INTEROP Russia: BRIC Wireless Markets June 29, 2006
Posted by Chetan in : BRIC, Carriers, International Trade, Speaking Engagements, Strategy, US Wireless Market, Uncategorized , trackback6 cities, 5 time zones, 4 countries, 10 days. Last week was quite hectic but it was great. From the exquisite towering cathedrals in St. Petersburg and Kremlin to serene Stockholm, from a midnight stroll in daylight by river Neva in St. Petersburg to 4am walk in Gamla Stan (Stockholm), from reading the subway maps in Russian to catching a soccer match in Amsterdam, the trip was quite memorable. In Moscow, I was speaking at the INTEROP conference on the topic of BRIC wireless markets lessons, opportunities and challenges.
This note highlights some of the points discussed during the talk.
BRIC which stands for Brazil, Russia, India, and China collectively represent the biggest and fastest growing wireless subscriber block. While the sheer volumes represent enormous opportunities for the near and distant future, there are significant challenges and risks associated with these markets as well. Unprepared and naοve companies have been chewed and spat out in no time.
First, lets do the numbers:
Over 682M subs by 2005
BRIC markets will account for over 50% net adds 2005-9
Net adds 159M in 2005
Subscribers Brazil (87M), Russia (125M), India (75M), and China (393M)
Penetration Brazil (46%), Russia (86%), India (6.3%), and China (30%)
ARPU is low Brazil ($13), Russia ($7), India ($10), China ($10)
Data ARPU is low - $0.8-$1.5
Of course, since Dec 2005, the growth has continued unabated. China surpassed the 400M mark while India crossed the 100M mark and both countries show signs of continued growth. India is on the verge of another surge due to rural network expansion in 2006. However, both countries have some tough 3G spectrum decisions to take care of (have been delayed several times), particularly in China where the government is favoring the controversial TD-SCDMA and carriers opting for standards such as WCDMA. With Olympics looming in Beijing, this makes for an interesting dynamics.
BRIC markets share some characteristics but are also unique in how they have progressed and in how they should be approached. The primary growth drivers with some degree of variability have been:
Prepaid dominates
Pent-up Rural demand
Market reforms driving the industry
Competitive pressures on big carriers
Low-priced handsets
Some of the lowest infrastructure costs
Lowest tariffs
Carriers profitable despite low ARPUs
As highlighted in our report Indian Wireless Market back in May, India and China are adding on an average over 5M subs per month. That is in contrast to 5M net sub adds per quarter in the US and less than a million net adds per quarter in Japan and Korea. With the penetration rate at 12% and 30% respectively for India and China, these nations will continue to add approx 60M subs per year for the next 3-5 years.
Despite the growing subscriber numbers, pressure on ARPU remains strong and the ARPU has been on the decline in all BRIC countries. Data ARPU for BRIC countries is also small compared to some of the other established markets and is bound to stay that way for the foreseeable future. We will cover worldwide ARPU trends in a forthcoming paper. Stay tuned.
Summary of Lessons and observations
Government participation essential Unified telecom Policy
Highly price sensitive markets
Data applications used as a churn-prevention tool
Role of competitive forces an foreign investment is quite important lowers costs to consumers which stimulates growth
Low or zero import subsidies on parts or finished goods
Operators control the value chain
Operators can lower cost of infrastructure by accepting lower busy-call completion rates
Revenue-sharing arrangement with vendors vs. pure licensing deals
Low price demands innovation, participation in local economy
Network-sharing for rural expansion
Role for lower frequency bands (450MHz) is important
Localize data applications
E.g. India Cricket, Bollywood, Education, etc.
Significant IP issues especially in China
Rural markets key to future growth
Consumer driven markets, Poor Enterprise markets
Minimal market for foreign application developers
Should partner, acquire, or build-up local expertise
WiMax is attractive but cost considerations are more important
BRIC markets important for infrastructure players, not that much for application developers
3G is in planning stages, spectrum issues need to be resolved quickly
Considerations for other growing markets like Indonesia and US
Overall, BRIC markets represent significant opportunities but they are not for the faint-hearted. Amidst all the talk of BRIC wireless markets, it is easy to forget that US still remains and will remain the highest revenue generating market in the world for some time with close to $44B in carrier revenues in 2005, almost twice to the second player — Japan and twice of the revenues generated by the carriers in BRIC countries, combined. However, US market presents its own set of challenges and idiosyncrasies. Wireless is doing wonders in BRIC markets and there are tremendous opportunities.
There were also a couple of interesting INTEROP keynotes from Steve Wozniak and Kevin Mitnick.
Overall, it was an action packed conference, covering variety of themes including Wireless, VoIP, and Security. The trip left me longing to return to the region at the next available opportunity.
Your comments are always welcome.
Chetan Sharma
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