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When the machines start talking

March 25, 2014

The year 2014 has only just begun, but the $19 billion acquisition of WhatsApp by Facebook has already claimed its spot as a key event of the year. While the world toasts this underdog success story, one group adamantly refuses to tip their hats in reverence. They can't be blamed. WhatsApp and its ilk in the free messaging app space have (almost) led to the demise of the short message service (SMS), clamping down one of the most lucrative revenue streams for the telecom services providers.

Estimates by Informa Telecoms & Media suggest the annual SMS revenues globally will fall to $96.7 billion from the $120 billion in 2013. Asia Pacific is forecasted to experience the highest drop from the $45.8 billion in 2013 to $38 billion in 2018.

The situation isn't any better for the Indian market. According to the Internet and Mobile Association of India (IAMAI), the average revenue per user (ARPU) has shown a steady decline over time, owing partly to falling call rates and partly to the concerted effort among telecom service providers to reduce dependence on voice-based services. This is further corroborated by the numbers put together by the Cellular Operators Association of India (COAI). The association puts the ARPU for GSM users at Rs 156 in FY 2010, which has fallen to Rs 111 as of quarter-ended June 2013. The minutes of usage (MOU) per subscriber per month for GSM service has also dropped from 425 to 388 during the same period.

The good news is, this drop has been compensated to an extent by an uptick in the mobile value added services (MVAS)- that is, data usage. As per IAMAI, MVAS stands at 27 per cent of the ARPU today and will largely contribute to any subsequent rise in ARPUs. Even with the instant messaging apps, while telecom players may be losing SMS revenues, they gain significantly in data terms: Instant message services are used to send large audio and larger video files. A one-minute video sent via WhatsApp or WeChat can be more than 100 times larger than a text-only message over the same app. These apps ease the use of video, audio or photo sharing. While sending multimedia message is not only limited to smartphones, it is also expensive at the same time.

The foreseeable problem: similar to voice, data services are also facing bitter price wars. By extension therefore, while data usage may continue to rise, a commensurate increase in the revenues seems a fantasy stretched too far. In other words, relying on data alone to drive revenues may be a mistake on the part of service providers. Telcos need to seek greener pastures.

Says Sunil Tandon, head, non-voice business and devices, Tata Teleservices, "The traditional voice and data services are becoming increasingly commoditised across the world. As the economies grow and communities become social the revenues from both these traditional breadwinners of a telecom company will plateau. The need of the hour therefore is to find your blue ocean, an alternate source of revenue that utilises your existing capacities and creates a hitherto untapped income. Increasingly we have observed that the machines are connected to the net at all levels and for even bare minimal tasks."

According to 6Wresearch, a global market research and consulting firm specialising in emerging markets, India's M2M market is expected to touch $98.38 million by 2016 at a compound annual growth rate of 33.81 percent from 2011. Cellular M2M modules will account for over 42 per cent of the market by 2016 (the rest made up by short range and satellite-based services). According to the latest report by Machina Research, India will reach 7.93 million M2M connections by 2015, earning more than Rs 2,200 million in revenues. Undoubtedly, the market is driven by the shift towards "smart communities".

So what is M2M?

In its bare skeletal form, M2M can be defined as the automated exchange of information between machines - or machine to machine communication. With telcos, it involves the use of SIM (subscriber identity module) cards that are embedded in machines to provide real-time exchange of data that can improve productivity.

Doors opening and closing automatically on entry or lights switching on and off are the most common examples of M2M solutions. Or take the use of mobile wallets. Here, M2M, in conjunction with near field communications (NFC) uses the mobile as a medium for monetary transactions, cutting out the need for credit/debit cards.

The opportunity for telcos is enormous. The number of devices far outstrips the number of people. Look around. A single individual may own a mobile phone, a music player, a tablet, a laptop, a camera etc. Research indicates a 10:1 ratio between machines and people, states a Wipro white paper on the subject.

http://www.business-standard.com/article/management/when-the-machines-start-talking-114032300637_1.html

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