The Boom of the Global Middle Class

We are used to discussing revenue opportunities for mobile service providers in terms of either high-income users (early adopters of smart devices and high ARPU data plans), or low-income users (who are often seen as consumers of prepaid, low-ARPU mobile packages). But what about the fast growing mid-tier segment?

"People are buying refrigerators and television sets on credit in the slums of Sao Paulo. Three million Chinese now ski in a country that didn't offer the sport 15 years ago. Evidence is building for a rise in the middle class." ("Worldwide Middle-Class Boom," The Economist).

Asian consumers will spend $32 trillion by 2030, representing 43 percent of total global consumption. In particular, India's middle class population, which will exceed 600 million by 2030, will be a major driving force in global consumption by then, second only to China, according to the Asian Development Bank ("Indian Middle Class to Shine Worldwide," India Today).

Within Asia, the Internet continues to see strong growth among middle and low earners in China, which represents the largest community of mobile users. As per the "26th Statistical Report on Internet Development in China," published by CNNIC, this segment is responsible for the recent improvement in the uptake of mobile Internet services in China.

But what does this boom mean for mobile service providers?

Can You Hear Me Now?

The growing appetite of the mid-tier segment for new content and services influenced by the socio-behavioral landscape and catalyzed by the rollout of 3G and Broadband Wireless Access (BWA) technology is creating large recurring revenue opportunities for mobile service providers in India. This article provides insight on the usage characteristics of mobile data consumers in India and recommends a framework for mobile service providers to capitalize on the emerging opportunities to grow its user base and improve data ARPU, which can hopefully serve as an example of potential growth to other markets worldwide.

The wireless sector in India has shown tremendous growth in the past few years with wireless subscriptions reaching 706.69 million against wireline subscriptions of 35.43 million (as of Oct. 31, 2010). Wireline broadband subscriptions continue to trail at just 10.52 million. While the fixed Internet market is still growing, it may soon start to saturate due to the lack of fixed-line infrastructure and ready availability of mobile broadband solution launches planned by the mobile service providers following the recent auctioning of 3G and BWA by the government.

Subscriber growth in the wireless sector, however, has come at a cost. The ARPU for GSM-Full Mobility service declined by 7 percent, from Rs.131 in the quarter ending in March 2010 to Rs.122 in the quarter ending in June 2010, with a year over year decrease of 33.9 percent. The only silver lining has been a steadily growing contribution of data services in mobile ARPU that is predicted to increase multifold by 2015.

The prices of phones and tablets have seen a sharp downfall in the recent past. For example, sales of mobile TV-ready smartphones in India grew over 34 percent in the third quarter of 2010, representing a 295 percent increase compared to the same period in 2009, according to IDC India. The ASP of mobile devices in India stood at approximately US$52, with 85 percent of devices sold costing below $100, according to Gartner. In its report titled "Competitive Landscape: Mobile Devices, India" Gartner also predicts 3G-enabled handsets to extend 65 percent of total sales by 2014.

The recent launch of the PacketApps application store by Aircel was a huge success, primarily due to its localized content and applications. The government and regulator initiatives to open up banking and securities transactions over mobile platforms is also aiding the takeoff of data services. While a number of banks have rolled out their mobile banking platforms in the past few months, the efforts were aided by the launch of the instant interbank electronic fund transfer service called IMPS by the National Payment Corporation of India, which is the "first of its kind service in the world, which allows fund transfer between individuals through their mobile phones. It provides anytime instant money transfer service through mobile phones to any other person registered for IMPS service in any of the participating banks." Although a complex process, in general, regulation in India has played in favor of, not against, business.

Whether these developments lead to the take-up of mobile data within the huge mid-tier population in the country depends upon how well industry players handle the potential issue of the unsteady economics of the mobile data business. To successfully navigate the turn onto new money-making apps and services and generating profitable revenues, operators need to systematically move away from volume-based pricing strategies to transaction-based pricing, especially for financial transactions. The operators may also want to link up with banks and brokerage houses and build in their costs in the transaction itself rather than charging the subscriber separately for these transactions.

Currently, banks in India charge up to Rs. 25 for Internet-based transactions, and brokerages charge up to 0.75 percent for securities transactions over the Internet. This provides them enough margin to pay for the mobile access charges in favor of higher volumes. The operators should also extensively use analytics to target the most compelling apps and content on the various user segments. The future of the mobile market depends on intelligent customer analytics anywhere in the world, which could be done based on user preferences, technology and usage patterns. Finally, they should determine what dynamic pricing models they can use to monetize the value. The one price fits all model will not work for too long.

Transforming the increase in mobile data use into a profitable venture will require operators to create breakthrough strategies in terms of business models and capabilities and achieve operational excellence. This is certainly possibly going by the past track record of Indian mobile service providers in innovating a new business model now globally referred as the India Model (see "ARPU Keeping You Up at Night" published in TM Forum's Inside Track). The value creation strategy will lead to a win-win scenario for service providers and service consumers alike.

These are all lessons that India can teach the world.

By Monica Zlotogorski, Vice Chair, TM Forum's Latin American Advisory Board, and Editor, Inside Latin America, and Nitin Bhandari, AVP, Innovation Strategy, Aricent Technologies