India’s Red and Blue Mobile Markets

The Indian mobile industry is about to face four key disruptions in 2009:

  1. New Operators will launch services
  2. Mobile Number Portability will get rolled out in phases across circles
  3. 3G licences will be given out and first services will commence
  4. MVNOs will be allowed

Put it all together, and a new landscape starts to emerge. Even though the incumbent operators are very powerful, these disruptions will be unsettling to all of them.

I look at India’s 325 million user base (and going to 600 million in 3 years) not as a single market, but as comprising two — a Red Market, and a Blue Market. The Red Market is the competition-filled urban battlegrounds (top 40-odd cities in India), which would account for about 100-150 million subscribers. The Blue Market is the rest of India — a potential market of upto a billion subscribers, of whom only 15-20% have actually got a mobile phone.

The Red Market subscribers got a phone in the first decade of India’s wireless rollout between 1995-2005. They have been using Voice and P2P SMS for between 3 and 13 years. They now want to do much more with their phone – and their time is now coming. The Blue Market subscribers need a phone because that’s their only form of connectivity to the outside world — it is Voice Access that matters more to them than anything else.

Incumbent Operators in India are now focused on the Blue Market – and are not doing much about the Red Market. Their belief is that the Red Market has been conquered, and all future growth is only going to come in the Blue Market. This is where they are wrong.

The four disruptions that we just outlined are Game-Changers. The action (and value) going ahead in India will be not in Voice but Data and VAS (Value-Added Services) in India’s most valuable Red Market.

153 thoughts on “India’s Red and Blue Mobile Markets

  1. I agree that it is not a monolithic market, but rather very fragmented. It is not only Red vs Blue, but there are segments within Red as well. These are segmented based on age, education, business users, students.
    While the growth in terms of number of subscribers may be Blue market, but data revenues will come from Red markets. Faster networks and better data phones will generate more revenues (iPhone is an example in US).

  2. @ Rajesh

    To a certain extent i agree with you on your segregation of red and blue markets, however, the fact that VAS is going to play a big role in indian telecom scene itself makes the rest-of-India market (excluding top 40 cities) a lot more lucrative than the Blue label.

    Voice based VAS will be the most cost effective and focussed medium for BFSI, Healthcare, FMCG etc.

    You would also appreciate that like most of other markets, VAS in India, also, took its time to gather steam as the penetration increased. However, at this stage the VAS services are all set to take up this R-O-I market by storm and add value to users, industries eyeing at Tier2, Tier 3 cities and, in turn, the Telecom players.

    The Rest-of-India market will be far ahead of the Top-40-City market in terms of penetration (and no. of users) and undoubtedly VAS will add value to this segment also. The point here is that apart from telecom companies there is a whole set of other industries who are looking at this R-O-I market very eagerly. These players will tap the advantages of telecom penetration through VAS. Industry already realises that vernacular touch over Voice can deliver unprecedented marketing opportunities in rural market. At present Voice VAS contributes nearly 40% of overall VAS revenues for all operators, so the picture is rosy for Telecom operators here as well.

    Data, of course, will be a big differentiator between the 2 markets with more and increasing usage of mobile portals, social networks (over mobile) and downloads from mobile content providers (over 3G), however, it doesn’t take away the sheen from the Rest-of-India market’s potential.

  3. Your last line better summarizes the segmentation of customers. What I mean is that the customers can be divided into two buckets, first who primarily use voice and second who use voice and data.

    And you are right that the incumbents are not focused on second customers but largely on expanding first bucket.

    And the advantage 3G network offers is improved data consumption.

    Now the first group will definitely grow but the sweet spot will migrate to second group.

    An early entry as MVNO targeting this group could be very profitable. Revenues can come from bandwidth arbitrage and maybe shared revenues from devices and applications sold on device. Further revenues could also be made from advertising on device and Google is betting on this opportunity.

    To be profitable MVNO needs to exponentially increase data consumption of end users. And to facilitate this consumption the market needs a good 3G device.

    Obviously iPhone, BlackBerry, Nokia, Samsung and LG come to mind. Of these devices I feel iPhone and Blackberry are designed for data consumption while Nokia, Samsung and LG are still trying to catch up but not very successfully. Nokia is good for SMS, MMS but browsing, emailing and consuming data is not convenient on it.

    Few issues come to mind for accelerating the data market in India
    1) Both iPhone and BlackBerry are expensive to accelerate this process in reference to Indian market. In US markets they can always signup new customers with two year contract and get good returns. But such contracts as we know do not work in India. So they have to charge customers an upright large fee which reduces the speed of adoption in India. And I think that these devices are less likely to be sold at reduced prices in India because that move can cannibalize their US and Europe markets.

    2) Both iPhone and BlackBerry have opened up their platform resulting in several applications. But data input to these applications is specific to US/Europe market. Although the applications providers can improve data for Indian market they have less incentive because of lower penetration of devices.

    This is obviously a reinforcing cycle which starts with large adoption of a particular device and then increased number of application providers for the platform and leading to increased adoption of device.

    The point is that for increased data consumption there needs to be an ecosystem of application developers which can provide applications for Indian market on an affordable 3G device.

    3) The retail price for usage of 3G network and download limitations will obviously dictate the actual data consumption.

    4) There is Android which could be adopted for Indian market. But promoting such a device is going to help Google improve its revenues in long run.

    Siddharth

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