Jackpot waiting!

Last Updated: Sun, Sep 23, 2012 20:10 hrs

Roti, kapda, aur makaan. This haslong been the rallying cry of the ordinary people of India: food, clothing, and shelter. But, in the last decade, they have expanded the list to include cell phones: roti, kapda, makaan, aur mobile.

Less than twenty years ago, not even one in a hundred Indians had a phone service. Now, as we have shown, the country has become the world’s second-biggest consumer of mobile phones, and by 2015, nearly one billion people—three-quarters of the population—will have such a device. As a result, the mobile phone will become the engine of India’s digital transformation.

Today, according to our calculations, the market for digital products and services is about $65 billion a year. By 2015, we expect this to break the $100 billion mark. Nevertheless, things will become intensely competitive, embracing not just the telecommunications companies such as Bharti Airtel but also technology companies with a strong consumer presence—device manufacturers such as Nokia and Apple and Web giants such as Google and Facebook. Companies such as Bharti Airtel and Nokia are already launching new kinds of products and services that take them in an altogether new direction.

  • There will be nearly one billion middle-class consumers in China and India within next ten years
  • More than 135 million Chinese and Indians will graduate from college in this timeframe compare to just 30 million in the US
  • By 2020, 68 per cent of Chinese households and 57 per cent of Indian households will be in the middle and upper classes
  • The number of billionaires in China has grown from 1 to 115 in the past decade alone

Courtesy: The $10 trillion Prize: Captivating the Newly Affluent in China and India

India’s traditional telecom market is worth about $32 billion. But when other related businesses are accounted for, the digital market is double this size. It is in these other businesses—digital devices, video, software, and applications—where the real commercial opportunity lies over the next. ten years.

The core of the telecom industry’s business is access to mobile networks. Access generates about $31 billion of annual revenue. Devices and services—which contribute $22 billion and $12 billion, respectively—have traditionally been seen as supplementary to the access business. But with access reaching a new plateau, the next wave of growth will come from four types of newly created services: educational, financial, and other consumer-facing services delivered on handsets and on the “wide screens” of personal computers, laptops, and tablets; corporate network and managed services enabled by cloud computing; machine-to-machine applications; and mobile advertising, marketing, and commerce.

Three factors will make this new wave of growth possible. The first is the rollout of 3G and wireless broadband networks. Initially, these fast networks will be limited to the top one hundred to two hundred cities, but smaller cities will eventually be beneficiaries, too. Second, technological and product development in devices and user interfaces, such as touch screens and voice recognition and even gesture recognition, will encourage consumer adoption. Third, prices will fall. The average price of smartphones will likely drop to less than $100 by 2015 from more than $250 today, while the price of advanced-feature phones will fall to around $60.

With the right networks, products, and prices in place, and with continued widespread penetration of mobile connectivity, operators will need to start offering the right services. Young Indian consumers, in particular, are increasingly digitally savvy and want to enjoy the convenience and entertainment value of mobile communications—in particular, social networking, video, and instant messaging.

A bigger opportunity may be the provision of services that help consumers improve their employment and earning prospects and that fill gaps in health care, financial services, and education. We expect that by 2015, the access business will be worth $44 billion, while the services business will have risen threefold to $36 billion and the devices business will have increased by more than 60 percent to $36 billion. Bharti Airtel and Nokia have been rapidly expanding into services and devices. Both companies are identifying the sweet spot of improving the lives and livelihoods of consumers.

Sunil Bharti Mittal, founder of Bharti Enterprises, one of India’s biggest conglomerates, has long been a prominent participant in the country’s digital transformation. Yet he started out manufacturing parts for bicycles in the mid-1970s in Ludhiana in the Punjab. Working sixteen-to eighteen-hour days, he tried his hand at various businesses—with varying degrees of success. Eventually, having moved to New Delhi, he launched Airtel after winning a contract from Siemens, the German engineering company, to manufacture its push-button phones for the Indian market. This was his breakthrough—and he knows he was fortunate. “I believe there are miles to go—always,” he once said. “Everybody nurtures dreams, but few manage to realize them.”

Today, Bharti Airtel is the world’s fifth-largest mobile operator, measured by the number of subscribers. In 2006, it was just thirty-second in the world. Beyond being India’s biggest cell phone company, it also has expanded into nineteen countries and is the leading provider in twelve of them. In 2010, the company generated revenues of $8.8 billion. The secrets of its success—and its founder’s, as he now has an $8.3 billion fortune—are innovative business models relating to operations and distribution.

In 2004, Airtel developed what is known as its “minute factory” model. Under the model, Airtel took the radical step of outsourcing significant parts of its network—long considered the crown jewel among telecom operators—to Ericsson and other companies. In this sense, its factory was minute, as in “small.” More significantly, outsourcing allowed Airtel to flexibly increase and manage its network capacity, essentially building minutes—as in “time”—with the increased demand, just as a factory line accelerates in line with demand.

This model has delivered many benefits. First, as an early champion of outsourcing, Airtel won great terms from vendors, thereby enjoying lower operating costs than those its rivals faced. Second, the model allowed the company to build its network in a fast and market-responsive way: by lowering its capital expenditure, the company had the cash to buy more spectrum, or airwave capacity. Third, the model enabled Mittal and his managers to devote more time to the development of new customer products. One of these new products relates to the burgeoning mobile money market. Most Indians do not have a bank account—they are, to use the jargon, the “unbanked.” There are just 240 million individuals with bank accounts, 20 million credit cards, 88,000 bank branches, and 70,000 ATMs. The government, which wants to address this issue, thinks the mobile phone industry can help—because 42 percent of those who do not have a bank account do have a mobile phone. We estimate that by 2015, as much as $350 billion in payment and banking transactions could flow through mobile phones, compared with about $235 billion of total credit-and debit-card transactions today.

Excerpted with permission from the publisher. Copyright Harvard Business Review Press. All rights reserved.

AUTHOR: Michael J Silverstein, Abheek Singhi, Carol Liao, David Michael
PUBLISHER:BHarvard Business Review Press
PRICE: Rs 995

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