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Treating service providers and Internet companies as single or separate entities comes with much complexity
Treating service providers and Internet companies as single or separate entities comes with much complexity
Revenues from telecom firms contribute to more than 90 per cent of the estimated INR 47,000 crore non-tax revenue of the government for 2017-18. The reduced turnover of these companies and their apparent need for a bailout threatens to derail the government’s fiscal arithmetic. Is there a way out?
The fundamental reason for their distress is not the market strategy of Reliance Jio, which is merely a symptom, but the transformation the industry is going through. In the early days different companies provided voice telephony, Internet service, and Internet content and applications. For instance, in India we had Airtel, Sify and Rediff.com.
Today, however, telephony, internet connectivity and Internet content and applications have become heavily vertically integrated, either through organic growth or arm’s length relationships. Successful business practices along these lines include carriers bundling Apple handsets, Netflix having strategic partnerships with carriers, AT&T providing preferential treatment of DirecTV content. Increasingly, the new model of value creation involves integrated eco-systems or “walled gardens”.
In this new world, value is being captured by the anchors of the value networks, such as Apple, Google, and Amazon. On the other hand, telecom and Internet connectivity providers such as AT&T in the US and Airtel in India are relatively less profitable, even though the content provided...