The oligopolistic power that telecom operators have in India is probably slowing innovation in the mobile space. Discount broking made trading volumes grow exponentially so if SMS were very cheap or near free we would see much more use and much more spam as well. Similarly if the rev share on VAS were to be more for content developers then we would see more content.
The operators have made huge investments and if content providers want to piggyback on their marketing spend then the operators are probably right in demanding their pound of flesh.
This problem is not going to go away unless it is smartly tackled. I have had the good fortune to participate in the break down of two oligopolies in the financial services space one in India ( 1985) and one globably (1999).
The first was Citibank breaking down the corporate cash management oligopoly of the large PSU banks and the second the breakdown of the wire transfer oligopoly of money center banks primarily by PayPal.
Over the next week or so I am going to comment on my own post with some possible approaches to break down the innovation dampening effects of the telecom oligopoly. Others are welcome to chip in.
I am not for or against any particular side. I like to see the consumer benefit, innovation and entrepreneurship flourish but that cannot happen if the infrastructure operators are not happy and have enough money to grow and maintain their networks.
Extreme positions help no one.
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@Sanjay
The telecom industry is a classic text book example of natural monoply( high FC and very low MC & AC < MC). So an oligopolistic strucutre is a pefect market response. Just because an industry is a certain structure does not warrant that they be regulated. Regulation of any form should be applied to remove any obstacle that impedes in the proper functioning of the market. In your post you do not mention that this structure causing a failure of market. In fact to the contrary the Indian telco market is very competitive. It is for this reason I do not agree with your opinion that regulation need to brought in to alter the structure. I agree with Alok, we need to look at new technologies ( with their Schumpterian dynamics) which could reverse( or atleast revise ) some of these structures. @Alok Talking about peer to peer wifi, check out FON( http://en.fon.com), a spanish company which is building a community based wifi network spread around the entire globe. It is started by Martin Varsvarsky (a successful spanish entreprenuer in the telecom space) and funded by Google, Ebay & Sequoia. I will write about it in detail in a post later.
Cheers,
Rajan
Alok,
The CA could be open. Zero bureaucracy. Only a certification process that it works and is not pornographic etc. ( probably needed in India because of laws that put the Baazee CEO in jail). The CA makes no judgement on the the content. The market does.
Simply put say if XYZ operator wants to do an imode type play the CA does it for them. So if an i mode type play works in India then for an operator who continues to maintain their walled garden but also supports an indirect i-mode type CA might be the way to go.
In any case my aim was to just plant seeds of thought so I shall stop commenting on this thread.
Competition can happen at various levels. Due to heavy investments in infrastructure, the level of competition at the network level has been limited by regulators (and something that has helped telecom operators in India be profitable). I doubt if that is going to change. I think the only possibility of this getting challenged is if Wifi/Wimax networks start to take ground and some unlicensed networks are allowed to come up (currently, most of the wimax deployment is by telcos themselves) — for example, a peer-to-peer wifi network.
As long as the networks remain oligopolistic, I dont think having a CA helps increase competition — its just transfer of decision rights from one entity to another. Fragmentation in CA market helps, but that has to again contend with operator attention. I think what might work is an inherently more open model to deployment of applications — imode has illustrated one way of doing it, internet is another one, there might be others. The important factor for this to happen is that operators are not threatened to opening the walled gardens. I believe companies that succeed on this will be ones which allow operators to remain involved on service awareness, billing etc. These companies, in current/foreseeable infrastructure environment, will also be best suited to provide better customer experience.
The other trend which can introduce more competition is at the customer management layer rather than network, i.e. MVNO (virtual network operators) — an example being virgin mobile. This will still take some time to come to India, but basically benefits from dissociating the customer owner from the network owner, and potentially creates more customer value.
It seems to me that just as banks view their customer business and their institutional business quite separately telecom operators will do the same. They know they cannot reach every consumer so it makes sense to open up their infrastructure to aggregators. Airtel seems to be open to considering that. The good part is besides Airtel there are other operators and BSNL/MTNL also exist.
If say a content aggregator (CA) built a relationship with one operator for host to host communication both on the receive and send side. CA would pay the operator a bulk rate for sending and nothing for receiving. Load on operator infrastructure would be minimal. The CA could offer developers far better terms then the current operators so that it ends up with a huge library of content. Keeping track of the money/collecting/accounting/reconcilement is not trivial but it has been done before. For the CA to build a consumer brand will require capital. There is plenty of money available.
If content developers have alternatives that give them more absolute rupees ( not just %) then to attract content to their consumer plays telecom operators will have to give more attractive terms.
In this scenario the operator which offers CA its services wins as it gets a piece while others lose which is why a smart pitch to the operators is unlikely to fail.
Once PayPal grew one of the major winners was Wells Fargo Bank who is PayPal’s banking gateway provider.
I hope top tier VC firms in India will focus on funding teams to attack this space .
If my reasoning is flawed I would love to be corrected. Maybe there are already people attacking this space.
There are other ways of forcing change like lobbying regulators, creating public opinion . , invoking MRTPC , filing PIL etc. but if the direct approach works it is much faster.