Module 1: Introduction to Services Sector

1.1. Concept of Services

Service sector is the lifeline for the social economic growth of a country. It is today the largest and
fastest growing sector globally contributing more to the global output and employing more people
than any other sector. For most countries around the world, services are the largest part of their
economy. The real reason for the growth of the service sector is due to the increase in urbanization,
privatization and more demand for intermediate and final consumer services. Availability of quality
services is vital for the well being of the economy. In advanced economies the growth in the primary
and secondary sectors are directly dependent on the growth of services like banking, insurance,
trade, commerce, entertainment, social and personal, etc.
Oxford dictionary defines service as, „the action of helping or doing work for someone‟.
BusinessDictionary.com defines service as, „a valuable action, deed, or effort performed to satisfy a
need or to fulfill a demand‟.
Gronroos defines a service with exchanges oriented approach as “a process consisting of a series of
more or less intangible activities that normally, but not necessarily always, take place in interactions
between the customer and service employee and/or physical resources or goods and/or systems of
the service provider, which are provided as solutions to customer problems.”.
Kotler defines service “is any act or performance one party can offer to another that is essentially
intangible and does not result in the ownership of anything.”
The services sector is not only the dominant sector in India‟s GDP, but has also attracted significant
foreign investment flows, contributed significantly to exports as well as provided large-scale
employment. India‟s services sector covers a wide variety of activities such as trade, hotel and
restaurants, transport, storage and communication, financing, insurance, real estate, business
services, community, social and personal services, and services associated with construction.

Characteristics
Characteristics of services are different from that of goods or products. In order to enhance the
service quality level, managers need to understand the nature or characteristics of services
thoroughly.
They are intangibility, inseparability, heterogeneity and perishability.
a) Intangibility
Intangibility refers to lack of being seen, felt, touched or tasted. Services cannot be sensed or
experienced in a similar way as goods and products are sensed or experienced. Purchase of a product
is generally after examination of tangible factors. But when services are purchased, lack of these
tangible factors has a great impact on purchase decisions of services.
b) Inseparability
Services are different from products. Products can be manufactured and inventoried. Services lack
such possibility. Services cannot be manufactured and inventoried. Services are performed by
service providers. Hence services cannot be separated from service providers (person or firm) as
skills or knowledge of these service providers are utilised along with tangible equipments at the
point of service performance. Service performance and consumption takes place simultaneously.
c) Heterogeneity
Services are provided by human. The presence of human element in performance of services puts
forth another challenge of uniformity in performance of services. No two service performance can be
alike without any difference. Not just the service provider, also the customers differ from each other.
d) Perishability
Products come with longer shelf life. Products can be stored and used in future. This is facilitated
due to mass production. But this benefit cannot be extended to services. Services cannot be mass
produced or stored for future used. Services are performed and consumed at the same time.
e) No transfer of ownership
Ownership in case of products gets transferred immediately on sale of the product. In case of
services transfer of ownership is not applicable as services are acts or processes to experience value
or benefits. There is no tangible element to be transferred in case of services. Payment in case of
product is for the tangible element that gets transferred to customer but for services payment is for
the value or benefit or solution derived from the process by the customer.

1.2 Scope of Services

A service business is one where the perceived value of the offering to the buyer is determined more
by the service rendered than the product offered. In this way the nature and scope of services pose
different challenges for managers in service businesses. Such businesses include those that provide
an almost entirely intangible offering, such as legal services, health care and cleaning services and
businesses that offer both services and products such as restaurants and retail outlets.
The definition and scope of the service concept is wide and can mean any or all the following:
Scope of services
a) Service as an organization: It is the entire business or not-for-profit structure that resides
within the service sector. For example, a restaurant, insurance company a charity.
b) Service as core product: The commercial outputs of a service organization such as a
bank account, an insurance policy or a holiday.
c) Service as product augmentation: any peripheral activity designed to enhance the delivery of
a core product. For example, provision of a courtesy car, complimentary coffee at the
hairdresser.
d) Service as product support: Any product or customer-oriented activity that takes place after
the point of delivery. For example, monitoring activities, a repair service, updating facilities.
e) Service as an act: That is service as a mode of behavior such as helping out and giving
advice.

However from a market or consumer point of view the relative importance of different components
of the service offering can range vastly from one customer to another. So a service must be
considered from the point of view of many types of customers. For example, two people may pay the
same amount for a service but may be paying for different aspects of the service. A business person
may dine regularly in an expensive, upmarket restaurant because of the convenience to their place of
work and the perceived status of entertaining guests there. Other customers of the same restaurant
may eat there regularly because of the excellent food, modern décor and menu choice.

1.3 Importance of Service sector in the Indian context.

The service sector makes an important contribution to GDP in most countries, providing jobs, inputs
and public services for the economy. Trade in services can improve economic performance and
provide a range of traditional and new export opportunities
Service sector plays a vital role in the development of a modern economy. In fact this sector is so
vital that total performance of an economy depends on the performance of the tertiary sector.
Significances of this sector are listed below:
(i) Share in Net National Product:
At present, the service sector contributes the maximum share in country‟s net national product at
factor cost (national income). According to 2000-01, 48.5 % share of national income comes from
service sector and moreover, 22.9% of total working population are employed in this sector.
(ii) Helps Industrialisation:
The development of industries is dependent on the performance and improvement of transport,
communication, electricity, banking etc. in a country. Transport system helps to carry raw materials,
finished goods and labourers in their required destination. Communication helps to widen the market
industrial goods. Electricity and banking services help to flourish the industries in remote areas.
(iii) Expands Agriculture:
Service sector helps to develop the agricultural production by providing better network facilities. It
helps to carry raw materials and finished goods from one place to another.
(iv) Removes Regional Imbalances:
This sector provides a well-organised transport and communication service. It also provides
sufficient banking services along with expansion of education and medical facilities in the backward
regions of the country. Thus it helps to wipe out the problem of regional imbalances and disparities
within the country.
(v) Growth of Market:
This sector provides different types of services to both agriculture and industrial sectors. Thu: in
other way, it helps to grow the proper markets for both agricultural and industrial goods finished
goods as well as raw materials or semi-finished goods.
(vi) High Quality of Life:
Better services in the areas of transport and communication, banking and insurance, education and
health etc must help a country to pave the path for economic development by increasing the quality
of life or standard of living within the country. It also helps to improve the value of HDI (Human
Development Index) of a country.
(vii) Increase Productivity:
This sector helps the working force by giving sufficient technical education and proper medical
facilities. Moreover, a well-organised network of transport and communication system increases the
mobility and information among the workers. All these make the labourer more skillful and efficient
and thus the productivity (producing capacity of a labourer) will increase simultaneously.
(viii) Rise in International Trade:
A well-developed service sector, specially transport, communication banking etc., helps to expand
the international trade. Hence, it will also help to increase the foreign exchange reserve within the
country.

1.4 Marketing Mix for Services

The service marketing mix is also known as an extended marketing mix and is an integral part of a
service blueprint design. The service marketing mix consists of 7 P‟s as compared to the 4 P‟s of
a product marketing mix. Simply said, the service marketing mix assumes the service as
a product itself. However it adds 3 more P‟s which are required for optimum service delivery.
The product marketing mix consists of the 4 P‟s which are Product, Pricing, Promotions and Place.
The extended service marketing mix places 3 further P‟s which include People, Process and Physical
evidence. All of these factors are necessary for optimum service delivery. Let us discuss the same in
further detail.

1) Product
The product in service marketing mix is intangible in nature. Like physical products such as a soap
or a detergent, service products cannot be measured. Tourism industry or the education industry can
be an excellent example. At the same time service products are heterogeneous, perishable and cannot
be owned. The service product thus has to be designed with care. Generally service blue printing is
done to define the service product. For example – a restaurant blue print will be prepared before
establishing a restaurant business. This service blue print defines exactly how the product (in this
case the restaurant) is going to be.
2) Place
Place in case of services determine where is the service product going to be located. The best place
to open up a petrol pump is on the highway or in the city. A place where there is minimum traffic is
a wrong location to start a petrol pump. Similarly a software company will be better placed in a
business hub with a lot of companies nearby rather than being placed in a town or rural area.
3) Promotion
Promotions have become a critical factor in the service marketing mix. Services are easy to be
duplicated and hence it is generally the brand which sets a service apart from its counterpart. A lot of
banks and telecom companies promote rigorously.
4) Pricing
Pricing in case of services is rather more difficult than in case of products. For example a restaurant
owner, will price people only for the food they are served. But then who will pay for the nice
ambiance built up for the customers? Thus these elements have to be taken into consideration while
costing. Generally service pricing involves taking into consideration labor, material cost and
overhead costs. By adding a profit mark up one get their final service pricing.
5) People
People are one of the elements of service marketing mix. People define a service. an IT company,
the software engineers will define the company. In a restaurant, the chef and service staff defines
the restaurant. in the banking sector, employees in the branch and their behavior towards customers
defines the bank services. In case of service marketing, people can make or break an organization.
Thus many companies nowadays are involved into specially getting their staff trained in
interpersonal skills and customer service with a focus towards customer satisfaction. In fact many
companies have to undergo accreditation to show that their staff is better than the rest. Definitely
a USP in case of services.
6) Process
Service process is the way in which a service is delivered to the end customer. Lets take the example
of two very good companies – Mcdonalds and Fedex. Both the companies thrive on their quick
service and the reason they can do that is their confidence on their processes.
On top of it, the demand of these services is such that they have to deliver optimally without a loss
in quality. Thus the process of a service company in delivering its product is of utmost importance. It
is also a critical component in the service blueprint, wherein before establishing the service, the
company defines exactly what should be the process of the service product reaching the end
customer.
7) Physical Evidence
The last element in the service marketing mix is a very important element. As said before, services
are intangible in nature. However, to create a better customer experience tangible elements are also
delivered with the service. Take an example of a restaurant which has only chairs and tables and
good food, or a restaurant which has ambient lighting, nice music along with good seating
arrangement and this also serves good food. Which one would be preferred? The one with the nice
ambience. That‟s physical evidence.
Several times, physical evidence is used as a differentiator in service marketing. Imagine a private
hospital and a government hospital. A private hospital will have plush offices and well dressed staff.
Same cannot be said for a government hospital. Thus physical evidence acts as a differentiator.

1.5 Consumer Expectations

Customers buy goods and services to met specific needs, and they evaluate the outcomes of their
purchases based on what they expect to receive. Needs are deeply rooted in people unconscious
minds and concern long-term existence and identity issues.
Customer expectations are beliefs about service delivery that function as standards or reference
points against which performance is judged. Because customers compare their perceptions of
performance with these reference points when evaluating service quality, thorough knowledge about
customer expectations is critical to services marketers. Knowing what the customer expects is the
first and possibly most critical step in delivering quality service. Being wrong about what customers
want can mean losing a customer's business when another company hits the target exactly. Being
wrong can also mean expending money, time, and other resources on things that don't count to the
customer. Being wrong can even mean not surviving in a fiercely competitive market. Among the
aspects of expectations that need to be explored and understood for successful services marketing are
the following: What types of expectation standards do customers hold about services? What factors
most influence the formation of these expectations? What role do these factors play in changing
expectations? How can a service company meet or exceed customer expectations?
A customer normally looks for the following services −
  A customer wants consistency, which is the capacity to perform the promised services,
reliably and accurately.
 A customer wants tangibility or the form of physical facilities, equipment, workforce and
other materials.
 A customer wants reaction – the reaction to an inquiry or to a call.

Desired service levels-

Desired service is the type of service customers hope to receive. It is a wished-for level of service-a
combination of what customers believe can be and should be delivered in the context of their
personal needs.
Adequate service levels-
Most customers are realistic and understand that companies can„t always deliver the level of service
they would prefer; hence, they also have a threshold level of expectations, termed adequate service,
which is defined as the minimum level of service customers will accept without being dissatisfied.
Predicted service-
The level of service customers actually anticipate receiving is known as predicted service and
directly affects how they define adequate service on any given occasion. If good service is predicted,
the adequate level will be higher than if poorer service is predicted. Customers predictions of service
may be situation specific.
Zone of tolerance-
The inherent nature of services makes consistent service delivery difficult across employees in the
same company and even by the same service employee from one day to another. The extent to which
customers are willing to accept this variation is called the ‗zone of tolerance„. The zone of tolerance
for individual customers depending on factors such as competition, price, or importance of specific
service attributes.

1.6 Managing Demand and Capacity

The perishable and intangible nature of services makes it impossible for service companies to store
them in order to use them during peak demand periods. On the other hand, demand for services
depends on many factors like the phase in which the economy operates i.e., whether the economy is
in a recession or expansion; demographic factors, natural disasters, and the technological
developments in the market.
Organizations should understand the basics of how and why demand for a service fluctuates in order
to design strategies to manage demand. Charting out the patterns of demand will help organizations
find some predictable cycles. If predictable cycles do not exist and the demand patterns are random,
organizations should further find the reasons for such random demand and try to form strategies to
reduce the same.
Understanding demand is not sufficient to manage demand fluctuations. It also involves the
organization's capacity to fulfill the demand. Therefore, it is imperative for an organization to
understand its capacity constraints in terms of time, labor, equipment, and facilities. A clear
understanding of demand patterns and capacity constraints will help an organization design suitable
strategies to match them both.
Demand and capacity can be matched either by shifting demand and stretching or aligning capacity
to meet demand. Shifting demand involves varying original offer to meet the current demand,
communicating the periods of peak and low demand to the customers, altering timings of service
delivery to spread the demand across the peak and slack periods, and finally adopting price
differentiation strategy to meet the demand fluctuations.
Role of Customer Relationship Management in Services Marketing
Customer Relationship Management (CRM) is a way for businesses to connect with their customer,
increase profits, and provide better customer service. CRM is one very important factor in an
effective overall business strategy and should not be overlooked.
Need and Importance of CRM:
1. Better service to customers:
CRM provides more avenues for customers to communicate and explain their needs to the
organization through numerous contact points. Customers get increased satisfaction and a feeling of
being special and important because of the increased personalization of services and customization
of goods offered to them. For example, ICICI Bank maintains a list of priority customers and
provides them with additional facilities and special offers such as free tickets to concerts, movies,
and so on. Some banks, such as Syrian Catholic Bank provide personalized services to their
important customers.
2. Customization of market offerings:
Companies can customize a product or service depending on the data available with the firm. The
firm can facilitate customer-company interaction through the company contact centre and web site.
Such interactions help develop customized products.
3. Reduction in the customer defection rate:
CRM emphasizes on training and development of the employees to become more customer oriented.
Due to CRM training and development, employees show care and concern towards the valuable
customers; therefore, the customer defection rate may be reduced to a great extent.
4. Increase and improvement in long-term relationships:
Some firms treat their customers as partners. Firms solicit the help of the customers to design new
products or to improve their services. If the customer gets involved with the firm, they are more
likely to remain with the firm.
5. Increase in customer equity:
CRM increases customer equity. Firms focus the marketing efforts more on the most valuable
customers (MVCs). The main aim of CRM is to produce high customer equity. Customer equity is
the sum of lifetime values of all customers.
6. Competitive advantage:
The firms that adopt CRM get competitive advantage in the market. They can face the competition
with much ease. Competitive advantage helps in generating higher returns on investment.
7. Building and maintaining corporate image:
The image of the firm also gets enhanced. Loyal customers spread a good word about the company
and its products. This enables a firm to get additional customers to its fold.
8. Higher return on investment:
Due to CRM, a company gains a position to generate higher returns on investment. This is because
of the repeat purchases on the part of the loyal customers. The company also makes money through
cross selling. The higher return on investment increases the shareholders‟ value.

1.7 Case-studies of Successful Entrepreneurs in Services Sector

EBAY

The success story

A dot-com that has actually been successful. The first and still the largest general purpose
online auction site. Built from an idea into a large multinational company in less than a decade.
Hyper growth in revenues (83% per year in 1998-2004Q3) continuing. Rapid
internationalisation (international revenues growing at 114% per year in 2001-2004Q3).

Factors behind the success

Period of spectacular success: 1998 to 2004

Factors strongly affected by public policy:

• Privacy, security and consumer protection on the Internet
• Potential anti-trust issues signalled
• Availability of venture capital
• Patenting of business methods relating to digital commerce
• Participation in industry clusters (Silicon Valley)

Company practices regarding management, innovation and diffusion of technology:

• Significant use of stock options
• Decentralised development and management of international units to suit the legal,
institutional and cultural specificities of local markets
• Innovative pioneer in moving auctioning into the electronic environment
• Simple, easy-to-use application of ICT; focus on feedback from customers
Company history, description and performance
eBay Inc. operates an online market place through its web site eBay.com. The company was founded
as Auction Web by software developer Pierre Omidyar in his Silicon Valley living room in 1995.
Omidyar‟s goal was to create an auction-based market place for the sale of goods and services,
mostly second-hand goods and collector‟s items, open to all Internet users. His idea for Auction Web
stemmed from an interest in how the Internet could bring together fragmented markets to create a
virtual meeting place of commerce for people who share similar interests. Rather than setting itself
up as an online retailer selling goods and services directly to consumer, Omidyar created an online
trading community, keeping the business free of the need to incur distribution or fulfilment costs.
Auction Web was the Internet‟s first auction site, emerging at a time when e-commerce was
beginning to gather momentum. Benefiting from word-of mouth, the site‟s popularity grew quickly.
In 1998, a year after taking the name eBay, Margaret Whitman, the company‟s new CEO to the
company public. One year later the company had a market capitalisation of USD 19 billion. eBay‟s
success encouraged the creation of myriad new auction-related Internet sites. However, in May
2001, despite fierce competition from well-known Internet brand names, eBay gained 64.3% of
spending on online auctions. It market share has been so high as to draw criticism for potential anti-
trust violations. By 2003, eBay had nearly 69 million users spending USD 59 million daily. It has
become a de facto online store for many SMEs which cannot afford to maintain their own. Currently,
eBay has local sites that serve Australia, Austria, Belgium, Canada, France, Germany, Ireland, Italy,
Korea, the Netherlands, New Zealand, Singapore, Spain, Sweden, Switzerland, Taiwan and the
United Kingdom.
eBay‟s self-proclaimed mission is to provide a global trading platform where practically anyone can
trade practically anything. eBay has succeeded in streamlining and globalizing traditional person-to-
person trading, which has traditionally been conducted through such forms as home-based sales,
collectibles shows, flea markets, etc. The web interface facilitates exploration and enables sellers to
list sale items sale quickly and with little effort. Browsing and bidding on auctions is free of charge.
The company imposes two types of charges on sellers. When an item is listed on eBay a non-
refundable insertion fee is charged, which ranges between USD 0.30 and USD 3.30, depending on
the seller‟s opening bid on the item. A fee is charged for additional listing options to promote the
item, such as highlighting or a bold listing. A final value (final sale price) fee is charged at the end of
the seller‟s auction. This fee generally ranges from 1.25% to 5% of the final sale price. eBay notifies
the buyer and seller via e-mail at the end of the auction if a bid exceeds the seller‟s minimum price,
and the seller and buyer finish the transaction independently of eBay. The binding contract of the
auction is between the winning bidder and the seller only.
Sector
Competition in the online auction sector is very high. In addition to lesser known specialised sites,
well-known Internet names such as Yahoo! and Amazon.com have launched competing sites off the
back of their strong brands. Barriers to entry are low, only an Internet presence is needed. However,
branding, and consequently marketing, can represent a significant cost. Because it is on the Internet,
online auctions are very transparent.
Company-specific business drivers
One of eBay‟s primary drivers is its first-mover advantage. Omidyar, together with his colleagues,
was able to implement his idea into an emerging platform before existing household names could
dominate this sector.
eBay also benefited from a simple execution of a good idea. The site was designed to be
userfriendly. Posting products for sale and searching for goods and services to buy can be done
quickly and easily. An understanding of potential site users was critical for this design. Also
important to an early success was the use of client feedback. After each purchase sellers and buyers
are asked to rate their counterparts.
Business environment and other external drivers
Unlike many companies in the dot-com sector, eBay has always been a profitable venture.
Nevertheless, eBay made use of a USD 5 million venture capital investment during the run up to its
initial public offering, and Benchmark Capital, one the US‟s major venture capitalists, remains an
investor in eBay.
The availability of a globally- accessible platform of the Internet is a strong determinant for a
business like eBay. Indeed, the need to bring together very fragmented markets means that eBay
could not have existed a few years earlier. While parts of eBay‟s business could be replicated offline,
global auctions of common or hard-to-find goods and services are difficult to reproduce without the
Internet. Internet fraud is a major concern for all commercial websites. Buyer confidence is a key
success factor for eBay, so a secure online business environment that addresses issues such as
payment security, privacy issues and consumer protection, are crucial to the company.
VODAFONE

The success story

Largest mobile telecommunications operator in the world by revenues and subscribers. Largest
private telecommunications (mobile and/or fixed-line) company in the world by market
capitalisation. The most internationalised large company in an industry still heavily fragmented
by nation-state borders. All built in the last 20 years.

Factors behind the success

Period of spectacular success: 1983-2003

Factors strongly affected by public policy:

• Privatisation and deregulation of telecommunications industry
• Openness to FDI in host countries

Company practices regarding management, innovation and diffusion of technology:

• Innovation: first mobile operator in the UK; first company to introduce pre-paid cards
• Heavy user of TCT-based product and process innovations
• Heavy reliance on mergers and acquisitions for international expansion

Company history, description and performance

Vodafone was created in 1982 as a subsidiary of Racal Telecom Limited, later known as Racal
Electronics Plc. On 1 January 1985, Vodafone launched the UK‟s first cellular network with a call
made from St. Katherine‟s Dock to corporate headquarters in Newbury. By the end of its first year in
operation the company boasted 19000 subscribers and, by 1987, Vodafone had become the largest
mobile network in the world.
In 1988, after achieving profitability, Vodafone made 20% of its capital available through a
simultaneous initial public offering on the London and New York stock exchanges. The capital was
initially used to help the company fight competition from its only competitor, British
Telecommunication‟s Cellnet. Three years later the company became completely independent as
Vodafone Group Plc and looked to continue its brisk expansion. In 1993 it opened its first high-
street store. International expansion was aggressive, and by 1995 Vodafone had interests in network
consortia in the Netherlands, Hong Kong, Germany and France. The company also continued to
make important headway in the UK through both investment and innovation. In 1996, Vodafone
became the first company to offer pre-paid telephone cards, a move that would have a large impact
on the mobile market at home and internationally
Sector
Mobile telephony in the UK began in 1985 with the launch pf Vodafone‟s service. Soon after,
British Telecom and Securicor created joint venture Cellnet. This duopoly existed until 1989 and, in
1994, the entrance of Orange introduced a third formidable competitor into the market. In 1999,
Mannesmann acquired Orange and, one year later, Mannesmann was acquired by Vodafone. The
European Union made the divestment of Orange a prerequisite for the deal. Vodafone faces strong
competition in a majority of the countries where it operates. Internationally, some of its fiercest
competitors include giants such as AT&T Wireless Services, Orange SA and Telefónica Móvies SA.
Today, following several years of high growth rates, the European market is virtually saturated and
companies look abroad for growth opportunities.
Company-specific business drivers
Vodafone has been an innovator from its beginnings. It was the first to introduce mobile telephony
into the United Kingdom and the first to use a pre-paid telephone card system. This latter innovation
brought in an entire segment of customers that might have been otherwise shut out of mobile
telephony. In order to increase the transfer of ideas and knowledge throughout the group, Vodafone
operates a system of employee exchange and transfers among the group‟s different subsidiaries and
divisions. Vodafone‟s high market capitalisation has provided a strong currency for mergers and
acquisitions, both central to its expansion strategy. Its large size has also permitted the company to
compensate losses in regions where companies are still in the investment phase of growth or where
companies need to weather sluggish economic periods.
Business environment and other external drivers
Along with the US, the UK telecommunications market was among the first in the OECD to undergo
deregulation. Competition in the UK market started about 10 years earlier than in its European
neighbours. Vodafone initially enjoyed a degree of protection from competition as the UK
government licensed only two operators, Cellnet and Vodafone. However, after the cancellation of
this duopoly, two further licences were granted in the early 1990s. The move brought about a drop in
prices and greater take-up in mobile telephony services.
Case study –Impacts of key trends in Indian telecom industry
Indian telecom industry is going through a phenomenal growth in the past five years. Many trends
that shaped the direction of this industry have emerged during this period. The key trends in the
Indian telecom industry, its driver and the major impact of such trends affecting the operators,
vendors and customers.
1. People go wireless:
Indian customers are embracing the mobile technology in a big way (average four million
subscribers are being added every month over the past six months). They prefer wireless service
compared to wireline service, which is evident from the fact that while wireless subscriber base has
increased 75 percent CAGR from 2001 to 2006, the wireline subscriber base growth rate has been
negligible during the same period. In fact, many customers are returning their wireline phones to
their service providers. The main drivers for this trend are quick service delivery for mobile
connections, affordable pricing plans in the form of pre-paid cards and increased purchasing power
among 18 to 40 years age group, prime market for this service. Some of the positive impacts of this
trend are as follows: According to a study, 18 percent mobile users are willing to change their
handsets every year to newer models with more features, which is a good news for the handset
vendors. The other impact is that while the operators have only limited options to generate additional
revenues through value-added services from wireline service, the mobile operators have numerous
options to generate non-voice revenues from their customers. Some examples of value-added
services are ring tone download, ring back tone, talking SMS, mobisodes etc. Moreover, there exists
great opportunity for content developers to develop applications suitable for mobile users like
mobile gaming, location based services etc. On the negative side, there is increased threat of virus,
spread through mobile data connections and Bluetooth technology, in the mobile phones making it
unusable sometimes. This is good news for anti-virus solution providers who will gain from this
trend. Moreover, according to the study conducted by international organization, prolonged mobile
usage could lead to more health related issues, which is a bad news for heavy mobile users.
2. Telecom equipment manufacturing:
The telecom equipment deployed in the Indian telecom network is primarily manufactured in other
countries and exported to India. However, there is growing trend of telecom equipment
manufacturing in India. Many equipment and handset vendors have either setup their manufacturing
facilities or in process of setting up such facilities in India. The main drivers for this trend are
availability of low cost & high quality human resources, favorable government policies encouraging
investment in telecom manufacturing, and tender norms of telecom operators requiring the vendors
to have local manufacturing facilities. Some of the positive impacts of this trend are as follows:
Availability of local telecom hardware manufacturing will enable Indian companies to transform into
new product innovators from being mere software solution developers. Moreover, with
manufacturing factories and their supply chain in place in India, telecom equipment will become
cheaper compared to being imported from other countries. Also, the operators could enjoy the
benefits of quick turn around time for their telecom equipment repairs because EXIM procedure
takes approximately 60 days to get the telecom equipment repaired abroad. Finally, the new telecom
manufacturing facilities could lead to more economic development in those cities.
3. Managed Services:
Usually, telecom service providers operate their network taking care of all activities like managing
outside plant wiring and all the way up to total network management, on their own. However, there
is a growing trend among the new operators, especially mobile operators, to outsource majority of
their network operations to third party service providers. Typically, the complex network
management work is outsourced to telecom equipment vendors. The main drivers for this trend are
as follows: Since the new operators lack experience to manage their network efficiently, they need
expert„s help to manage their network. This will help them to focus on their core competencies like
marketing the telecom services to their customers. Moreover, in the competitive job environment,
the employers find it difficult to manage the churning of their high-skilled manpower that is needed
to manage the complex network. The major impacts of this trend are as follows: The outsourcing
model will work efficiently when the network is simple or consists of network components from the
same vendor. However, when the operator has complex network with the network elements from
multiple vendors, end-to-end network management will be very difficult without active participation
of operator, which means that the operators have to invest in developing inhouse skills. The other
impact of this trend is although the operator gets predicted operating expenses by outsourcing
network operations, sometimes, that may not be the better deal for them compared to doing on their
own. This is because when there are limited vendors for the outsourced activity like complex
network management, the operators do not have flexibility to get better price from their vendors.
4. More revenues from copper base:
Another major trend in the telecom industry is that the wire line operators want to extract more
revenues out of their huge installed copper base (approximately 45 million homes are connected by
wire) by introducing new services. The operators have deployed ADSL gear to offer broadband
connections to the customers. Moreover, many telecom operators have signed deals with major
enterprises to interconnect their offices creating VPN through their wire line network. Also, some
telecom operators have started offering IPTV service in selected regions through ADSL lines. The
major drivers for this trend are eroding revenues from wire line business due to competition from
wireless and cable TV operators, technological advances like ADSL2+ and MPEG4-AVC enabling
transmission of commercial quality video content at bandwidths supported by ADSL and increased
demand of broadband connections with availability of low cost PCs. The major impact of this trend
is the telecom operators have to increase their capex investments on their backbone network in the
near future because the current backbone bandwidth is not enough for new services like video
content distribution for their IPTV service. Moreover, the increased competition between telecom
operators, cable TV operators in broadband access, and video content distribution will drive down
the cost of various services benefiting Indian customers. The other positive impact is that the
enterprises do not have build and maintain the VPN connecting their office networks through
dedicated T1/E1 lines. The trends in telecom industry have positive impacts on the operators,
vendors and the end customers so far. However, with more technological changes and aggressive
competition from other industries like cable TV, new trends having the potential to change the
direction of telecom industry in either way could emerge in the future.
Questions
1. Give a detailed analysis of the above trends and their impact on various stakeholders involved.
2. How far the projected trends would be conducive to the new entrants in the sector?