Mobile eCommerce can be a game changer for telcos

by CXOtoday Staff    Oct 18, 2010

eCommerceIndian telecom operators are faced with a unique challenge of dealing with falling Average Revenue per User (ARPU), even as mobile penetration in urban and rural segments have witnessed significant growth in the past few years, according to Deloitte’s recent thought paper on Mobile eCommerce. While the number of mobile phone subscribers in India (both GSM and CDMA) crossed the 500 million mark in 2009, ARPU dropped sharply from Rs 336 per month in 2005 to Rs 147 per month in 2009. The main reason for the drop has been intense competition to capture new accounts by predatory pricing and market saturation. Consequently, operators have increasingly focused on generating alternative revenue streams by providing value added services.

According to Industry projections, Mobile Value Added Services (MVAS) currently contribute about 10-12% of total telecom revenue and are estimated to contribute about 30% in the next three to four years. However, MVAS has not been able to produce the desired results in the current scenario as Indian operators have been largely focused on basic infotainment related services (replicating the online experience on mobile platform). These services offer low differentiation and get easily replicated by competitors.

With the availability of high bandwidth 3G networks and increasing smartphone penetration, mobile eCommerce is emerging as a strong area and is expected to drive growth within the MVAS segment. Additionally, the high prices paid for 3G spectrum will put more pressure on operator profitability and shareholders will demand higher profits. In addition, other players in the mobile eCommerce ecosystem such as device manufacturers, retailers and payment networks will increasingly try to take centre stage and relegate the telecom operators to a mere participant -

‘glorified pipe provider’ in the ecosystem. Mobile device based platforms like those developed by Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and payment networks like MasterCard and Visa pose a clear and present threat to mobile operators in India. With mobile operators in danger of getting disintermediated in the mobile eCommerce ecosystem, the telcos need to change the way they look at their business and evaluate mobile eCommerce to help them monetize their assets to build a sustainable advantage. The answer lies in developing a two sided platform which can enable operators to bring consumers and merchants together through a mediated commerce platform.

Sachin Sondhi of Deloitte India expresses optimism on the future of Indian telecom operators, “We believe mobile eCommerce space provides tremendous opportunities to the operators to increase revenues and drive profitability. While it is easy for telecom operators to build one side of the platform and acquire the consumers as they own the relationship, it will be challenging for them to get the merchants on the platform and consequently show value to them. The solution lies in solving ‘hard jobs’ the consumers face by monetizing data across platforms (DTH, mobile and broadband) and creating an effective ‘local search to sale capability’ for closing the sales. The operators can then, over a period of time, expand their merchant network and command a share of closed sales. Else they risk getting relegated to a peripheral player - a “glorified pipe provider”, while others create and capture value.”