Dr. Banerjee’s ‘Quo Vadis’ to the Indian telecommunications sector

Advances in telecommunications technology is at the core of the revolution that defines our present global economy. We need
to remember, however, that technology itself is embedded in a larger social context which is shaped by regulation and other
political economy considerations.

Dr. Aniruddha Banerjee, VP of Nera Economic Consulting of Cambridge MA is an economist whose expert opinion I value. In a recent exchange on a closed user-group of IT experts, he wrote that “…
I have become increasingly interested in the demand (or consumer) side of the markets for telecom and IT products, particularly as privatization, liberalization, and competition in those markets around the world have mitigated, to a greater or lesser degree, the influence of the supply side (particularly, the erstwhile government monopoly providers) on market outcomes.”

For the record, I am including the rest of his thoughts on the matter. He raises a set of extremely important questions that nobody interested in the telecommunications sector can afford to ignore.

The purpose of my post today is to ask whether telecom and IT suppliers and service providers in India are planning appropriately as what they supply — what were, by convention, once referred to as “services” — become increasingly “commoditized.” The products of this industry today are increasingly viewed as multidimensional — something that is clearly evident from the manner that members on this list show their concern for issues beyond price alone, such as reliability and quality issues, billing issues, customer
care issues, service provider identity, etc. This level of consumer savviness, when it permeates down to the non-techie level, will clearly augur very well for India as it develops into a consumption powerhouse on the backs of its huge middle class and rising economic status. In addition, this list has also demonstrated a clear commitment to making IT and telecom (ICT, generally) technologies accessible to those less fortunate, those living and doing business in rural areas, those who don’t speak English, etc. These are all admirable goals and the social imperative underlying them cannot be overemphasized. Therein rests, I believe, an important responsibility of those with the know-how on this list (and other such socially conscious and savvy groups) to see those goals through.

Experience tells me that the diffusion of telecom and IT services (both wireline and wireless) through Indian society will, at some point, be driven by market forces that no amount of regulatory control or oversight can shape. That is the point at which consumer tastes and preferences will increasingly determine what gets provided and on what terms, and the importance
of a paternalistic public policy system will wane (although it may never completely disappear). Are suppliers and service
providers ready for this or, better still, encouraging and actively planning for it? My impression is that, in the early stages of transition from a stultified, patronage-ridden, monopoly system to a competitive market, it matters very little what consumers want or care about. Developers of new services have the upper hand and, frankly, for many, the apparent business model (and raison d’etre) is to exploit opportunities for regulatory arbitrage rather than to generate genuinely new business opportunities. But this cannot endure, particularly in an environment where the sizeable class of tech-savvy (and suitably skeptical) early adopters can see beyond the surface packaging or the price and demand that service providers pay attention to various other attributes of what they provide. Again, the recent discussion about broadband services or the Simputer on this list convinces me that a core group of informed and demanding consumers already exists and can help to shape the future of this industry in India.

Businesses need to plan, particularly if they intend to be in the market for the long haul. They need, if not perfect foresight, at least a reasonable ability to take the temperature and the pulse of actual and potential consumers to guide their decisions about what, how, and for whom to produce. Historically, when POTS and a few other things marked all that the telecom industry could offer, and competition neither mattered nor caused uncertainty in the market, forecasting consumer demands and needs was an exercise that relied relatively little on prescience or acumen. As telecom and IT services get commoditized, however, and competition inexorably leads to product differentiation, forecasting demands and needs will need to get increasingly sophisticated. Are service providers today planning for this or doing anything about it? I’ll be curious to know and to hear directly from service providers, some of whom, I’m sure, are represented on this list.

Yes, this is certainly a matter of market research, but research with a difference. The techniques of such research have advanced significantly over the last two decades. For example, it is well understood that forecasting future demand (or diffusion) for brand new services (which have no analogues or precursors in anything else that has ever been available) can be a very challenging assignment. Traditionally, market researchers in these circumstances have resorted to large-scale (and frequently costly and/or ill-designed surveys) to generate those forecasts. Some examples of the futility in this regard:

  1. trying to predict ridership on new suburban transit systems by asking only those who actually commute on those systems about their ridership habits without making statistical adjustments for the fact that the survey samples so generated are self-selected or “endogenous”;
  2. feeling compelled to rely on prohibitively expensive large-scale surveys on the grounds that only such surveys have statistical validity;
  3. framing questions in surveys that subconsciously or otherwise bias respondents toward answering
    in a manner most likely to favour the business model being proposed; and so on.

Even the conjoint analysis techniques that have found wide application (and are still popular in some quarters) are not without their critical defects. My personal experience with a survey econometrics technique known as “rank-ordered logit (or probit) modeling” tells me that
there are now well-established and more accurate survey techniques available for forecasting demand and simulating market shares for multi-dimensional and brand new products for which no historical precedents exist. This technique cuts down drastically on the need to conduct large-scale surveys and, therefore, on cost, and allows great insight into how consumers sort out their own internal priorities about various features and attributes (including, of course, but not limited to, price). Are service providers in the IT and telecom industries in India using these techniques to better understand what consumers (at least, the early adopters) want before they roll out new services? Are they drawing on the potentially rich data that can come from assembling needs and preferences from diverse groups of actual and potential consumers? Are they, in the process, contributing to a wider education of society and its participation in the development of the future of this industry? Nothing would delight me more than to learn that this trail is already being blazed in India.