There is a big debate about the viability of tablets market for vendors apart from iPad. I have heard the phrase many times that

There is no tablets market. It is just the iPad market.

In this article I have attempted to evaluate the above hypothesis and arrive at a conclusion one way or the other.

Current State Analysis:

If we look at the current trends, it would appear that Apple is in a dominant position with no vendor being able to provide a credible alternative. Apple had 67% market share at the end of Q3’2011 and no other vendor was close to it (refer the market share data in the chart below). There are close to 40 vendors on Android platform and their combined share is around 27% (dipped from 30% in Q2’11). The largest Android vendor is Samsung and apart from Samsung  (who produces the new 7″ Google Tablet T-Mobile and other popular models) no other vendor has even 1% market share. Motorola Xoom is now not even in the picture. Apple has sold 50 million devices in all till date against the Android sales of 10 million.

RIM and HP had huge plans for the tablets market but within a quarter of launch, HP has decided to quit the market and RIM is struggling. There are indications that RIM might also quit the tablets market if it does not do well after the latest changes in its strategy. Amazon has launched its tablet, kindle Fire but it is yet to hit the market.

All in all, currently there is no player who can even be termed as challenger to Apple.

Future of Tablets

Today, the tablets market is largely undifferentiated with all vendors trying to emulate Apple’s success but this is likely to change very soon as the market matures. I see the following 3 trends emerging that would change the way tablets are market today:

1. Price Discovery: All the vendors attempted to compete with iPad and sold at a similar price. This was a big mistake with the consumers preferring to buy iPad instead of other tablets as the value proposition of other vendors was weak at the same price point. When HP liquidated the stock at $99, their tablets suddenly vanished from the shelves. So much so that HP decided to produce some more tablets. Range of tablets are coming in across various price points mirroring the smartphone market which has products from $100 to $700. RIM has also decided to drop the pricing of the tablets to $249 while Amazon has launched its tablet at $199. I see $100-200 as a very lucrative and viable price segment for tablets. There is certainly a window of opportunity for someone to come up with a low-cost, user-friendly tablet likely built on Android that would have mass market appeal (chances are that it would come from a Chinese vendor).

2. Differentiated Value Proposition: So far the tablets have attempted to target the same consumer segment with similar value proposition. Their attempt has been to be the “Laptop Lite” and replace the netbooks. However, the market is much larger if tablets are not seen as replacement for either smartphones or netbooks. Instead vendors should look at it as a device that has multiple value propositions and we might need different kind of devices to meet those demands. Amazon’s Kindle would appeal to people interest in content and cloud based streaming services while the Chinese players can capture the enterprise segment that need cheap functional tablets. Indian Government’s $35 tablet is a perfect example of targeting a segment (education in this case) with a stripped down tablet.

3. Services Ecosystem: We have all witnessed the success of iPhone and one of the primary reasons for the success of iPhone was the ecosystem that Apple created around the device. Even in tablets, the services ecosystem is likely to play a big role in its success. However, in this ecosystem, the tablets will not be central. Somebody would develop an enterprise application and would sell the device as part of the managed service contract. I see a possibility of a company developing a courier management application on tablets or an order management system thereby creating a huge tablet demand as low end with minimal processing and multimedia capabilities.

Will the iPad party continue forever?

No, I do not think so. Apple is enjoying the high market share till the time people are not able to discover the use of a tablet. Today people are using a tablet as a gaming and browsing device. This is surely going to change once the differentiated value propositions emerge with different use cases. Once the tablets start getting used by sales guys or restaurant order management, the market would surely move beyond iPad.

Kindle Fire is most likely to spoil Apple’s party as it has a very good value proposition in terms of content and has priced the product aggressively. Amazon is subsidizing the Kindle and plans to monetize through content which would be difficult to match by any other competitor except for Apple. In a nutshell, we’re entering a near disposable e-reader/tablet era that will split the market between Amazon (consumption based profits) and Apple (high end brand profits). Every technology company caught in the middle is going to have some serious problems.

I see the Chinese players coming out with cheap tablets and capturing a sizable small and medium enterprise (SME) market. The Chinese players would be very aggressive and would not care so much about the brand and direct distribution as long as they can sell. They would be willing to customize the tablet based on the end user requirements that the bigger players would be reluctant. Their impact on tablets market would be similar to their impact on the mobile phone market.

In the longer term, Android would emerge as the operating system of choice as the cheaper tablets will have no other choice but to go for Android. In the process, the other tablet OS like BBX (RIM Playbook) and WebOS would die the natural death as they lack the applications ecosystem.

In the end, I would say that there is a tablets market besides the iPad market provided the other players create value propositions knowing fully well their strengths and more importantly their brand limitations.

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Since the launch of iPad, the tablets have caught our attention. Tablets have not been launched by many companies including Amazon which recently launched the tablet. Companies like HP decided to move out of the tablet business because they realized that the tablet market is not up to their expectation. All this makes us to think if there is indeed a tablet market or is it just the hype around iPad that is resulting in high sales of tablets. Till last year I would have agreed with the statement that there is no tablet market but only the iPad market but the suddenly Android seems to have captured a lot of tablet share and the vendors have realized that they need to discover the true pricing for their products. The table below from Strategy Analytics provides the tablets operating system share. Clearly, Android is silently gaining on back of Samsung and smaller vendors.

Nokia Siemens Network (NSN) recently released their forecast on the mobile data consumption. It is interesting to note that the data consumption would increase multiple times by 2020 and an average user would consume 1GB data a day. This would have significant impact on the operators who need to ensure that they stay ahead of the demand by continuously upgrading the networks. The increasing mobile data usage will be the driving force behind the early implementation of LTE and Advanced LTE.

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From this week, I plan to publish one chart a week that should be of interest to all the readers. This week I am publishing the global subscriber base which crossed 5 billion mark last year. Request the readers to give their feedback and let me know what charts they would like to see in the coming weeks

Mobile industry has  been the showcase of Indian growth story in the post liberalization era. In 2010, it added close to 20 million subscribers per month which is more than population of over 150 countries. There are claims that this hyper growth is due to the intense competition among operators. However, it is now clear that the mobile growth story is not as rosy as what it has been made out to be. Hyper competition has lead to over-reporting of subscriber base by not declaring the subscriber churn. On top of this, the tariff war has lead to significant multi-SIM ownership. This means that the real subscriber base is much lower than the reported subscription base. In my estimates, the real subscriber base is just a little over 500 mn (vs. 858 million reported base as on 31st July, 2011).

TRAI (Telecom Regulatory Authority of India) started to report the active subscriber base based on VLR (Visitor Location Registry) since September last year. This move was necessitated due to the existence of ghost subscribers and TRAI wants to allocate spectrum based on the actual subscribers. VLR is a temporary database of subscribers who are connected to the network at any given point of time. Since each base station in the network is served by one VLR, a subscriber cannot be present in more than one VLR at a time unless he is using multiple handsets or dual SIM handsets. If we assume that number of in-roamers are equal to out-roamers, then it is same to assume that VLR should be an accurate measure of active base in a service network. TRAI reported 602 million subscribers as per VLR in July, 2011 which is only 70% of the reported base. The movement of reported base and the VLR base is in the chart below:

The 602 million VLR base reported by TRAI is an over projection as instead of taking the VLR data at a given point of time, they have given the liberty to the operators to report the highest VLR base in the month. This leads to two types of issues

1. The churn is not taken into account accurately. If I am customer on Airtel network for 10 days in a month and then shifted to Tata for the rest of the month, there is a possibility of double counting
2. Mulitple SIM owners are counted twice as they are likely to use all their SIMs at least one a month

As per Juxtconsult survey, the total number of unique subscribers in India are 407 million (Click here to download Snapshot-Juxt-India-Mobile-2011 report). This number looks low to me given the inherent issues with consumer surveys of this size. I would recon that the real unique subscriber base is somewhere in between 407 and 602 million or in other words it is a little over 500 million. I tried to triangulate the 500 million subscriber base with other available data points like handset market size, ARPU, etc. and this number looks like close to the reality.

However, I am optimistic that the some sanity would soon prevail in the Indian market. One of the executives, who refused to be named, from the operator mentioned that the monthly churn rates have shot-up to 5-8% and for some operators, it is well into double digits. At 6% monthly churn on reported base, the absolute monthly churn comes to 50-55 million. This means that to do 10 million of net additions, the operators are doing 60-65 million gross additions. This level of gross addition is unsustainable as @ $3 customer acquisition cost per customer, the industry spends over $200 million every month in customer acquisition alone plus the cost of the SIMs. Normalcy seems to be returning to the market as we have seen the reported subscriber additions declining to 7 million in July from a peak of 20 million in December last year. I have been told by operator sources that the real subscriber additions have not declined and are stable at 5-6 million per month between December and July. It is just that the operators have reduced their gross additions to control costs and have started to report numbers closer to reality.

Bottom Line

The real subscriber base is ~500 million and rest all are ghost subscribers. This means that the real mobile penetration is still below 50% and not 72% as reported by telecom operators and the real ARPU is closer to Rs 150 (~$3) than the reported ARPU of Rs 100 (~$2).

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Mobile phones are expected to play a significant role in commerce and identity management in the future and one technology that would make this possible is Near Field Communications.

Near field communication, or NFC, is a set of short-range wireless technologies, typically requiring a distance of 4 cm or less which are designed to interact with consumer electronics, mobile devices and PCs. NFC is similar to radio frequency identification, except that it contains a tag and a reader, facilitating two-way communications. NFC always involves an initiator and a target; the initiator actively generates an RF field that can power a passive target. This enables NFC targets to take very simple form factors such as tags, stickers, key fobs, or cards that do not require batteries. In short, just by waving or tapping the phone, the money or the content can be transferred across devices.

Near Field Communications (NFC) has been in the news since its inception in 2002 by Phillips and Sony. It is one technology that has a lot of potential but still reached near death due to virtually no support from operators and banks. In the last few years a number of trials around payments and access kept the technology alive. Gartner has a concept of hype cycle which it uses effectively to predict the evolution of any technology. It shows that NFC has already crossed the peak of inflated expectation and is likely to get lower mind space going  forward before it starts to get back (refer to adjacent chart).

AT&T, Verizon and T-Mobile last month said they would work with Visa and MasterCard on their Isis joint venture, which was established to form a nationwide infrastructure for NFC-enabled mobile payments using mobile handsets in the United States. This coupled with interest in NFC from Apple and Google has resulted in an increase in forecast by many analysts. Currently close to 50 million NFC enabled handsets are sold across to world which is less than 5% of the handset market. However, the NFC enabled devices are  expected to increase at least ten folds over the current level (Refer the forecast below)

The forecasts from different analyst firms vary a lot on the NFC device projections but all agree that it would be significant by 2015. 

Here is a Video on the possibilities on NFC technology. Enjoy!!!

http://www.youtube.com/watch?v=ZdD2OKHi4qw

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The pace of change has not been so fast in the mobile industry. The success of smartphones and associated platforms has increased the value chain overlaps between a handset vendor and an operator. Traditionally, the operators have had an upper hand in the relationship with the handset vendors especially in the western markets as the operators distribute the handsets themselves and provide subsidy. In return, handset vendors have shied away from antagonizing the operators by doing anything that can make the operators a dumb pipe. However, Apple’s entry changed everything and now there is a tussle between the operators and the handset vendors on who controls the most valuable parts of the value chain.

In the past, the operators had almost exclusive access to the subscribers (refer to the image below). Operators used to procure and sell the handsets and provided the voice & data services to the subscribers. This meant that the handset vendors did not have any regular contact with the subscriber. However, now the handset are moving very fast to exploit one of their few unique strengths which is service distribution and discovery  on-device and therefore monetise from retailing and managing services at point-of-purchase and during in-life use.

What has changed?

The question is everybody’s mind is what has changed that is leading to huge disruptions in the telecom industry. For any value added services provider, the most important part is the distribution, delivery and billing of its service (refer to the VAS value chain in the figure below).

Earlier, carriers were the only Go-To-Market medium for the VAS providers. However, handset vendors (Apple, Nokia, Samsung, etc.), operating system providers (Windows and Android) and independent players (GetJar) now have application stores which can not only market and distribute services but can also do direct billing. Mobile payments are likely to further reduce the dependence of the application stores on carriers for billing.  With players apart from the carriers becoming service inventory brokers, the new Telecom Industry value chain looks something like the figure below:

It is interesting to note the difference in the above value chain from pre 2007 value chain (figure 1) which was nearly linear. The value chain now is structured in a way that all the different players in the ecosystem have direct access to the user.

Why the change?

The increasing connection between physical devices and online services is driving  new applications that take personal data and turn it into useful, personal, social, visual and manipulable representations. For long the mobile carriers had best opportunity to define the services landscape but they squandered the opportunity, e.g. the carriers always had the location data and could have started the location based services long time back but they could not do it as they were too busy in day to day operations. The operators did not create an ecosystem that could have created huge services business with their support. The other problem with the operators was fragmentation and hence no operator had scale. The handset vendors and internet players have now taken upon themselves to change the telecom industry.

Convergence is driving the change as it is leading to increasing services revenues that has attracted many internet players to mobility. Apple and Google are already trying to capture the living room of consumers by extending their presence to all the screens in a house including television. It is very clear now that mobile internet is going to far exceed the fixed internet so all the players from the internet space are entering the mobile industry. The internet players are trying to replicate the fixed line internet where the service provider is just a dumb pipe. The entry of internet players has acted as a catalyst for change.

Five recent events with far reaching repercussions for Telecom Industry

Operators fear that they would be reduced to a dumb pipe just like the PC industry and hence they are unwilling to cede any space to the other players in the ecosystem. The other ecosystem players are moving very fast to take control over most of the components of the value chain. The following examples illustrate the uneasy relationship between the operators and handset vendors:

1. Direct Handset Sales: Last year, Google tried to sell Nexus One online in a bid to directly sell it to the end user instead of the carriers in a bid to shakeup the carrier dominated distribution model.Google wants the carriers to offer just the voice and data so that it can offer its services freely and reduce the carriers to a dumb pipe. Though the Nexus One experiment did not succeed, it does point towards the tussle between carriers and handset vendors for direct access to users. There are rumors that even Apple is attempting to do the same by selling phone through its iTune store. There are no indications that suggest that Google has given up the idea of selling handsets directly to the consumers.

2. Embedded Software SIM - There are reports of Apple working on embedded software SIM that would allow the users to buy the phone on the web and then select the carrier of their choice. Embedded SIM can potentially increase churn and the carriers may need to bid to be on iPhone’s SIM that could lead to a price war in competitive markets. Many analysts believe that with handset vendor controlled embedded SIMs, the dis-intermediation of carriers from retail distribution would just become a question of timing and degree. So concerned are the operators with this development that they have started to work on embedded SIM standards under GSMA so that they can influence the standards and make it compulsory for all the players to adhere to them.

AppleInsider has discovered a patent awarded to Apple that could further shake up the way carriers do business. The patent, entitled “Dynamic carrier selection,” describes a method for providing wireless communication services. According to the invention, a mobile device would store a network address and communicate with network operator servers. After receiving data from available network operators, the device or user would select a carrier. The invention would allow Apple to run a MVNO system that could collect rate information from participating wireless networks within a region and automatically select or allow users to select the best option.

3. Ecosystem wars – Leading operators across the global have announced partnership to launch their own application development effort under the name of Wholesale Application Community (WAC). The group, an allegiance of telecommunications firms and others working together to create a common mobile platform, has a goal to simplify the mobile application process for developers, allowing them to deploy mobile apps across all member networks simultaneously. Essentially, it’s an effort to build a global mobile application store in response to the hugely popular OEM stores. WAC apps are designed to be used across all platforms, so conceivably the same WAC application could work on an Android phone and an iPhone. This is interesting as the battle is now about ecosystem and not about device features. The handset vendors are trying to create the ecosystem around their operating system which the operators are trying to break via WAC.

4. Duopoly fears – Carriers fear that Google and Apple would control most of the parts of the ecosystem and hence are keen that the vendors do not select Android as an operating system. According to IntoMobile, a group of European mobile operators have concluded that iOS, Android and other such operating system are “trojan horse” that are stealing away the operator’s direct relationship with their customers, and therefore vast revenues. The carriers fear that in case the operating systems get reduced to two, they would lose the bargaining power and could soon find themselves in the same situation as service providers for fixed line internet. There reports that they are willing to back other operating systems and are even contemplating their own operating system. Nokia’s selection of Windows as primary smartphone operating system must be a relief for the carriers.

5. Near Field Communications- Near Field Communications (NFC) is a technology that has the potential to make the mobile payments easier by just tapping the phone at the Point of Sale (POS). Though the technology has been in existence for many years now, the recent push by Google and Apple seems to have changed the equation. Google and Apple want to drive billing through a device to challenge the operator billing alternative and this move would bring them right in the center of the mobile payments.

In summary, the pace of change in the telecommunications industry is refusing to slow down and we are likely to head into more interesting times in the future. The convergence of the voice, data and video networks are having profound effects on telecommunications organizations, infrastructures and platforms. The ecosystem wars are here to stay!!!

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(This article is written in personal capacity and does not reflect the views of my employer)

Android is the fastest growing smartphone platform and has attracted a lot of interest from the consumers as well as handset vendors. Last week Canalys estimated that in Q4-10, Android become the leader in the smartphones. Many vendors ranging from Samsung, LG, Sony Ericsson to Chinese vendors have adopted Android as it gives them the advantage in terms of time to market and frees up the resources to focus on the hardware. However, in the long term, this may backfire due to the following reasons:

1. Commoditization – Vendors who adopt Android find it very hard to differentiate themselves from other vendors using Android. Hardware and design are the only differentiators which are not sustainable in the longer term. This would lead to the mobile industry emulating the PC industry where consumers are very much brand brand agnostic. Also, with multiple vendors adopting Android and lack of differentiation, the margins are expected to be crushed significantly and may reach 7-8% as in the PC industry

2. Shorter Life Cycle – Due to waning differentiation, the product life cycle gets shortened for Android based handset vendors. Imagine the situation where HTC launches an Android based phone with certain features and within a month Motorola launches a better looking phone with similar or better features on Android. The sale of HTC handset would drop significantly within a month and the same would happen to Motorola if there is some other vendor that launches another model with better features leading to shortening of product life cycles. With multiple launches in a month by different vendors on Android, this situation is very real. Earlier most models would sell longer as the different operating systems provided distinct differentiation in combination with vendor brand, features, etc. Shortening life cycles would mean that the vendors will not be able to cover costs on many models.

3. Low Retention – A lot of consumers buy the same brand when they change their handsets as they are used to a certain user interface (UI) and experience. This had lead to a higher customer loyalty for mobile handset players than other similar industries. However, with many brands offering similar experience, there would be no barrier for a consumer to shift from Samsung to a little known Chinese vendor as the functionality and experience is likely to be the same.

4. Services and Applications – Google provides and control most of the services like messaging, navigation etc. on any Android device. This gives an advantage to the vendor in terms of time to market and service availability in case the vendor does not have the services. However, for vendors who have a services portfolio or have high gross margin ambitions should not adopt Android. Any vendor adopting Android should kiss good bye to its services play ambition. Apple is able to command a good gross margin because it controls the experience and services. Apple is a platform and has developed an ecosystem around its platform. The mobile game has now shifted to ecosystem and services and it is imperative for the vendors not to outsource this to any other company. Google has a very rigid stand on the usage of services and applications on Android and unless it is ready to re-examine it, it may not be in the best interest of the vendors to adopt Android.

5. Fragmentation – Google is known to introduce the new versions of Android very fast which is leading to a lot of fragmentation issues for the vendors. The control of application market place is with Google and hence there is no way the vendor can port the applications across the models if they are different versions of Android. In some cases, vendors like Motorola and HTC have a filmware on top Android but they are finding it difficult to keep pace with the fast changing Android versions.

Most of the vendors of aware of the problems with Android and therefore have some kind of alternate operating system strategy in place. Samsung is investing in Bada, HTC plans to continue to support multiple OS like BREW and Windows 7 while Motorola recently bought Azingo to reduce its reliance on Android. However, if the Android juggernaut continues to roll, the vendors would find it very hard to get consumer acceptance for other operating systems. There are benefits of Android ecosystem that cannot be ignored like the strong services and application support which really helps the vendors in bridging the services gaps that they may have. However, the adoption of Android should be a well thought out decision rather than to achieve short term objectives and the vendors should always have an alternate operating strategy in place.

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Last couple of years have seen rapid developments in the Internet and mobile space and now the two are tightly integrated together. Here are our top 20 Internet and Mobile trends:

1. Mobile ramping up significantly and faster than anything in the recent past
   • Smartphones > PC sales within 2 yrs
   • Mobile data usage likely to shortly overtake desktop internet access
2. Intensifying OS battles
   • Attackers driving market excitement and momentum
   • Single OS across screens (Mobile, Tablet, PC, TV)
   • Smartphone platforms = brand to the consumer
3. Increasing digitization (content, medium, process)
4. Apps, Apps, Apps !
   • Native apps stymieing open web
   • App Stores – Significant content distribution platforms. Enabling long tail content
   • Across Platforms (TV, PC, Tablets, Mobile)
   • Increasing Personalisation via apps (consumer life dashboard)
   • Big brands rushing our mobile apps & seeing tremendous traction (e.g. EBay, Amazon)
   • Some social game audience now = Prime time TV audience
   • Viability challenges for larger community of developers
5. ‘Social’ization of everything (search, commerce, gaming, advertising)
6. Smartphones & now Superphones!
   • Increasing capability - Processing, display. Battery technology lacking
   • Tighter internet integration
   • Easier to use – UX innovation
7. Emergence of Apple, Facebook and Google ecosystems
   • Different platforms with rapid innovation and different plays
8. Rise of the Mediatek ecosystem in Asia
   • 400+ M phones a year + suite of white label services
9. Brewing battle for online Identity Management
   • FB & Google competing ferociously to own the online consumer’s identity
   • As online identities become more widely used in hiring practices, sites like reputation.com will compete for the opportunity to help protect and bolster online identities
10. Emergence of HTML5 & Web apps
11. Increasing leverage of location & presence awareness
12. Rising importance of Mobile Money
13. Rapid Biz Model Innovation
    • In-app sales, Groupon, etc.
14. Increasing focus on Monetization (FB, Twitter, YouTube)
15. Rise of the Connected TV
    • Home entertainment & communication hub
16. Growing momentum for mobile advertising
    • New formats
    • Plethora of entrants with ad platforms from amongst IT and telecom vendors
    • Ownership of ad platforms and ad-networks becoming the next battle battle ground
17. Revolutionizing Retail Commerce
    • Mobile – Location based, discounts, transparent pricing, etc.
    • Leveraging group buying power
18. Media Trends
    • Growing video play
    • Increasing traction for eBooks
    • UGC content accelerating
19. Increasing leverage of internet by enterprises – SaaS, Cloud computing
20. Convergent Communications
    • SN increasingly platform for all forms of communication
    • Mobile, PC & TV support for convergent communication

Request the readers to comment on the trends and add in case we have missed any trend.

(Navdeep Manaktala is co-author of this article; image courtesy Schoolfusion.us)

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Android is the fastest growing mobile operating systemand has overtaken Apple’s iOS in the last quarter. A number of handset vendors are signing up Android to take advantage of an open smartphone OS. On its part, Android is quickly releasing the new versions to keep adding features and retain consumer interest. However, due to multiple versions and handset vendors, there is a real possibility of Android getting fragmented. The Linux platform (Android is Linux based) is particularly susceptible to fragmentation because its modularity and open license make it highly conducive to customization and derivation. This article explores the reasons for fragmentation and the repercussions of fragmentation on Android.

What is operating system fragmentation?

Operating system fragmentation is a term used to describe the situation when multiple versions of the same OS coexist and used by significant number of users. OS fragmentation results in a situation where the developer has to develop applications for all the different versions of the same OS to reach all consumers or the consumers of different versions may get different experience. The fragmentation is not good for any of the ecosystem players be it the vendor or operator or the OS owner. Platform fragmentation can weaken interoperability because applications that are built for one variant might not work on others.

Fragmentation reduces the addressable market of applications, increases the cost of development and could ultimately break the developer story around Android.

Reasons for Android fragmentation

There are four main reasons for Android fragmentation which are listed below:

1. Platform Versions: Android has been pretty fast in releasing new versions and has already released nine versions in around two years of its existence. There are predominantly four versions of Android OS and the share of different versions of the Android OS is shown in the image in the right (source: Android). On top of this, there are rumors of Android 2.3 and 3.0 versions coming to market any time soon. Most of the phones have specifications designed in a way that it can support utmost one more version update. With the replacement cycle of 2 years for the phones, there are enough phones in the hands of the users that run on old versions.

Version fragmentation is particularly acute due to the limited availability of an automatic update mechanism much like that found on the iPhone.

2. Form Factors: The challenges of fragmentation are more profound in the mobile space than on the desktop because the degree of fragmentation is compounded by the fundamental differences between different kinds of devices. From the developer perspective, it is important for handset vendors to have the same aspect ratio for screens. This is difficult to achieve when there are multiple vendors for the same operating system. There are rumors of MediaTek based vendors (read: Chinese Vendors) to come up with Android handsets. This would increase form factor fragmentation as the Chinese vendors would not only have different screen sizes but also different screen resolutions. Currently, there are over 8 screen resolutions for Android handsets and the most common screen resolution is WVGA but it has only 40% share of the Android devices. This means that the user experience can vary substantially across Android handsets.

3. OEM specific User Interfaces: The biggest problem for handset vendors in adopting Android is the fact that it leaves no room for differentiation amongst hardware vendors leading to low margins. In order to provide differentiation, some of the handset vendors like HTC and Motorola have come out with their own versions. The presence of these versions create additional compatibility pitfalls and need for vendor specific testing.

4. Multiple Device Categories: Android is being used for multiple device categories like the mobile phones, set top boxes, tablets, televisions, PNDs, etc. which is another source of fragmentation. On iPad which users iOS (from Apple itself), the Linkedin and other applications do not show up properly as these applications were made keeping iPhone in mind. If Apple with its few products can face this kind of problem, then Android is sure to face similar issues.

What is Google doing to fight fragmentation?

Android has started off well but is now getting sleepless nights on the issue of fragmentation which is going from bad to worse with each passing day. Google will need to take a pause some time and think how to handle the multiple vendors and form factors for Android phones. Google on its part is trying hard to keep the fragmentation to the minimum by focusing on portability by using bytecode for compilation of programs. Use of bytecode means loss in performance but makes up by providing portability.

Google controls Android Market and has been very particular about the compliance to the compatibility standard. This encourages hardware vendors to stay within certain boundaries and not deviate from the default code base to an extent that would make applications incompatible. The parameters of the Android compatibility definition are pretty restrictive. The standard requires devices to have a touchscreen, GPS, camera and Bluetooth. Any Android product that doesn’t meet the hardware standards is ineligible to ship the Android Market.

The Android fragmentation fear is for real unlike what Google may want us to believe. If Google wants to keep the OS relevance for the developers, it would need to be selective in partnerships and be more categorical about what kind of devices can join the club. In my view the MediaTek partnership will cost Android dearly in future.

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India has been waiting for experiencing 3G for a long time and it has been a case of so near and yet so far. Finally, we are about to usher in the 3G era and the good news is that India is likely to leapfrog technology with HSPA implementation in place of WCDMA. This means that the 3G experience in India is likely to be great from day 1. India has seen very low penetration of  Internet due to low PC penetration and limited content in vernacular language. However, the mobile penetration is in excess of  40% (real penetration) and hence, in my opinion 3G can be the tipping point for broadband penetration in India. Many emerging markets including India and China are challenged by poor infrastructure. Governments can use 3G in the areas of health and education to overcome some of the infrastructure problems in the country.

What could consumers do with 3G?

3G in India is likely to be a good experience with theoretical max of 7.2 mbps speeds. This means that the mobile broadband will be much faster than the fixed internet experienced by Indians so far. Lets have a closer look at the possibilities that can unfold in future and how 3G is going to change the life. The possibilities that are listed here are equally relevant to other markets outside India whether developed or emerging. In fact most of these services are already being offered in some part of the world.

1. Video Calling: The social connect in the India is higher than most other countries and people are not so much concerned about the the privacy. Hence, video calling can be a real success in India if the technological issues of interoperability can be sorted out. Video calling would be a boon for people living away from their families and loved ones. Teenagers in love can see each other while talking and imagine the joy on the face of grand parents who can see their grandchild taking first steps. Video chat was possible in fixed internet as well but the mobility aspect of handsets adds new meaning to the whole experience. Even Apple has been talking about the potential of video calling while promoting ‘Face Time’. One of the ads of Apple below demonstrates the concept of video calling

http://www.youtube.com/watch?v=bCzzh-nexpg

2. Faster Browsing: The browsing experience on 2G is very patchy with intermittent access to internet. The small screen of mobile phones plus the low browsing speeds resulted in high monthly churn and low repeat usage. However, with 3G, the subscribers would start to browse more often. The proliferation of 3G enabled netbooks and tablets is likely to provide further impetus to 3G adoption. With the increasing mobile broadband penetration, the content in local language would also start to appear. The local language content availability in China is the single most important reason for high internet adoption.

3. Videos: India is an entertainment hungry nation. When I was working with a mobile operator, I realized that the mobile entertainment is much bigger in smaller towns where there is no there entertainment option available. With 3G, I believe that video and live Television can be big. Most of the households still have one television though the individual tastes differ across family members. I do visualize a lot of young family members accessing video on demand and Youtube on their mobile phones while leaving the traditional TV for the elders to watch their daily soap operas.

A lot of applications today focus on user engagement and interactivity. With 3G, the faster speeds would mean that people would start to use such applications. The concerts can be beamed live on the mobile handsets and the viewers can send in their requests using their mobile or can give their feedback. The video below is a discussion on what can the consumers do with 3G and video.

http://www.youtube.com/watch?v=lx3nwA9XAKY

4. Internet access becomes personal: Currently, there are 3-4 people sharing the same internet connection. At the same time, people have multiple internet connections like the mobile internet, data card and fixed internet to be able to surf the net depending on their location. I can clearly imagine, individuals using internet on their mobiles while on the move and then using the mobile phone as a modem to connect to the internet on their laptops and PCs. This would result in people surrendering their data cards and fixed internet and using only the 3G connection on mobile to access the internet. This would mean that people would no longer share the internet connection. For people who would still want to share, there are applications like Jaiku that would convert the mobile phone into a WiFi router.

5. Augmented Reality: One of the key features of a mobile phone is the camera. Camera is like an eye and can be used to as a key input for search. Imagine how much fun it would be you could Point and Find about something just by taking a picture of that thing, such as snapping a picture of a music CD to look up for reviews and listen to the tracks or looking up recommend places to visit by taking a picture of a famous landmark. Augmented reality takes Point and Find a step further and adds information and meaning to a real object or place. This means if you are a tourist in a completely unknown place, you can get all the information you want to search by just holding the camera phone in front of the building or place. The use cases of this kind of technology can be in finding the nearest tube in an entirely new geography, finding about the houses that could be on sale in a locality and the ask prices for the properties, etc.  Click here to read about other such exciting possibilities and see the videos of what is being done on mobile search using augmented reality. The video below explains how augment reality is being used in finding the nearest tube station.

http://www.youtube.com/watch?v=U2uH-jrsSxs

6. Video Blogging: With 3G technology, it would be easy to upload any captured video on to the internet. Many people who are not able to find time for conventional blogging may choose to video blog. In a video, thoughts can be explained better and I would not be surprised if many of the conventional bloggers also adopt video blogging.

8. User Generated content: With faster 3G speeds, the users would find it easy to upload their pictures, music and video on to the cloud. This would give further impetus to user generated content and is likely to benefit the sites like Youtube, Picassa, etc. Even video blogging explained above is a manifestation of user generated content.

9. Mobile Healthcare (mHealth) : The health infrastructure is virtually absent in the rural areas. Even in the smaller towns, the access to quality heathcare and qualified doctors is limited. With the advent of 3G, the health centers in rural areas can consult remotely with the doctors in the city. mHealth applications include the use of mobile devices in collecting community and clinical health data, delivery of health care information to practitioners, researchers, and patients, real-time monitoring of patient vital signs, and direct provision of care (via mobile telemedicine).  3G would help in turning the mHealth applications into reality. In my last article, I had written about the immense potential of mobile healthcare. McKinsey has estimated that the opportunities in mHealth are worth $50 to $60 billion.

10. Remote Education: In many developing countries, including India, there are not enough schools and teachers in rural and small towns. With 3G, it would be possible to have remote classes with qualified teachers taking classes for students who so far did not have access to quality education. Even personalized coaching can be provided to students to get them up to speed for some of the competitive exams. Remote education would not only give impetus to education but also throw up a lot of opportunities for startups.  Teaching English language real time itself can be a billion dollar opportunity.

The video below explains the concept of remote education using computers but with 3G, mobile would soon replace computers.

http://www.youtube.com/watch?v=en-kBA3B1Wg

11. Agriculture Consultancy: Farmers often face the problems related to lack of knowledge and lack of access to experts. With 3G, they can not only consult with the experts but can also get the soil tested remotely so that individualized consultation can be provided. State run television used to have a 30 min to 60 minutes program for agricultural advice but with mobile phones, it would be possible to provided localised advice as and when required.

12. Mobile Market Place: Information and access to market place is key to improving the lives of millions of farmers across the world. Many mobile market places can be encouraged by the Governments across the globe to enhance transparency and removal of middle men. Fishermen trying to find out the best price for their catch even before they reach the shore is an often celebrated story but I would like the start-ups to look beyond providing this simple information and set up mobile market places which can help the farmers get more money for their produce. Given the high mobile penetration and low PC penetration, the mobile market place and not on the web alone would be only viable solution.

13. Unique Identification Number: The UID project of Government of India would get a big boost with 3G. Due to faster speeds in the 3G environment, the authentication process would be very fast and would help the UID authorities in their objective of having a mobile device for authentication. This should bring down the overall cost of managing the authentication process. A lot of other emerging markets may look to replicate the Indian unique identification number model.

In summary, there are a number of ways in which the consumers can get engaged on 3G and the society can also benefit from faster access to information. People would find their own use cases. Some would use it for just faster browsing while some would use applications and videos requiring faster speeds. One thing is clear that post 3G, the life for mobile users in India is set to change. 3G would be a reality on the Diwali day (5th Nov, 2010) when Tata Docomo is going to launch its 3G services. Till that time I can only say – Get set for 3G life.

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There is an interesting battle that is on in the American smartphone market between Apple, Blackberry and Android based phones. Blackberry has been the leader in the smartphone category for last one year but with the increasing popularity of Apple and Android, the future of Blackberry is under suspect. In the US smartphone market, RIM had a market share of 34.3% in in Q2-10 (down from 53.4% in Q2-09) with volumes of a little under 5 million contributing to almost 45% of its worldwide sales. Any problem in the US market would severely cripple Blackberry putting a question mark on its existence. Gartner predicts that in 2011, RIM would sell 15% fewer handsets at 62 million and expects that by 2014, RIM’s smartphone market share would have fallen to 11.7% from the current level of 18.2%. These are all worrisome statistics and need urgent attention but it seems that the problems of RIM are much larger than current statistics.

A quick look at the falling share price would reveal that the company has lost over 50% of its value (refer to first chart below).

However, what is more surprising is the fact that in the last one year, RIM has lost more value than Nokia (refer to the second chart above). Nokia has been the fall guy for the last one year and has been beaten down by almost every analyst. RIM losing more value indicates that the problems at RIM are much deeper. Lower market value also means that it becomes an easy acquisition target.

In my opinion, RIM has a difficult choice at hand – Remain independent and focus on improving the solutions or sell itself to somebody. I clearly do not see a bright future for Blackberry if it were to remain an independent entity and my reasons are as follows:

1. Employee activism forcing enterprises to think beyond Blackberry

RIM has been known to offer ugly looking handsets but many had no option but to use Blackberry as it was mandated by their companies. Many enterprises allow only Blackberry on their networks as they believe that it provides them higher security than any other handset vendor. They were unwilling to listen to the pitch of other vendors as Blackberry had the first mover advantage. However, this is changing now with the employees especially in the US pushing the companies to allow them to use iPhone. Executives buy iPhones for personal use and like them so much they bring them to work and tell their IT departments to service them. If the companies in the US start to allow use of iPhone instead of Blackberry, then the things would change in other countries very fast as the offices of US based companies would also start to use other phones instead of just Blackberry. Apple has been working has on its Enterprise offering and this has started to yield results with Standard Chartered bank giving its employees an option to use iPhone to access official mails.

Sanford C. Bernstein Ltd. survey found more companies opting for rival devices such as Apple Inc.’s iPhone. Of 200 companies in the U.S. and U.K. surveyed, 74 percent now let their employees use devices other than Blackberry.

2. Poor Brand Loyalty

A recent Nielsen study showed that only 42% of current blackberry owners desired another blackberry, compared to 89% for iPhone users and 71% for Android users. “I carry one because my company gives me one” is a common refrain that we hear from Blackberry users.

According to a survey by ChangeWave Research, consumer interest in the BlackBerry is declining at a time when demand for smartphones is on the rise. Just six percent of survey respondents planning to purchase a smartphone in the next 90 days intend to buy a BlackBerry. That’s fewer than half the number that were planning to do so during ChangeWave’s last survey, taken in March. And it is dwarfed by the 52 percent of respondents planning to buy an iPhone (up from 31 percent) and the 19 percent planning to buy an HTC handset (up from 12 percent).

Customer satisfaction with the BlackBerry is on the decline as well. Just 30 percent of respondents who own the device say they’re satisfied with it. That’s a record low for RIM after a seventh consecutive quarter of decline, compare this with iPhone where 73 percent of owners rate themselves very satisfied. (Click on the figure alongside to see the larger image)

4. Inability to improve the operating system

RIM is facing severe issues with its archaic operating system and is nowhere near the sophistication of iOS or the functionality of Android. Even its web browser is nothing comparable to browsers in other handsets. Blackberry OS 6 tries to address the touch as well as the browser capability issues but it has failed to  make a mark so far.

Smartphones are becoming a platform business in which third-party developers rule the day. RIM has been unable to attract the developers its operating system. A survey conducted on Telecom Circle a couple of months back, revealed that only 6% people think that Blackberry OS would be the mobile operating system that would win the smartphone war. This was lower than even Windows. RIM has been working on this aspect and brought an application storefront developer company, Cellmania and application developer DataViz (DataViz is one of the largest independent makers of Exchange and Office solutions under Microsoft licenses) in last one month. However, it remains to be seen if Cellmania would be able to transfer its developer base to RIM’s fold.

5. No patent in GSM or CDMA

RIM has no patents in either GSM or CDMA which means that it has to pay license fee to other vendors who hold patents. This reduces its ability to hold on to its high gross margin in the event of higher competition. It is increasingly getting evident that RIM would need to vacate the high end and can only hope to be present in the mid end. This is certainly going to put pressure on its margins. Should its ASP were to drop from the current level of $300, it would start to eat into its gross margins. Android is likely to go down significantly in price points and has a good security for enterprise which means that the potential competition from Android is going to give RIM a run for money even in mid end.

What should RIM do next?

RIM should seriously think about the opportunities and the resources required to exploit the opportunities. Playing catch-up can be expensive. The competitive landscape in the enterprise is also expected to increase as Microsoft launches Windows Phone7 with tight exchange and office integration, and HP revamps its Palm product. In such a scenario, the best option for RIM is to sell itself to Microsoft. RIM should sell itself now before it gets too late and its market value goes down even further.

Microsoft is a cash rich company and is looking for acquisitions in the mobile handset space. With more than $37 billion (and counting) in cash reserves, Microsoft has the means at tis disposal to pull off a RIM purchase involving a combination of cash and stock. RIM now has a market capitalization of $24 billion. Microsoft would have to pay a premium of 30-40 percent to complete a deal. A $34-35 billion offer, with the right inducements, might suffice.

Microsoft is very strong in the enterprise space and so is Blackberry. Microsoft is strong on the PC side while Blackberry on the mobile side. If the two companies can come together and offer the entire MS office suite seamlessly to the corporate customers, then they can form formidable entry barriers for other players. Through Blackberry, Microsoft would get to control the user experience. RIM can help solve Microsoft’s own problems in mobile space and its recent acquisitions of Cellmania and DataViz makes it a much more attractive buy for Microsoft.

Please let me know your views on this topic. Do leave your comments and participate in the poll.

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Intel, the world’s largest chipmaker, has announced that it would buy Infineon’s wireless business solutions group (WLS) for $1.4 billion in cash. WLS’s has annual revenues of ~$1.16 billion but ranks at No. 5 in the chipset industry, far behind sector giants Qualcomm, Texas Instruments and Broadcom.

There could be several reason to Intel acquiring the wireless business of Infineon some of them are listed below:

1. Reduced reliance on Personal Computers: The mobile business especially the smartphone business has been booming and it is important that Intel places some bets on the mobile and other handheld devices. Intel, which sold its chip business for mobile handhelds and cell phones to Marvell Technology for $600 million four years ago, faces pressure as Apple’s iPad and other tablet computers chip away at demand for notebooks and PCs. Intel, for its part, has been steadily increasing its mobile presence. In May, the company unveiled a new Atom-based processor platform specifically aimed at the smartphone market. Intel recently also combined its Moblin Linux OS with Nokia’s Maemo to form MeeGo. There is a clear trend in Intel’s recent moves towards reducing its dependence on computers.

2. Relationships with top handset OEMs: Infineon has been supplying chips to most of the top handset vendors including Nokia, LG and Apple. This deal would give Intel a foothold into the mobile handset business and assured business as the chip set suppliers are normally long term partners for an OEM due to complexities in the manufacturing process.

3. Move to embrace LTE: Intel had earlier placed its bets on WiMax as a 4G technology but increasingly it is getting clear that LTE might turn out to be the technology of choice. Infineon’s acquisition can be an indication of shifting loyalties of Intel in favor of LTE. Intel has suffered several setback in the WiMax space including the write off of $1 billion investment in Clearwire. Already TD-LTE is emerging as an alternative to WiMax in the same spectrum band. In such a scenario, its acquisition of Infineon is not a surprise.

4. Access to Talent: Talent pool is always one of the important aspects of any acquisition and I am sure Intel will benefit a lot from the key talent at Infineon.

5. Interplay between PC and Wireless: Intel could potentially equip every PC with 3G which could accelerate its 3G volumes and directly challenge Qualcomm’s 3G dominance. This would result in blurring differences between PC and smartphones.

While the McAfee purchase has led to a certain amount of head-scratching from industry watchers and Intel investors who failed to see the synergy between Intel and a security software maker, the Infineon deal appears to be a better fit. I would request your views on the reasons for this deal.

“Don’t be evil“ is the informal corporate motto of Google, originally suggested by Google employees Paul Buchheit and Amit Patel at a meeting.  Google has the philosophy that”You can make money without doing evil.” Google claims to have made “Don’t Be Evil” a central pillar of their identity, and part of their self-proclaimed core values. Google has been accused of deviating from this motto a few times in the past. In 2006, Google reached a deal with China and censored search results as part of the Golden Shield Project of China. The argument changed from “Don’t be evil” to “Evil Scale” in case of China. Steve Jobs accused Google of back stabbing by entering into the phone business and now the policy proposal along with Verizon this month seems to be last nail in the coffin.

One company for which I had utmost respect was Google. However, my faith in the company is now shaken after the policy framework it released along with Verizon in US in a bid to control the wireless internet (Download Verizon-Google-Legislative-Framework-Proposal to read the fine prints). In the proposal, it is clearly mentioned that for Wireless Broadband, the non-discriminatory requirement would not be applicable. This means that a service provider can engage in undue discrimination against any lawful Internet content, application, or service in a manner that causes meaningful harm to competition or to users. In other words, Verizon would decide in US which content and application can get priority over others and Google by virtue of its dominant position, would get a preferential treatment. It is like two giants coming together and deciding that no new service or application can come up unless it has their blessings.

Most of the industry observers have termed the action of Google as end of net neutrality which would lead to a two tier internet. One super fast internet for the privileged content and the other for the less privileged like the startup firms. First of all there is no logic for applying different parameters to wireless broadband and wired broadband. Yes, the carriers are making investments but the investments in the wireless broadband are less than that in the wired broadband and with technological advancements, the bandwidth cost is coming down drastically as carriers move from WCDMA to HSPA to 4G.

The network carriers have been indulging in acting as toll gates in the past. Many carriers across the world have restricted or slowed access to the peer to peer (P2P) file sharing services like BitTorrent, FastTrack, etc. In October 2007, Comcast, one of the largest broadband internet providers in the USA, started blocking and jamming P2P applications such as BitTorrent. Their rationale was that P2P is mostly used to share illegal content, and their infrastructure is not designed for continuous, high-bandwidth users. The network management clause gives partial legality to this action under the disguise of reasonable network management to reduce or mitigate the effects of congestion on its network. One of the core issues behind the network neutrality controversy is over P2P applications.

Apart from P2P file transfer, the carriers would also try to block Skype, Pandora and other VOIP services to protect their voice revenues. The operators can be transparent about blocking VOIP services but it does not help the consumers in any way. Will they treat the Google Voice the same way as Skype or Pandora? Knowing Google, I am sure it would be willing to do a revenue share with carriers to get carriers to allow Google Voice.

I am particularly worried about the startups companies as any technology that would threaten the carriers either from the service point of view or from bandwidth requirement point of view is likely to be be blocked on wireless internet depriving the consumers of any innovations. Imagine a situation where a startup were to come up with a service that can threaten the carriers or the allies of the carriers, in all probability the carriers are likely to block the service. It is very much evident that the wireless internet is the next big thing, even bigger than the wired internet and hence it is imperative that we do not create unnecessary hindrances to its growth.

Wireless carriers are trying to manage their relevance so that they do not become a dumb pipe just the way it happened to the wired carriers. This explains why Verizon is a party to this recommendation. Coming from the industry giants is going to put extra pressure on FCC. Even AT&T is not averse to Google and Verizon’s position on net neutrality in the wireless industry. The proposed penalty for violation of consumer rights like failing to be transparent would by just $2 million which the carriers would happily part with if they can hurt the smaller competitors by blocking their service.

All in all, if these proposals are excepted by FCC, the consumer would be the loser. To summarize, I would borrow the quote of Jeff Jarvis of Buzz Machine who called this proposal a Munich Pact.

Netizens are now citizens of the Sudentenland. Just as Czechoslovakia was not invited to its cutting apart, so were we not invited to Google and Verizon’s parlays.

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When pushed to the wall due to competitive pressures from the CDMA players in 2003, Bharti Airtel decided to focus on cost reduction as well as prepare itself for explosive growth. More than the cost reduction, Bharti wanted to ensure that it builds a world class network and still able to focus on the core, i.e. the customers. In the last post, I had discussed the framework for deciding on outsourcing of different functions of an operator. In this post, I would focus on the outsourcing of networks – the benefits of network outsourcing and how should it be managed. In order to illustrate my point, I would use Bharti as a case study as it was one of the first few operators to outsource and is still ahead of others in terms of its thinking in this area.

What were the reasons for outsourcing of network by Bharti?

Bharti realized pretty early that network is not the core for the company and needs to focus on customers by providing them a reliable, affordable and best in class service experience. To be able to do this, it needed more resources and was unsure of the results due to lack of expertise in this area. Bharti was in no position to manage the network better then Ericsson or Nokia or Siemens (now Nokia Siemens). It was facing competitive pressures from CDMA players (Reliance and Tata) and need to have a single minded focus on cost reduction (refer – How can carriers make 40% EBIDTA margin at 2 cents/min tariff?). They embarked on the outsourcing journey with the following objectives in mind:

1. Focus on the core and outsource the context
2. Faster time to market as well as build scalable networks
3. Enhanced customer experience through better quality of service
4. Get the best people/company across the globe to manage network
5. Predictable total cost of ownership (TCO)
6. Convert CAPEX to growth based OPEX
7. Controlled spending due to optimal capacity planning
8. Get access to latest technology, expertise and processes leading to improved productivity

Accenture’s report on network outsourcing points towards huge cost advantages -

The potential benefits of a broader use of network outsourcing are considerable. Based on our experience,clients can generate cost savings of up to 40 percent, achieved through lower-cost sourcing of high-quality talent, consolidation of fragmented operations and the synergies of leveraging resources across companies and geographies.

However, we should look beyond cost advantages to the other benefits that I have listed above.

What are the different Levels of Network Outsourcing?

1. Build and manage capacity:

Normally most of the carriers start with outsourcing the designing and deployments of the networks. This is most simple form of outsourcing with relatively low risk. The risk is low and so is the value to the operator. This helps the operator in reducing its total cost of ownership of the network and can get the capacity deployed as and when required.

2. Managed Operations or Services:

In this case, the equipment vendor takes full responsibility for network and service operation activities. Activities can cover planning and design, as well as the establishment and deployment of the operator’s network and management of the day-to-day activities, including field operations. In this case, the real synergies start to emerge and can add immense value to the operator.

3. Hosting Services:

In this form of outsourcing, the vendor takes responsibility for management and integration of the hosted solution and facilitates content distribution as well as content life cycle management. The typical  offering includes entertainment and media services (music, TV, downloads etc), messaging and communication services (MMS, voice SMS, video mail and push email etc) and charging and management services (prepaid and automatic device configuration etc). Hosting enables faster launch and integration with cost efficient service. This is the most mature form of outsourcing and brings maximum value to the operators. With the increasing number of VAS offerings, the management of Value Added Services (VAS) is becoming increasingly difficult leading to many operators looking at option of hosting services from the equipment vendors.

What has ensured the success of network outsourcing for Bharti?

Traditionally, the operators have been responsible for building and management of the network including billing (refer the telecom value chain in the figure below).

Bharti decided to outsource the management, design, development and deployment of network including capacity and coverage to players like Nokia Siemens and Ericsson. The ownership of the assets rested with Bharti while the management and maintenance of the equipment became the responsibility of the service providers (equipment vendors). To ensure predictability of the costs, the payment was based on the peak hour capacity used by Bharti and excluded the unused capacity (capacity is measured in terms of Erlangs; An Erlang is a unit of telecommunications traffic measurement.  Strictly speaking, an Erlang represents the continuous use of one voice path.  In practice, it is used to describe the total traffic volume of one hour).

To ensure the success of network outsourcing, Bharti prepared a detailed business case detailing its cost structure and the expected cost structure post outsourcing. It also prepared the detailed performance indices and incorporated them in the service level agreements (SLAs). The most important aspect of the contract was clear definition of the roles and responsibilities of Bharti and the service provider. On its part, it developed an efficient governance mechanism that ensured its close control on the network operations. Bharti’s employees in the network function were transferred to the roles of the service provider.

Key lessons from Bharti’s case study are -

1. Do not outsource a few tasks in the network operations but outsourced the entire process.
2. Do not base outsourcing decision on only the cost considerations but also on the larger value proposition of being able to provide subscribers a world class experience.
3. Do not focus on only outsourcing the current process and doing the “same thing for less” but also look for opportunities to consolidate and transform the entire function. In case of Bharti, the service providers were able to provide greater value as they eliminated the manual work and implemented best practices that they followed across the world.

Initially the contract was for three years but it was extended again given the benefits it was able to give to the operators.

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