Smartphones could be a lucrative revenue source for telecom operators in developing markets. Done properly, operators' share of smartphone sales could increase fivefold over the next four years. - See more at: http://www.atkearney.com/paper/-/asset_publisher/dVxv4Hz2h8bS/content/boosting-telcos-smartphone-sales-in-developing-markets/10192#sthash.ZaQ3TC5U.dpuf

1. Boosting Telcos’
Smartphone Sales
in Developing Markets
Smartphones could be a lucrative revenue source
for telecom operators in developing markets. Done
properly, operators’ share of smartphone sales could
increase fivefold over the next four years.
Boosting Telcos’ Smartphone Sales in Developing Markets
1

2. In developed markets, telecom operators have traditionally played a major role in distributing
handsets—subsidizing retail prices and promoting phones to consumers who typically “post-pay”
for service based on previous usage. Even as popular high-end smartphones such as Apple’s
iPhone and Samsung’s Galaxy have altered this market somewhat, operators still hold the upper
hand in pushing phones with their customer-pleasing, revenue-boosting plans.
Developing markets are more challenging when it comes to handsets and data plans. Roughly
95 percent of consumers use prepaid, no-contract phone plans on low-cost phones, which
result in lower revenues per customer than contract plans. Telecom operators have traditionally
avoided promoting and bundling high-end devices with their plans, largely due to fear of losing
traction. Most of the efforts made to bring smartphones to developing markets have been
sporadic and generally unsuccessful—as demonstrated by the limited uptake for Vodafone
India’s 2011 Facebook Blue phone (by Alcatel) and Indosat Indonesia’s 2010 Wigo.
The next wave of growth is smartphone
sales to low-income and rural customers.
But the market is shifting. Smartphones are proliferating rapidly in many emerging markets,
with penetration expected to more than double between 2011 and 2015 in countries such as
Brazil, Thailand, Indonesia, and India. Demand for data services and applications is also rising
in emerging markets—particularly as operators roll out 3G speeds, and younger, more educated
users flood the market. And handset makers are unveiling affordable mid-tier smartphones—
evident in the $100 to $200 price tags on the G-series line from Huawei, Nokia’s Asha series,
and phones from a number of local Indian handset companies.1
As smartphone and data penetration rise, the next wave of growth will come with sales to
low-income and rural customers. For example, in India, mobile data traffic is expected to explode,
from seven megabytes per user in 2011 to 274 megabytes per user in 2016, by which time nearly
one-quarter of all Indian Internet traffic will be mobile. Already, two-thirds of smartphone owners
in India use their phones primarily for the Internet. Handset makers are now seeking out telecom
operators that can provide access to low-income and rural customers (see sidebar:
Smartphones for Low-Income and Rural Customers).
Smartphones for Low-Income and Rural Customers
The market for low-income and
rural customers is challenging
for both operators and handset
makers. There are several reasons.
Affordability. The typical
low-income and rural customer
spends between $30 and $60 to
buy a new device and less than $5
per month on a communication
plan. Drawing these customers
will require affordable devices
and plans.
Awareness and education. Many
within this segment have low
literacy and education, along with
limited to no previous exposure
to the Internet. Recent research
suggests that for some users in
this segment, the first step will be
educating them about the
benefits of Internet access.
Access. Low-income and rural
markets largely obtain their
phones through unorganized
channels in which handset
suppliers have limited control.
Operators, with an established
presence in rural markets and
access to customers, are in an ideal
position to grow by partnering with
handset suppliers to reach users in
untapped markets.
All monetary values are in U.S. dollars.
1
Boosting Telcos’ Smartphone Sales in Developing Markets
2

3. The question for telecom operators is not if or when to tap into these emerging markets—
the time is now. The question is how to define coordinated smartphone retail and data
strategies to capitalize on the opportunities. Done properly, our research has found that
operators could increase smartphones’ share of phone sales from 2 percent today to as
much as 10 percent by 2015.
Defining Strategies
A country’s smartphone penetration correlates closely to data revenues as a percentage
of total revenues (see figure 1). This demonstrates that consumers are either getting hooked
on data services and buying smartphones to gain better access to them, or they have
acquired smartphones and increase their usage multifold as they discover smartphonebased applications. Recent market research in emerging Southeast Asian markets suggests
that 70 percent of smartphone users sign up for a data plan, and they consume 30 times
more data than owners of data-enabled standard phones.
Figure 1
Smartphone penetration correlates closely to data revenue
as a percentage of total revenue
40
Correlation coefficient: 0.93
Data as percentage of revenue
35
30
25
20
15
India
Brazil
10
Thailand
Malaysia
Indonesia
5
0
0
5
10
15
20
25
30
35
40
Smartphone penetration
Source: A.T. Kearney analysis
Across the globe, smartphone sales and data revenues have increased in line with the
rollout of 3G mobile technology. In Brazil, data revenues took off in 2011 after 3G coverage
increased to 75 percent of the population. Not only did mobile phones become the preferred
method for accessing the Internet, but social media, gaming, and video applications also
increased significantly.
Boosting Telcos’ Smartphone Sales in Developing Markets
3

4. From a retail perspective, the options in emerging markets are evolving. Traditionally, because
of market challenges, a passive approach to data plans and smartphones was the name of the
game. Now, with significant growth potential in these markets, expansion plans might consist
of one of two strategies: branding, or data upsell and monetization (see figure 2). A branding
strategy calls for using existing retail outlets as primary destinations for data services, drawing
walk-in customers interested in expanding their use of mobile data plans. A data upsell and
smartphone monetization strategy takes this a step further by making smartphones an entry
point to increased data use and in turn new revenues.
Figure 2
Emerging market telcos can increase their data and smartphone focus
Aggressive
Data upsell and smartphone
monetization
Branding
Data upsell
and smartphone
monetization
• Move in line with developed
market practices
• Use smartphones to increase
data uptake
• Contract lock-ins and bundling
can lead to data upsell
• Data and device experience
in stores draws customers
• Analytics can craft appropriate
data plans for customers
Branding
• Attract walk-in customers to
stores and enhanced branding
Emerging market
telcos today
Weak
• Turn stores into “destinations”
to learn about devices and data
Aggressive
Smartphone retail focus
Source: A.T. Kearney analysis
The strategy of choice depends on the market, its data evolution, and your focus areas. Some
emerging market operators (Idea in India and Telkom Indonesia, for example) have selectively
explored the branding play by promoting a few own-branded smartphones and data plans but
have not gotten involved completely in the handset-buying process. Other emerging market
operators have aligned with handset makers and e-commerce sites to offer new data plans.
Because operator-branded retail stores are generally located in good catchment areas and offer
traditional services, it is possible to kill two birds with one stone by maximizing productivity in
existing stores while also increasing profitability through sales of smartphones.
Here, the secret to success is to make good use of the data already on hand—customer spending
behaviors and handset usage patterns—to become trusted customer advisors. Handset makers
are not privy to this level of data so it becomes a huge customer service advantage for operators
that track, monitor, and know how to use this level of customer information.
Boosting Telcos’ Smartphone Sales in Developing Markets
4

5. What Matters to Smartphone Buyers?
Our recent research of India’s smartphone market finds that the primary purchase criteria for
buyers in India are competitive prices, superior device and data experiences, convenience,
and strong brands (see figure 3). Fewer than 20 percent of smartphone buyers rate accessories, financing, and bundling among their top three criteria. For the in-store experience,
holding and trying the handsets and a knowledgeable sales force are important, followed by
multiple handset options, store look and feel, and availability. Among sales agents with strong
product knowledge are important, while post-purchase services are considered “nice to
haves,” with service and repair ranking highest. Yet, people are still largely unaware that
such services are available.
Generally speaking, existing retail and wholesale channels in emerging markets do not meet
these customer expectations, or at least not completely. So there is an opportunity to plug the
gap and provide a superior customer experience, while highlighting brands and new devices.
A handful of players are aligning their smartphone retailing strategies with handset makers.
For handset makers, emerging markets such as India and Indonesia are crucial growth areas,
and they may consider similar partnerships to drive captive sales.
Figure 3
How smartphone buyers make decisions
Why do you select a purchase point?
(% of respondents who select parameter as top three)
65%
Competitive
price
51%
Superior
experience
38%
Convenience
28%
23%
Brand/
reputation
Range
of SKUs
What are the most important aspects of the in-store experience?
(% of respondents who select parameter as top three)
58%
Experience
live handset
45%
Knowledgable
sales force
35%
33%
29%
Range
of SKUs
Store look
and feel
Stock
availability
What are the most desired post-purchase services?
(% of respondents who select service as most desired)
47%
26%
Customer care
(service and repair)
Sync contacts
15%
Set up email
and data
Source: A.T. Kearney survey of Indian consumers
Boosting Telcos’ Smartphone Sales in Developing Markets
5

6. Uncovering the Hidden Value
It is important to capitalize on emerging markets now as the full benefits of the boom in data
revenues will come to fruition over the next two to four years. Figure 4 outlines our retail
excellence framework, which highlights the important steps in defining the building blocks to
execute a smartphone retail strategy. Each layer in the framework—format, delivery model,
execution—is designed to work in concert to capture the entire smartphone value proposition.
Figure 4
A.T. Kearney’s retail excellence framework
Retail value proposition
Format
Product portfolio
Layout and design
Ownership model
Location
Delivery model
Range planning,
forecasting,
and pricing
Supply chain,
logistics, and partner
management
IT, data,
and analytics
Product placement,
promotions, upsell,
and post-purchase
Organization,
process, and
capability building
Execution
Source: A.T. Kearney analysis
Within the framework are three areas that require CEO-level attention to ensure immediate
action, happy customers, and sustainable returns on investments:
Develop a retail product portfolio. A good retail portfolio does two things very well: It addresses
the right target customer segments and it provides enough loyalty incentives to make sure
customers buy their next smartphone from your store. Because customers will be tempted to
bypass the store and buy through alternative channels (multi-brand or manufacturer), the store
value proposition has to be enticing. Offering guarantees and care plans as part of a smartphone
sale is a good way to attract buyers and address their unmet needs.
Redesign the existing store layout. Creating a “live” in-store experience can increase
smartphone sales; this includes providing adequate space for the customer to handle and
use the phone. The store layout should be oriented toward providing this experience and
workers should be trained to focus on sales, rather than merely providing customer service.
Boosting Telcos’ Smartphone Sales in Developing Markets
6

7. Build capabilities. To squeeze the most from smartphone sales may require investment in new
tools and capabilities. Some important ones to consider: demand assessment tools (based on
walk-in profiles and other metrics) to incorporate store-level variations in ranging, advanced
in-store POS systems to help identify upselling and bundling targets, device training for store
staff, and reverse supply chain links to handset manufacturers.
Staking a Claim in the Smartphone Market
A renewed focus on smartphones can create an immediate impact on sales and a long-term
advantage, as buyers tend to remain loyal to their telecom operators. Done properly, operators’
share of smartphone sales could increase—from 2 percent of phone sales today to as much
as 10 percent in in four years or less. However, tapping into this growth requires a coordinated
smartphone strategy and execution focus.
Authors
Nikolai Dobberstein, partner, Mumbai
nikolai.dobberstein@atkearney.com
Sridhar Narasimhan,
principal, Singapore
sridhar.narasimhan@atkearney.com
Sarovar Aggarwal, principal, New Delhi
sarovar.aggarwal@atkearney.com
Boosting Telcos’ Smartphone Sales in Developing Markets
7

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