Moving Towards Non-Voice Services
The hostile business environment in India's telecoms industry has resulted in Bharti Airtel reporting 10 consecutive quarters of year-on-year net profit decline. BMI reaffirms our belief that the near-term outlook remains challenging for the market leader, although Bharti Airtel is taking steps to become a more rounded telecoms player, which should reap rewards when the industry eventually emerges from the ongoing turmoil.
While the Indian telecoms market is still comparatively underdeveloped, with consumers largely reliant on basic services such as voice and SMS, it is important for operators to look ahead at new revenue streams in order to stay ahead of the competition. Companies in emerging markets have the benefit of learning from operators in developed countries, and successful strategies could be implemented after making adjustments to cater to local preferences.
In the quarter ended June, non-voice services account for 16.3% of Bharti Airtel's mobile revenues in India, up from 15.6% in the same period in 2011. The operator has started to provide a breakdown for its non-voice services, which gave an insight into the changing dynamics in the Indian mobile market. Messaging and value-added services (VAS) accounted for the bulk at 10.8% of total mobile revenues, but this was down from 12.1%. The decline has been largely due to data services, which increased from 3.2% to 4.3%.
Mobile data has become an important revenue stream for operators in developed country, accounting for as much as 60% of ARPU in the case of Japan. Although India still has a long way to go, focusing on encouraging subscribers to adopt 3G services would be beneficial for Bharti Airtel, which is the country's largest mobile player. At the end of June, only 2% of its total subscriber base is using 3G services. Besides offering low-cost smartphones and affordable tariff plans, relevant VAS is also important to justify upgrading from a basic voice and SMS package.
|Rise Of The Data|
|Bharti Airtel Mobile Revenue By Service (%), 2011-2012|
Bharti Airtel has another competitive advantage over its rivals in the form of presence in India's fixed-line, broadband, pay-TV and IT market. The operator announced in late August a partnership with Microsoft India to offer cloud computing services to small and medium enterprises (SMEs). This came after the launch of Bharti Airtel's Cloud Enablement Platform based on Hewlett-Packard's HP Aggregation Platform for Software-as-a-Service in July. According to India-based management consulting firm Zinnov, India's cloud computing is expected to grow from US$400mn currently to US$4.5bn in 2015. While Bharti Airtel is a relatively new player in the ICT market, it has the ability to bundle multiple services such as broadband and 3G to increase its attractiveness to companies, particularly SMEs, which are sometimes neglected by larger players.
The Hindu Business Line reported in late August that Bharti Airtel is poised to launch a new service called progressive download, comprising video-on-demand and catch-up TV. The operator has reportedly sought permission from the Department of Telecommunications, and the services will be provided under its Unified Access Services licence as IPTV services. Bharti Airtel operates in India's DTH market, which has been experiencing healthy growth. According to the Telecom Regulatory Authority of India, there were 46.25mn DTH subscribers registered with private service providers, representing a 30.1% year-on-year increase. Bharti Airtel, meanwhile, reported that it had 7.4mn digital TV subscribers at the end of June while generating an ARPU of INR166.
An Ericsson consumer insight report published in August that on-demand TV services are becoming increasingly popular, which means that Bharti Airtel is moving in the right direction. We see marrying pay-TV and videos services with mobile devices as the next step as Ericsson also reported the rise of mobile viewing. However, we believe that this would be a medium-term goal for Bharti Airtel given that it needs to improve on its 3G network quality (although it also has an expanding 4G network that could accelerate developments) among other factors such as consumers purchasing better and larger mobile devices with greater battery capacity.