RECALL is a McKinsey publication for leaders in the telecommunications, media, and technology (TMT) sectors. In the most recent edition, McKinsey pulls together 11 recent articles and studies on the transition to digital, with a particular focus on high-growth markets.
The articles address a wide range of topics, covering a substantial part of the spectrum of challenges that TMT operators face. Among them: investments in infrastructure; commercialization; strategic pricing; customer lifecycle management; B2B trends; capital expense management; and call centers.
The final word goes to CEO Sanjay Kapoor of Bharti Airtel. In the following interview with André Levisse, a Director in McKinsey’s Singapore office, and Gautam Kumra, a Director in McKinsey’s Delhi office, Kapoor discusses the rise of digital in telecommunications and the implications for customers and mobile network operators in emerging markets.
Bharti Airtel Ltd., the flagship company of the Bharti Group, is one of the world’s top five wireless operators. It offers services in the fields of mobile, telemedia, enterprise, and digital TV across 19 countries in Asia and Africa, serving 177 million subscribers and generating $10.4 billion in revenues.
McKINSEY: From your unique vantage point, what have you observed in terms of the shift in telecoms from digital to data in India and throughout the world?
SANJAY KAPOOR: I’ve been fortunate to be a part of several important discussions that are happening around the globe. Worldwide competition among telecoms providers isn’t solely based on physical infrastructure anymore. Now, they compete on a combination of physical and virtual infrastructures. No matter which telco and no matter what economy, operators are very concerned with regard to how they will shape their broadband strategies and their virtual infrastructures.
McKINSEY: What’s behind this added layer of competitive complexity?
SANJAY KAPOOR: Well, the world at large is facing a spectrum shortfall. The degree of constraint varies from country to country – only 200 MHz for some and up to 500 MHz for others. Operators are wondering where this new spectrum will come from and how exactly they will use the digital dividend to the biggest advantage. Countries like India need to join this discussion. I think we are a trifle behind in our own debate on the subject.
McKINSEY: What will this issue of spectrum scarcity mean for telecoms players from a services point of view?
SANJAY KAPOOR: It means that companies like ours will need to start planning for strategies that enable us to successfully deliver life enrichment data services in addition to voice. Whether it is entertainment or health – touted to be even bigger than commerce – life enrichment services will be at the center of mobile services. Cisco estimates that the total volume of data consumed will actually grow from 0.09 exabytes per month in 2009 to 3.6 exabytes by 2014. This is almost a doubling of global data consumption every year for the next three years. Such demand puts tremendous pressure on the system, meaning a completely new ecosystem and social engine need to evolve.
McKINSEY: Is the focus on adequate capacity to meet the skyrocketing demand the primary challenge for mobile operators?
SANJAY KAPOOR: It’s one of the challenges. This shift to life enrichment services has some organizational implications as well. Companies like ours will need to move from managing scale to managing complexity. In the first phase, or the first 15 years of our existence, managing scale was the big challenge. In the future, the challenge will be to navigate the highly complex maze of an ecosystem with multiple elements – some familiar, some new. We’re talkingabout financial, educational, entertainment, advertising, and health services as elements of a single telecoms entity.
McKINSEY: You mentioned that all operators – regardless of their market – would be facing significant challenges. Are there really no advantages for those operating in markets that are already well established?
SANJAY KAPOOR: Actually, the opposite may be true. The opportunity in some verticals will be greater in emerging markets than in developed ones. In many emerging markets, these service areas are not well organized, and their infrastructure is weak. Hence, the infrastructure that telcos provide proves revolutionary. This reality presents a large opportunity for telecoms operators.
What makes it exceedingly promising for emerging markets is that young people are a growing percentage of the population. They are much more aware and accepting of technology than others. They are going to be the catalyst that bridges the digital divide between emerging and developed markets. The other thing that drives consumer behavior change is the burgeoning middle class in these countries. In India, this group actually drives consumption. As prosperity comes to places like Bangladesh and many African countries, you will see a similar pattern emerge here as well.
McKINSEY: Besides the spectrum challenge, are mobile companies prepared to offer these life enrichment services from a structural point of view?
SANJAY KAPOOR: Mobile companies will have to make investments in fixed networks again. To backhaul so much traffic, you need fiber. For the last eight to ten years this did not seem to be a necessity. Everybody thought wireless companies would need radio. I think radio will develop, but you need a solid investment in the fixed-line infrastructure to carry so many exabytes of data. Everyone I talk to believes that data consumption will increase by some astronomical figure, but when I ask them how their IT spend is going to grow, many talk of either capping their IT expenses or even lowering them. That tells me that the only way to manage these IT expenses is by taking the products and services to the cloud. The cloud seems to be inevitable, and I believe it will drive productivity.