I have been working in telecommunication industry for more than 9 years.
All of my working experiences are in the telco industry (starting from Jatis – Ericsson – IBM)
So I know one or two about the industry, its trends and how it affects the business in a whole
Well in the nx 20 mns I’m gonna talk about telco industry challenges in the local market.
I’m gonna start with the challenges in telco industry
Globally, mobile traffic is growing significantly and it provides a great opportunity for operators.
However in Indonesia, we see that the market already saturated and there are fierce competition among 7 operators
This makes revenue growth stagnant while at the same time the expenses are increasing for multiple reasons.
Executive Summary
Business Issue
Mobile traffic is growing significantly – internet as growth engine
Indonesia market already saturated – fierce competition
Revenue growth is stagnant while expenses are increasing
Rise of smartphone & access to social media (Internet of Things)
Rise of OTT players telco as dumb pipe
Shifting in technology Innovation is required
Business Solutions
Payment – Advertising - Network APIs - Profile broker
Implementation Plan
Business model development of mobile advertising as applicable business innovation in Indonesia
Conclusions
Telecommunication in Indonesia provides a promising opportunity
Competition is fierce among operators and with over-the-top players
Differentiations and innovations are required
Lots of ideas out there – courage to begin one or more business innovations
Commitment and perseverance are required to adapt towards changes
January 7, 2017
Telco is one of the fastest growing industry in the world.
There has been a very fast development in the last 4 years. We see that 4 years ago there are only …
This is also driven by the rise of smartphone. In 2008 there were only 30 Mio - now 150 Mio and on top of that there are 48 billion mobile applications have been downloaded over Google Playstore and Itunes
Key message:
Fast development within MBB during the last two years.
Figures used should be the latest available.
Sources:
Mobile Subscriptions: Q2 2012 data WCIS
Internet users: Q4 2011 data, http://www.internetworldstats.com/stats.htm
Data usage: Q4 2011 data, ESF 2011_1 /measurements; additional fact is ~2 GB/month per mobile PC users
HSPA devices: Q4 2011 data, GSA
Application downloads: Q2 2012 data, www.mobilestatistics.com (http://www.mobilestatistics.com/mobile-devices/ )
Smartphone shipment: Q2 2012 data, based on Strategy Analytics, benchmarked with Gartner (Q1 2008 figure is per Gartner).
And mobile traffic is growing impressively, especially with the rise of internet as the main growth engine.
As a proof point, there are 140 million subscriptions additions in Q4 2012 (this represents 3.1% growth from Q3 to Q4)
And the data traffic in mobile network has been doubled (2x) from Q4 2011 to Q4 2012.
In Q4 2012 alone, there are 300 million Gbyte addition compare to Q3 (this represents 28% growth from Q3)
But, this doesn’t mean that operators are experiencing an enjoyable situation
Let’s take a look the operator’s performance in Indonesian market.
We see that market in Indonesia is highly competitive and very crowded where there are 7 mobile operators competing in the same space while the penetration rate is already reaching more than 100%. Total mobile subs is ~278 Mio out of 244 Mio population (penetration rate 113% and growing). Growth drivers are mainly due to dominance of prepaid services and multiple SIM ownership.
If we compare the average revenue per user (ARPU) between top 3 operators in Indonesia, we see that there are a downward / negative trend. Even though operators are gaining lots of revenue from VAS and DATA (data subs is only 20% from total subs) – but still they are losing revenue because of declining voice and price competition.
Telkomsel has the highest blended ARPU due to high proportion of postpaid user (high value user) compare to the other 2 operators. Postpaid uses is the growth factor for ARPU.
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Highly competitive market with 7 operators competing in mobile space (CDMA & GSM). Total mobile subs is ~278 Mio out of 244 Mio population (penetration rate 114% and growing). Growth drivers are mainly due to dominance of prepaid services and multiple SIM ownership.
Decrease in blended ARPU due to increase revenue in VAS & Data cannot offset declining voice revenue & intense price competition. BMI forecasted that ARPU will keep declining in the following years.
Telkomsel has the highest blended ARPU due to high proportion of postpaid user (high value user) compare to the other 2 operators
You have seen that the ARPU is declining – means that the revenue growth is stagnant / or even declining. While at the same time they also need to manage their increasing expenses
As a proof point, let’s see Indosat. On Q1 this year they have experienced a loss of IDR 71 Bio
Even though they have experienced an increase in income due to subs growth, their expenses in tower rental fee and frequency license fee are also increasing – This makes EBITDA growth decreased by 13.8% compare to Q1
Similar situation also experienced by XL Axiata. XL recorded an increase in revenue by 5% while at the same time operating expenses are also increasing by 21%. Thus, the EBITDA growth decreased by 15% compare to last year.
We also see that various M&A happened in order to survive the competition. On Nov 2011, Mobile-8 merged with Smart Telecom to save money by sharing distribution network and joint marketing campaigns. Also in this year we see that XL Axiata is planning to buy Axis Telecom to secure radio frequencies.
EBITDA
EBITDA decreased by 15% YoY to Rp2.0 trillion in 1Q 13 and EBITDA margin was down by 8 percentage points
to 40%. This was partly due to the introduction of SMS interconnect and also reflects the changes in our
business model with the expansion of the data infrastructure on a lease model thus impacting network costs as
we continue to roll out. In addition further impact on revenue from price adjustments to improve positioning.
Changes in revenue mix will further add to the changes in EBITDA margin moving forward. Excluding the impact
of SMS interconnection, EBITDA margin was at 44%.
How about from the consumer view?
According to Ericsson ConsumerLab Study in 2011, consumers are satisfied with the payment plan offered by operators. However they are disappointed with the service.
It shows that from the consumer view, there is no single provider seen as superior. Consumer’s loyalty for a particular operator’s brand are very low – they can switch easily from one provider to another since the payment plan are very low.
Based on all of these facts / situations, I tried to analyze how the industry will behave from internal as well as external view.
On the social front, we see that access to OTT services like Twitter – facebook – whatsapp drives internet penetration in Indonesia. In fact Indonesia has been ranked as the top 5 twitter usage in terms of number of accounts – Jakarta and Bandung as number 1 and 6 in terms of number of tweets.
On the technology front, we see that there will be more device enabled internet than number of population in the world. One of the report by Cisco mentioned that by 2020 there will be 50 billion devices while # of population is only 7 billion. Today in Indonesia, internet penetration is only 24% (60 million users) and it is estimated that there will be 139 million internet users by 2015.
January 7, 2017
Threat of new entrants: even though the market is already saturated, but still the market is populated with prepaid & multiple SIM ownership – this shows a very low level of loyalty of certain providers and provides an opportunity for new entrants. The new entrants may not be playing on the connectivity services but maybe they will focus on adjacent domain such as multimedia. We see some examples like SKTelecom from Korea have a joint venture with Telkom (Metra) and created a multimedia company under Telkom called Melon. Similar approach are being done with XL Axiata as well – where SK Tel & XL build a jv and their product, Elevania, will launch this end of year.
Competitive Rivalry: Since operators are losing grounds on these traditional services like voice and messaging, they are trying to push attractive price to retain their subscribers. And today they are shifting to DATA as major revenue stream – but on DATA alone, operators are also competing in prices
Add government
However, it is still estimated to gro hDominated by top 3 operators (Telkomsel, Indosat and XL Axiata)
Hutchison CP Telecommunication markets under the brand “3 Indonesia”.
Axis owned by Saudi Telecom Company and Maxis Communications claimed to have more than 17 Mio subscribers
Smartfren Telecom is result merger between Smart Telecom and Mobile-8 on March 2011.
Viber Business Model: Viber Media does not charge a fee for its application or for the mVoIP or messaging services
that it offers, nor does it sell advertising. Viber is following the “freemium” business model of
initially providing a free service with an attractive proposition for consumers, with the goal
of building a sufficiently large subscriber base to which it can then sell value-added services
and possibly also content. The company has not yet stated when it will introduce the VAS.
Bargaining power of suppliers are very low in some segments such as radio, applications and supporting functions (due to competition and operator’s key priorities)
Area like billing which is an important element for operator has a higher bargaining power for suppliers.
Suppliers:
Market focused players vs all-round players
Buyers:
Many alternatives (8 operators competing – price war)
Telco as dumb pipes
If we see from the technology stand point, we see that the technology have its own lifecycle and the shift in technology is represented in S-Curve model.
Before year 2000 or early 2000, we see that voice and sms are the king. Everyone were texting a lot at that time. But then when consumer behavior changed, SMS traffic is declining and reach a stagnation point. Operators are pushing a very cheap price for SMS and Voices to fully utilize their previous network investments. This creates a tariff war among operators.
And then come along data & internet which is today serving as operators main revenue generator. But this tech can also reach a stagnation point. Previously we see that operators introduced data as “all-u-can-eat” model where you can subscribe to a certain package and have an unlimited usage for a period of time. Now, operators are selling it with a-la-carte model where you can only purchase a data package based on quota like 1 GB – 2 Gb – 5 GB usage. This is also a sign that technology lifecycle almost reach a stagnation point.
So what’s next after data & internet? What would be operators main revenue generator? Especially when OTT services are eating away content revenue and operator just get the connectivity revenue. That’s why operators need innovation as value differentiators. Some operators are starting to focus on digital business such as mobAds, payment etc. Operators have a dedicated organization / team to look after digital business. All of that efforts are operator’s way of monetizing their network and to lift up from dumb pipe to become a smart pipe
Emphasize on:
Stagnation - While expenses are increasing - Thus, profit dropped
Voice & SMS
Internet & Data
Data traffic is growing but revenue is flat-lining
Data is still the king; operators start focusing on quality & user experience
Operator has shifted from all-u-can-eat to a-la-carte business model.
Collect information & detect pattern in mobile data traffic is still a challenge for ops
Operator is welcome for any data monetization ideas. Personalized services have been the focus areas for many operators to increase user experience (i.e. self care tool, targeted advertising etc).
Business innovation
(reflected in ops org structure)
Mobile money uprising as cash substitute (Tsel Tcash – XL Tunai – Indosat Dompetku). All 3 ops has a joint initiative in this domain
Mobile advertising is getting real (CAPEX proportion is getting bigger – CP has shifted their business to advertising)
Profile enrichment is getting important - New opportunity for exposing operator’s asset while still protecting consumer’s privacy.
In the traditional telecommunication value chain, we see that the operators are focusing on mobile subscribers as their main revenue generators.
While actually the content and services are created by content developers. The example of these content developers could be internet players such as facebook, twitter, youtube even mobile application developers. These guys are the one who gets the biggest portion of the revenue.
Operators only get a connectivity revenue since these contents & services are going through their network pipe.
Provide contents on top of basic communication services for value added services
In general, there are 2 main challenges categories for operators, increasing revenue and reducing expenses.
In increasing revenue, operators need to innovate and think outside the box to deliver a differentiated services. They cannot just rely on traditional business model. Another point in revenue side is they need to uplift from just delivering OTT services (a dumb pipe) to become a “smart” pipe
In reducing expenses, the high operating cost has a very negative impact on profit. But they don’t have a choice since they need to expand and invest in technology. Especially if there is a new trends in technology that they need to have in their network. This could be eco-friendly technology, virtualization etc.
In this final project, I will be focusing on innovation to increase revenue for operators. This doesn’t mean that reducing expenses are not important. It is also important but it won’t be so effective if they cannot increase their top line revenue.
January 7, 2017
So here is the proposed concept.
Today, operators can generate revenue from multiple side of the business. Previously they can only generate revenue from mobile subscribers but now they can also generate additional revenue from the other side of the business, partners and enterprises.
This includes retailers, developers, advertisers, banking, etc.
Telco operators can leverage the available network assets to enrich the services that they offer to enterprises. These network assets could be as simple as connectivity, billing relationship as well as customer interaction points like WAP/WEB portal/ SMS.
In this way they can avoid the risk of becoming a dumb-pipe provider.
January 7, 2017
January 7, 2017
I’ll take 4 different examples that has been implemented by the operators as well as other players in the world. Let’s take a look an example for payment.
Skype utilizes existing operator’s billing relationship with subscribers to provide an alternate payment method to purchase Skype services.
Subs from Ops A can charge Skype usage to their balance in Ops A.
Let’s take a look payment as the first example.
Skype, one of the paid voip players, has collaborated with MACH, payment aggregator, to provide alternative payment methods for operator’s subscribers. Previously Skype users can only pay based on paypal, credit card, bank as well as cash – but now by integrating with MACH, Skype users can charge their skype services through operator billing.
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Business drivers
DCB provides access to markets and sectors that Skype currently finds hard to reach.
DCB can be more convenient than other payment methods.
Operations approach
Skype will manage the commercial discussions with CSPs while the carrier billing platform will be supported by a third-party vendor.
Software strategy
Implement the DCB platform as a managed hosted solution.
Deployment
The DCB platform will be hosted by MACH.
DCB will be offered through the web browser, but eventually in-app purchasing of Skype credits will be allowed.
Benefits
Several surveys indicate that DCB can drive up sales by as much as 400% in some cases.
Paid Skype services are available to larger number of people.
CSPs get revenue from a popular service that was mostly OTT.
1/7/20172011-11-22
Another innovative example is open network. Operators are opening their network capabilities like SMS – MMS – Payment – to be used by application developers.
Example of this application is like sending SMS to offline friends inside mobile application and charge it to operator’s balance
The business models are varied from one country to another due to local policy / restrictions.
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What is Bluevia
A global developer platform from Telefonica that helps developers design, build, test and take ideas to market across the group
The principles
Exposing network API for global developers
Different business models for different country & different API
How is it kept alive?
Collaboration , collaboration & collaboration
Another example in open network is how Verizon Wireless give an option to their subscribers to upgrade their data bandwidth on the fly.
For example when the subscriber is streaming to an HD content, they can push turbo button to boost the speed. In this way they can get a better streaming experience.
January 7, 2017
January 7, 2017
Before pointing out the business model development for mobile advertising, first we need to understand mobile advertising value chain and in which role operator can position themselves in the value chain.
First, the players in advertising industry itself
Brands: who owns the product and advertising budget to spend
Media agencies: who provides advertising mix and select appropriate inventory
Media sellers: who sell the ad-space over a commission. Typically based on specialized inventory
Technology providers: who provides platforms & technology to deliver advertising campaigns
Publishers: who in charge of publishing the advertisement through a certain channels
Media owners: who owns the inventory (ad-space)
Typically each of these role have their own proportion in the revenue chain.
As part of the value proposition, operators need to understand what value that they can offer to the market.
In mobile advertising business, operators can bring 3 values to the market
Inventories where the advertisement will be placed. The inventories could vary, depends on the delivery channel. For example: internet based ad could have multiple inventories such as top & bottom ads for certain sites.
Volume: operators have millions of subscribers that can serve as the potential audience for advertising. In advertising industry, reach to mass market is very important
Operator has subscriber profiles that can be used for targeted advertising. The more relevant the advertisement, the conversion rate will be higher.
Then the next part of value proposition is to whom operators will sell this services.
There are 3 categories in here:
For brands & media agencies, mobile advertising provides a new mechanism to deliver ads to millions of mobile subs. And the good thing is, mobile provides an interactivity and an “always-on” channel. It’s like having to watch an advertisement in TV and ensure that the ads will be watched by audiences.
For media seller and ad-network, mobile advertising provides a massive volume of channels besides traditional websites. The high volume of traffics in mobile will increase their supply of inventories
For mobile subscribers itself, mobile advertising provides a media for a personalized offering, where if the ads are relevant, they will enjoy various promo and offerings from the brands.
Another factor in business model development is the availability of the key resources. One of them is the readiness of the organization itself
The picture on the left is to show which area of the industry that operators need to address. To address all of these areas, operators need to have a dedicated organization to run the business.
And this organization need to have a C-level sponsorship.
There are different roles in the organization and each of these roles has its own responsibilities.
Name it one by one
And all of these roles need to have a centralized program management to meet organization business objectives
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Another factor in business model development is the key processes.
In here I put 5 steps approach that operators can implement as the base framework in this business.
Admission: choose starting point – depends on operator strategy & conveniences
Connect: they need to connect with various players in the ecosystem to understand how the industry behaves
Align operator’s capability with the market demand – but they also need to enhance their capabilities to provide more inventories
In each of the advertising campaign, operators need to be able to learn & measure the result (what the do’s & don’t in the business)
If the business is mature, then slowly they might need to transform their organization to fully support mobile advertising ecosystem.
These are some examples of the 1-2-3 steps that operators need to do.
Admission: they need to choose 1-2 segments as their starting point. This includes selection of channels and subscriber segmentation. Different channels will have different returns – different segmentation will also have diff returns.
Connect: when operator connects to various players in the ecosystem, they need to consider a partnership model with 3rd party media seller, global ad-network as well as technology providers.
Align: when operator is ready to deliver advertisement, they also need to ensure that the advertisements are non-intrusive and user friendly. They also need to check the legal implications in that country. Then scale up to build a full advertising service roadmap.
The other element of the business model development is profit formula.
There are couple of factors affecting the cost and the revenue.
These 4 factors are building the available inventory in operators network. And it can be split into 2 ways of gaining revenue.
Through operator own sales house to sell the inventories directly to brands & agencies
Through 3rd party sales house that already has an existing relationship with brands and ad agencies.
Each of them usually have different selling price. We use cost-per-mile (CPM) in advertising industry to measure the rate card.
As a simulated business case, here is the comparison of between cost and revenue. This is a real life case where I have proposed to one of the local operators in Indonesia.
There are 3 scenarios (conservative – realistic – optimistic) which has different variables
As a result, the forecast still shows a profitable business over 3 years period. Different scenarios shows different ROI – but the bottom line is all profitable over 3 years period.
