Robbing the poor to feed the rich

Today I read an article about Telecom companies again petitioning TRAI to implement a usage fee on Internet messaging and VoIP apps such as Whatsapp, Viber, Skype , WeChat and many others. This seems to be a classic case of the Rich getting richer, poor getting poorer(as Rajni says so vehemently in Sivaji)

Telecommunication firms have noted that in recent years, voice revenues are slowly reducing while data and non voice revenues are increasingly becoming a major part of their revenues and profits(For more details, read my previous post). That said, telcos now want to hobble users and raise the stakes so that they can effectively gain total control over the Indian market.

The Indian telecom market is one of the best, for consumers , across the world. We speak at some of the lowest rates and our data charges are also quite nominal. Although much investment in infrastructure and networks will be required to match city states like Singapore/South Korea or even advanced countries like US/Europe, we definitely are progressing and mobile internet usage as well as broadband connectivity has been rising slowly. Smartphone usage has exploded from 10 % of overall phone base in 2013 Jan to nearly 29 % in March 2014. Further with low prices of entrylevel smartphones and feature phones, usage has been rising which is reflected in the higher data revenues of many telcos.

What has also been noted is that some phone companies have identified specific trends, such as high interest in Facebook/ Whatsapp and have designed phones with dedicated features which focus on these trends. Facebook chose to make Internet access to the Facebook page free across telcos, by tieups with Airtel, Aircel and others. Whatsapp OTOH has not chosen any such tieup, working entirely on the belief that the necessity of chatting with your friends will force you to use the application so they dont need to incentivize the telco or the user. Similarly apps such as WeChat and Viber (both of whom have strong user bases in SE Asian countries and China) dont see the need for any tieups as there are already many people who see the benefit of using these applications to supplant SMS messages and phone calls.

The issue for telcos here is two fold – these apps do initially require a linkage to a specific mobile number but over time, if the app disables that requirement, people may choose to use these apps without the necessity for the voice connection or the data package. Secondly, apps such like Whatsapp and Viber use very low data requests to send across data thus there is limited scope for upselling of data packages to customers which means that the hope of raising the Average Revenue per user is low. Thus telcos will be stuck with a large base of customers who dont use their phones for voice / data beyond a certain value but choose to use alternatives such as these apps. Thus the telcos will not be able to raise rates  and mint money, on the lines of  US and European telcos.

The most worrisome point about TRAI even considering this proposal is that its a fundamental attack on the concept of neutrality. One of the best points of the Indian telecom market has been the focus on ensuring the best and cheapest service for the customer. Whether it be in forcing telcos to reduce rates or remove roaming charges or introduce Mobile number portability, TRAI and the Telecom Industry has a duty to Indian customers to ensure that our rights and requirements are the first and last point of interest. Implementing an access fee is a negative approach which is like a fine charged on people seeking an alternative to a costly and ineffective communication channel such as SMS. Its for the telcos to either implement a better pricing scheme or come up with a better alternative to make people switch back from these Internet messaging/ chatting apps. That is the concept of a free market system. If tomorrow, Coke was to ask the GoI to make people drinking Paper Boat or Roohafza pay extra just to be able to drink it, that would be anti -competitive and trying to force a trade monopoly. Thus this proposal is fundamentally illegal and anti-competition. Instead of considering it seriously, TRAI and the Telecom Ministry should be forcing the Telcos to come up with better indigenous apps to utilize the existing network and infrastructure.

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Why Airtel is giving up the Broadband fight

In recent times, ACT Broadband has been taking the fight to Airtel in the broadband sphere, whether it be in terms of pricing, plans or advertising. Huge billboards of ACT broadband proclaim their new fiber internet and cheap plans and there has been a decent migration of sales force from Airtel to ACT Broadband, partly due to the better monetary incentivization of sales personnel as well as the feeling that ACT is growing rapidly.

Initially I was perplexed. As part of Airtel’s plans of being the one stop solution for telecom and internet needs for customers, it would make sense for Airtel to fight this battle tooth and nail, and take down ACT Broadband through clever pricing and sales force approach, much like they had fought against Idea Cellular and Aircel in the past. However , a recent news item highlighting their revenue growth helped explain things.

In the last quarter, Airtel has increased its profits by nearly 60 %. Revenues have grown over 10 %, largely due to improvement in mobile data revenues, which is now contribution to a 3rd of Airtel’s revenues and more in profit. What this tells us, is that Airtel has decided to make the play for being the one stop solution for mobile coverage which makes sense as ARPU (Average Revenue per User) and smartphone penetration has been rising in the Indian market. Not only does this help Airtel move from a voice revenue based model to a data and services based revenue model ( a la Western operators), it also gives them greater information about the usage patterns of customers which was limited in earlier cases. Further, tie ups with leading mobile applications helps Airtel increase network penetration (Earlier examples of Facebook and Twitter tieups come to mind).

Overall, giving up the fight for broadband has few benefits – Its easier to cater to the corporate audience vis a vis the individual customer where ensuring high QoS requires big investments both in terms of infrastructure and personnel. Recent contracts with IBM and other firms show that Airtel is moving out of investment intensive segments such as tower management and customer service and outsourcing them to reduce costs while revenues are being raised in non voice segments through aggressive up selling and pricing. Another benefit of not fighting on pricing terms is ensuring that profits margins of non voice segments are not being hit and at a future point when these customer consider 4G or LTE schemes, it wont result in cannibalization of existing Broadband customers

That said, Airtel will have to invest in improving existing networks. What with sub 10k smartphones increasing in number and capabilities, it requires to make that initial investment in bandwidth and infrastructure to ensure seamless coverage and service. Otherwise it might face the same problem AT&T faced during the launch of the iPHone when the flesh(hardware) was willing but the heart(network) was not .