License



7



©
Rahul
Deodhar
2009

www.rahuldeodhar.com