Ideapaper New Teledensity Paradigms

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The growth potential of any telecom company is a function of tele-density and MOU. Yet, the concept of teledensity and MOU have not been understood well. A few innovations in the past few years have added new life to both these variables in ways analysts have failed to grasp.

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Ideapaper New Teledensity Paradigms

  1. 1. IdeaPaper
Series
 New
Tele‐density
and
MOU
Paradigms
 By
‐
Rahul
Deodhar

 A lot of telecom analyst base their growth forecast on tele-density figures. Tele- density refers to ratio of number of connections to population. It is usually expressed as a percentage. Tele-density determines the upper limit to subscriber growth. MOU refers to minutes of usage or talk-time of subscribers. “Minutes of Usage” multiplied by Average Revenue per Minute (ARPM) to arrive at Average Revenue per User (ARPU). ARPM has shown a declining trend with respect to time. MOU, therefore, represents growth potential of current subscribers. The growth potential of any telecom company is a function these two variables. Yet, the concept of teledensity and MOU have not been understood well. A few innovations in the past few years have added new life to both these variables in ways analysts have failed to grasp. Era
of
bandwidth
Node
 The interpretation of teledensity as a cap is remnant of telephone as a voice call device era. This old era represented voice-based communication. We also discovered ways to send data over telephone lines. But this was inefficient. We were sending data over voice networks. The era has changed and a new era is here. Today, telecom is essentially a provider of bandwidth node at a given location. The question of what to do with this bandwidth is entirely left to market forces. Market forces have deciphered one use of the node through “smart phone technology. Today our networks are essentially dual-mode networks. On the smart-phone or any 3G phone, we have access to a data network AND a voice network. We are no longer sending data over voice network. So the correct way to look at MOU is in fact, to look at overall consumption of bandwidth. There is no doubt this is only going to go up! 
 Smart
phones
boosting
data
usage
 The smart in smart phone is actually in usage of bandwidth tap. The smart phones have, through use of apps, created new uses of data. Further, the presence of 3G implies we are going to listen to move songs and watch more videos on the smart phone. Both these applications are bandwidth-hogging applications. Overall data requirement of phone user has definitely gone up. And most of the time, data is served by a telecom company. Sometimes, it is your telephone cable connected to a wi-fi modem, other times it is your phones 3G network. As new apps spread, we will have increasing data requirements. So MOU, in terms of overall usage of telecom service will go up. Also, the more connected people are more are voice calls likely! 
 
 ©
Rahul
Deodhar
2009
 www.rahuldeodhar.com
 

  2. 2. IdeaPaper
–
Growth
Phases
of
Telecom
Companies
 The
upper
limit
on
teledensity
 Tele-density has another story. First, there is natural requirement for multiple phone connections per person. In developed countries the number is 2. So we can expect a natural phone penetration limit to twice the population. Further, simply put, there is a potential to connect all the laptops that are in use in the market currently. So the factor of 2 seems pretty understated. Thereafter, anything that is mobile and generates data is a target for embedding a phone connection. Telecom can definitely cannibalize 50% of the GPS applications. Cars can share location data, engine performance and others. Trucks and delivery vehicles are already using telecom based location services. Further, it does not take much imagination to foresee new applications. A door viewer that can send photo of visitors is pretty common. Telecom-equipped nanny cams are definitely well accepted. TV set-top boxes can have embedded connections transmitting viewing habits. Buses in Switzerland are already transmitting data about arrival times. In sum, we can say that older paradigms of Teledensity need to be massively revamped. It
will
happen
within
5
years
 The classical rebuke to these arguments is visibility. Analysts do not foresee such changes happening in near term. I think otherwise. All it needs is right pricing and little bit of imagination. The iPhone, is revolutionary in that sense. It has socialized the imagination part while retaining the basic bandwidth pipe control to itself! I am betting, we will see tremendous explosion in bandwidth consumption in next 5 years and most of this will enrich the telecom companies. That is why I have invested in Bharti Airtel (Bloomberg: Bharti IN) 
2
 
 ©
Rahul
Deodhar
2009
 www.rahuldeodhar.com
 

  3. 3. 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 readerʼs 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
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 shared
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 attribution
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3
 
 ©
Rahul
Deodhar
2009
 www.rahuldeodhar.com
 


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