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Idea Final Report

Idea Final Report

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Published by Vikas Kumar

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Published by: Vikas Kumar on Oct 20, 2011
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04/28/2012

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Two Sided Markets and Idea

Telecom Industry acts as a platform while linking advertisers with audience, bankers with consumersi, Governments with the public, and TV reality shows with audience. Mobile operators have to move beyond traditional VAS to innovations such as financial services for the unbanked (Exhibit 2), healthcare and education services that are a concern to the Government and potential sources for revenue generation. Government initiatives like MNREGA that need the direct transfer of cash to the scheme beneficiaries are impossible with the traditional Banking channel. Idea has the required strength in the form of high rural presence and brand recognition to create the two sided effects and balance the low ARPU of the rural consumers (subsidy side) with increasing Government spends in social sector (money side). It has already associated itself with Axis Bankii for social inclusion program, thus creating marquee users. With its great advertisement campaigns it has increased the participation of TV audience in reality show polls via SMS and created a subsidiary revenue stream. Again, it has an alliance with the hugely popular game show “Kaun Banega Crorepati” and “MTV Roadies” that create a celebrity effect and expand the network to urban youth respectively. Thus, there is positive scale and cross network effects and Idea is equipped to leverage this opportunity in the above instances. Appropriating the value created for the money side will depend on Idea’s ability to innovate content in vernacular language, ease of use in case of complex financial transactions for the illiterate, selection of mobile banking modeliii and sensitivity of subsidy side to price – which is low in this case. Substitutability of Idea’s offerings with other Telecom Operators is low because of their lower brand recognition and lower penetration in the rural market; substitutability with traditional channels like ATM is also low because of the high variable costs and maintenance issues that the money side would be unwilling to incur. Idea’s output costs in all the cases above are low since the fixed cost is high and variable cost is low; it has also maintained pre-existing relationships with the prospective consumers. However, Idea fails to provide a multiplatform bundle because of its limited presence in internet service space leading to a high threat of envelopment. Due to the very nature of the Telecom industry, technological convergence and overlapping user base are unavoidable. Thus a rival’s multiplatform offerings could be viewed as a better bundle by the money side compared to a single platform service by Idea.

Recommendations and Future Outlook
1. Rapid subscription growth doesn’t necessarily generate a robust increase in revenues. An equation detailing this is Return on Capital (ARPU) x Growth. Consequently, while subscriber growth was high, the sector revenue growth slowed to 5.1% compared to 22.3% in the preceding year. Therefore, as detailed in the section on Two Sided Markets, growth drivers should be innovative VAS (detailed below) for which Idea is aptly positioned to leverage the emerging opportunities. It must address the envelopment threat of competitors offering multiplatform solutions. 2. Increase the profitability of pre-paid customers: Majority of the prepaid customers own multiple SIM cards and exhibit use-and-throw phenomenoniv with new SIM cards; they are disloyal. Multiple SIM ownership has rendered traditional measures like subscriber base irrelevant. A major reason for low loyalty of the consumers is that less information is available for prepaid consumers in contrast to

post paid consumers. Thus, there is a need to store and analyze the consumption pattern (Exhibit 1) of a consumer and micro-segment the market and design new tariff plans that are congruent to consumer needs to lower the churn rate, increase loyalty and improve ARPU. Recent advertising campaigns showcase variety of tariff plans available. Idea has conceptualized and launched “Insta Alert”, an innovative tool to convey latest offers and service related communication to customers who latch on to the network after a period of inactivity. 3. Going national has impressive positive network effects for Idea. It has increased the roaming revenues and incentivised people to buy Idea because of cheaper call rates within a network. It has also helped it to pilot remittance business because it is preferred by the migrant labourers. 4. Revenue streams from 3G services will be robust for Idea. It has acquired the licences in circles where its brand was already strong and so it will gain traction quickly in those markets. Idea must maintain its differentiating strategy in case of VAS and use mobile Internet to deliver the personalized entertainment. Total number of Internet users is forecasted to increase by more than fivefold, to 450 million, by 2015 (Exhibit 3). Total digital-content consumption will double, to as much as $9.5 billion. Including access charges, revenues from total digital consumption could rise fourfold, to $20 billion—twice the expected growth rate of China. v 5. Innovation in the VAS space: VAS value chain is currently dominated by the Telecom operators that appropriate around 60% of the revenue (Exhibit #). The content provided is highly skewed in favour of music and entertainment. To maintain this level of appropriation Idea must diversify into other potential growth areas of VAS viz. location based services, navigation, social networking, mCommerce and information based services. A major source of sustainable revenue could be “Enterprise VAS” i.e. mobile solutions for HR, payroll and finance for employees on the move. Exhibit 1 Behaviour of Prepaid Consumers Price competition has transferred value to the consumer by initiating and reinforcing the trend towards multiple SIM ownership due to lower multi-homing costs. Customers who spend more than 90% of their time within a single operator’s network are suspected to be using multiple SIMs. Dynamic Tariff plans can address this issue.

Exhibit 2 Users of Informal financial services in India

Exhibit 3

i

https://www.mckinseyquarterly.com/Capturing_the_promise_of_mobile_banking_in_emerging_markets_253 9
ii

http://www.ideacellular.com/IDEA.portal?_nfpb=true&_pageLabel=IDEA_Page_IdeainMedia&displayParam=c ontent_press_newreleases_Axisbank.html iii http://technology.cgap.org/2009/11/11/new-business-models-in-mobile-banking/ iv Idea Annual Report 2009-10 v https://www.mckinseyquarterly.com/Can_India_lead_the_mobile-Internet_revolution_2746

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