Bharti Airtel, India's largest telco by both customers and revenues, is battling 11 consecutive quarters of profit decline, but its chief executive (India and South Asia) Sanjay Kapoor shares the view that 2013 is set to usher in some visible positive changes for the sector. Kapoor, in a conversation with ET, talks about the top trends that are expected to shape the future of mobility, and is of the view that that higher tariff realisation will lead the list. Higher tariffs apart, he also predicts that non-voice revenues will breach the 20% mark for telcos this calendar year. Edited excerpts: What do you see as the first major trend that the mobility sector is set for in 2013. You have always maintained that tariffs have to move upwards. Will Bharti take the lead in raising tariffs?
Higher tariff realisation. Industry has undergone significant structural changes since inception from a 'duopoly' to an 'oligopoly' to 'perfect competition' to 'hyper-competition'.
These changes have driven the behaviour of the service providers and in its latest avatar of a hyper competitive market, industry has resorted to irrational pricing which has impacted financial growth and destroyed the value for the investors in telecom. With early signs of consolidation, weaker financial health of the industry and pressure from investors, pricing sanity must return during 2013.
While change in headline tariffs may be muted, the concentration of all long-term service providers will shift towards healthier realised tariffs, thus reducing the gap between headline tariffs and realised tariffs across geographies.
For sustainability of the industry, pricing, for both voice and non-voice services, will need to move up to cover all costs and provide reasonable margins to enable the industry to invest in future technologies, customer experience and fair returns for shareholders and investors.
Headline tariffs will remain between Rs 1.2 to Rs 1.5 per minute, but the average realised tariff is 35 paise for the industry, while for Bharti, it is around 45 paise per minute. This is because discounts, special value packets, free minutes and high acquisition costs are destroying value.
This gap has to be bridged and I see it coming down this year, but I can't comment on Bharti increasing tariffs as we are in the silent period now ahead of quarterly results announcement.
What do you see the second key trend in this year?
Smartphone share to double in 2013-14. The current penetration of smartphone in the country is still below 5% while in countries like Japan and Korea it is 65% and 59%, respectively.
With inevitable price corrections, the proliferation of these smartphones would lead to a big upsurge on data consumption. The proliferation of smartphone in India will broadly be determined by a few push and pull trends.
Network ready service providers are keen to activate a larger number of smart devices as these will catalyse data proliferation. The average data consumption on smartphone is 4.2 times that of a normal feature phone.
On the other hand, mobile phone manufacturers, reeling under tremendous profit pressure from sale of feature phones will be keen to move up the value chain to focus on smartphones that give better return. In fact, this year will certainly see a sub $80 smartphone against the currently priced devices which are over $110.
The large volume markets like India and China are today 3G ready and smartphone hungry. This will be another pull for the smartphone market. Finally, there is a huge customer demand for smartphones especially in our country where the penetration of fixed line is below 1%.
Youth today are keen to experience the available content through various smart devices. With 50% of India's population below the age group of 26, the industry is confident that youth will be the biggest pull factor for smartphones consumption in the country.
If number of smartphones double, what will that mean for the service providers?
It will translate into two major positives for operators - share of non-voice revenues which currently hovers around 14% will cross 20% this year and third generation (3G) data consumption will beat 2G data usage.
In markets like Japan and Korea, share of non-voice revenues has already breached the 50% mark. Industry has seen good momentum in non-voice revenue in 2011-12 despite tough regulatory environment and operators are confident that this will further catapult in 2013 with some service providers breaching the 20% mark.
Increase in non-voice revenue is not an urban phenomenon alone but will see around 35-40% share coming from the rural India. Today, mobile internet user base has moved from 4.1 million 2009 to 87.1 million in 2012. Increase in vernacular/regional content will also create a new market for developers, application and content providers.
In India, 2G & 3G mobile data has grown by over 50% in past six months - indicating a 2x increase in mobile data consumption. This can be attributed to increase in network coverage, affordability, and mobile content/applications.
India experienced 3G from 2011, beginning its journey from voice to data. The world over, 3G has taken 3-4 years to stabilise, in its second year; service providers in India are already seeing a remarkable growth in usage.
The market will mature further as 3G device proliferate, networks expand and more engaging content is made available. With 70% growth, 3G has outperformed 2G in data traffic despite a meager 6% 3G device penetration and with just one tenth of 2G coverage.
While browsing contributes largely to mobile data usage, there is a significant growth in consumption of music and video. Globally, internet video traffic will be 65% of all consumer internet traffic in the next few years.
Interestingly, the data growth rate is more in category B circles where 3G is used as an alternative to broadband for speed and experience. In fact, for some operators the 3G traffic has already overtaken 2G in some circles and this will be the trend going forward.
India has been talking for a long time about mobile payments and mobile money transfers. Do you expect to see a significant leap here in 2013?
Mobile payments as a category is in its nascent stage in India. However, over the next 2-3 years, India will see 50-100 million individuals transacting using mobile.
Today, 240 million people have a bank account and 13 million people have credit cards, resulting in cash accounting to 90% of consumer spends. Ubiquitous reach of mobile phones will facilitate the growth and penetration of mobile payments over the next few years.
Mobile operators can handle large volumes of low-value transactions and have a proven expertise in handling micro-payments in a safe, secure and cost effective manner.
Progressive regulations and enabling policies by the government in their objective to digitise cash for transparency and better governance will provide the much needed boost for mobile money to become a game changer.
It's certain that mobile money will contribute hugely to help realise the long cherished dream of connecting 'India with Bharat'.
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