Archive for August, 2011

It may sound like an oxymoron, but Competition also has the merit of improving business sustainability. For telecom, fairly across the globe, ARPUs and AMPUs have all gone flying out of the window, because of a bunch of factors that includes the effect of ‘cut-throat’ competition. Instead of fighting against one another, ‘what-if’ analysis w.r.t competition could help build businesses. For telecom operators across the globe, for aiding the considerations of economic stability (which, at times I feel, is somewhat completely neglected), there could be thoughts of ‘consolidation’; ‘revenue and bandwidth sharing’ et al; instead of ‘only’ poaching on subscribers to increase subscriber base. Hence, adding the idea of ‘collaboration’ in the “what-if” during competitive strategy analysis, one may try and detect effects of such options instead of trying to predict their own ARPU and AMPU variations ignoring the effect of competition.

For growth in business, the questions to ask need to be dedicated to understand, what it would take to “sustain”. In the following examples, I would try and highlight the benefits of the same, and what goes wrong when this is not done.

Consider a consumer market player like Starbucks which enters market, not with one, but usually with a number of shops somewhat near to each other. They have their own set of brand messaging et al, but the point to be driven home is, Starbucks still remains the ‘pricy coffee shop’ while it enters a new market with existing coffee shops. Effectively, or probably hardly ever, has local competition been washed away, instead, both have survived by “providing the consumer more number of choices to select from”. So now, people the pricy Starbucks, as well as (probably) lower priced local coffee.

However, in a stance of survival and penetration, at times a Competitor would enter a market by heavily slashing charges, especially in telecom. At that point of time, what matters most for both the present players and also the new incumbent is, what would it take to sustain? Such is the state of telecom, especially in India. Slashing call rates was the strategy for all the new operators who entered the market which was dominated by likes of Airtel, BSNL, Vodafone, Idea et al. In a matter of 2 years (or may be less) India saw a rise of available operators to roughly 12-13, where everyone wanted to lure customers by providing lower costs for services. The price war was (and is even now) so intense, that none of the operators in India are adding onto revenues while some are bleeding heavily. The irony is, the worst affected are the new operators themselves, because they paid a lot to get into the market; they charged the subscribers at dirt cheap rates in order to increase customer base, and hence somehow just could not make it to sustain profitability. The giants, somehow still remain giants, albeit bleeding as well; however the entire telecom economy is in doldrums.

I guess it sounds like ‘…..and they lived happily ever after and after.’ when I say about competitive collaboration. But this is in continuation to my last post (here) where the real problem I tried to highlight was with conventional tools/software that try and predict business growths in terms of increasing ARPUs and AMPUs, without considering a number of factors. It is for analyzing these factors, human intellect is required with a fair sense of finance, economic, domain knowledge et al instead of relying on dumb tools. A good tool for what-if therefore has to show, the benefits of such collaboration. Is there one right now? Help me find one.

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In the world of Revenue Assurance, we see the rise and fall of champions and arch-enemies galore. I would dare say that Avatar would have been equally entertaining if we replace the characters as:

a) Na’vi – Home Grown RA system champions
b) Humans – External RA system champions
c) Toruk Maktur – The silver bullet solution enthusiast

Essentially, on the home planet (Telecomora), there is an ongoing war between the humans and the Na’vi. The Na’vi want to feed off the land (indigenous software) and the humans want to mine the land for all its worth (external software). On one side, we have those who will not take more than they need, and on the other side we have those who will not need more than they take. At some point, the disagreement reaches a fever pitch and war breaks out (Business & IT – sounds familiar?).

During this challenging time, a hero rises – The Toruk Maktur. Initially, the hero is cloned to resemble the Na’vi (speak their language and convince everyone about TCO reduction and Operational benefits). He is inducted into their environment through an age old, mystic ritual, the origins of which are lost in the shroud of eons gone by – a.k.a. response to RFP. The hero learns the challenges of the Na’vi, while inadvertently learning to think like a Na’vi. All the while, he reports back to the humans regarding the potential chinks in the Na’vi armor (eg. Scope of coverage is extremely limited, assurance is not guaranteed, sampling won’t help them get a good night’s rest etc.).

While these discussions are in play, the hero realizes that sometimes, the silver bullet might need to be tinged in gray. He realizes there is no single solution which will cure all ailments and support both perspectives. Humans and Na’vi are fundamentally different – their beliefs, their cultures, their aspirations and even their KRA. How can he bring both worlds together?

This is where the movie ends. Agreed, it feels like I’ve conned the world into paying $20 for the ultimate buzz-kill – but then again, I do want to take revenge on James Cameron for Titanic (I find that movie inexcusable. I find that he made a Gabazillion dollars off that movie even more so).

There are a couple of plausible endings, which will be released in Disc 2, and the broad outlines are listed below. It would be interesting to see which one is the most popular:

Ending 1 – Fall in love with a Na’vi princess, and convince the Humans that we don’t need the whole solution, but let’s work together with a preliminary assessment which helps us gauge where the Na’vi solution might be inadequate and where the Human solution is required

Ending 2 – Fall in love with a Na’vi princess, but convince the Na’vi that the current Ehwa mechanism isn’t built to scale and would consume far more resources and Na’vi days than initially estimated. It would also help to tell the Na’vi not to blame the Na’vi project manager, because Microsoft Project Plan isn’t the primary skill expected on a world where internet connectivity is provided via a funky disco tree, and the USB interface is strange tentacles hidden in his ponytail.

Ending 3 – Fall in love with a Na’vi princess, but go to the CFO and highlight potential risk buckets which need to be addressed as of yesterday.

Na’vi princess aside (big William Shatner fan, in case you haven’t noticed already), each ending has its pros and cons. In Ending 1, we are attempting to forgo the big bang approach for a structured growth path into a comprehensive assurance umbrella. In Ending 2, we are highlighting the scenario where over-dependence on a functionally non-scalable system might skew all metrics which are reported from that point on. In Ending 3, we appeal to a higher power to unite the two factions to work together in a spirit of love and co-operation towards a higher goal which benefits the entire planet (hopefully, unless the Toruk Maktur in this case is a weasel).

Now, dear audience, I would like to know which ending has the most production value. Which is the path you have seen most taken? And of course, the grand mystery remains – who is the Na’vi princess?

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If you want to be a realist, start by being a pessimist. It sounds miserable, but the psychological evidence is compelling. Most people suffer from optimism bias, and many of the rest are labelled as ‘depressed’. In short, happy and well-adjusted people generally tend to overestimate how long they will live and how successful they will be. Do not blame me for being a sourpuss – this is scientific fact, not just my contrarian nature (though perhaps I know these facts because I systematically went out and looked for evidence to support by contrarian beliefs…)

Given that most firms start with the most primitive form of risk management, which basically means just asking people what they think about risk, then you have to marvel at how the inherent problem of bias is so utterly overlooked. After all, it is called ‘risk management’ not ‘wishful thinking management’. We already know (or we should know) that if you ask people about risk, they will give you a biased answer. So how should we address this problem? In this brilliant article, Denise Tessier of Wolters Kluwer Financial Services walks through the strategies for minimizing bias in risk assessments. She gives good and straightforward advice that is well worth following. As Denise cogently observes in her conclusion:

ERM practitioners must appreciate that all human input into a risk study is subject to bias, and adopt appropriate mitigation techniques to ensure a clear, sharp view of the future.

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I have seen a common format of what-if analysis, where the results showcase how the existing ARPUs and AMPUs are “supposed” to change when such-n-such activities are done. Something inside me screams and says ‘Iceberg Ahead!!!” when I come across this!

What the “what-ifs” typically lose out is not one, but a number of “indirect contributors” to ARPU. Here are a few such factors and how they affect ARPU:

  1. The State of the market w.r.t Competitive Presence: When You are the only service provider in the market with a monopoly, You exactly know what your APRU is, and how it would change if You did modify ‘some’ offerings. However, the biggest deterrent to determining success is the presence of Competition and how the same would react to changes You do. The question is how can we quantify the ‘effect’ of Competition and anticipate “everything” Competition can do? A couple of years back, in India, when Aritel was ‘probably’ happy measuring and estimating ARPUs and predicting increases, along came Reliance and followed by DoCoMo, bringing down ARPUs by introducing per-sec billing and rate plans. Here is one of the articles in my own blog, that show the  ‘Price War’ that is going on and its effect. Effectively, prediction works when there are no competitors. Alas, that is never the case.
  2. Type of the Market: How would You measure the capability of a hypergrowing market which shows a potential of ‘A BILLION’ people. GDP and GNP? Which ‘What-If’ analysis toolkit takes into account variations of a country’s GDP and GNP ? Knock, knock!! Who is hiding under a rock?
  3. ‘Increased Subscriber Base’. This is another Trojan Horse. Empirical logic: increased subscribers, is equal to increased usage, equals increased revenues— safely “assuming” costs are constant. First costs are never constant, and they are always on the rise. Now for the ‘trojan’ – when initially services are offered, it is always at a premium price, and so only ‘a handful’ of customers are the ‘Early Adopters’.
  • The first thing that starts to bring prices down is vanishing monopoly with arrival of competition. Therefore, increased competition= reduced prices= introduction of ‘affordable services’; which effectively means with prices going down ARPU decreases.
  • Reduced prices = increase in number of low spending customer bases. Increased low-spending customer base = expansion in subscribers at ‘falling tarrifs’. Hence still reduced APRU.
  • Increased subscribers may be attributed to ‘Increasing penetration rate’ in an area. Increased penetration rate means, increased low usage subscribers, which causes the average usage/traffic per subscriber to decline, effectively which is a fall in ARPU.
  • This for existing subscribers means, declining tariffs as well, and therefore increased usage YET, now effective growth in revenue. Keep in mind, with increased penetration, costs have again gone up.

Effectively, ARPU and AMPU declines. APRU and Penetration rate always have a negative co-relation between them, and what if Analysis typically fails to acknowledge the contributions of the same.

The point is, an operators ARPU is not dependant only on the operator, and hence if the factors are not taken into account, it is always ‘Welcome to a dreamy la la land’ with open eyes.

As if the above three points were not enough, there are still several factors that are ignored in the pro-typical what-if calculations, which include but are not restricted to.

  1. Telecom authority regulations.
  2. Cost factors- especially accounting for sunk-costs and the pervasiveness of joint costs.
  3. Time of entry in the market, and therefore effects of increased licenses on diffusion of available technology and evolution of newer technologies through new innovations.
  4. System and protocol standardizations
  5. Following Moore’s law , rate of evolution of technology.

To add to these is the perceptions in a socially linked world. Effects of customer pains and complains on social media like Facebook. A single unhappy customer may have the capability to make all the known friend-circle to churn out.

If such factors and their effects and contributions are not accounted for and analyzed, all what-if analysis is only as good as the marbles that a kid plays with, thinking they are the world greatest assets. Now fool yourselves? What can I say end of day, its Your own choice.

 

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Can you steal a car with an SMS message? Apparently so…

You can read the Associated Press’ version of this security story here.

Of course, this security weakness is the fault of the car manufacturer and the super-clever hi-tech systems they install in their cars. However, would you like to be the person in the contact centre, receiving a call from an irate customer saying the telco is at fault for not blocking the criminal’s text message? The old saying “don’t shoot the messenger” applies here, but if glitches like these are not addressed, then chances are that some telcos will be caught in the firing line.

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