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OnMobile Says Telefonica 5 Year Contract Begins Q1 2010; 23 Services; Music Driven

OnMobile Global hosted a conference call on its Telefonica deal. We are were on the call, and reporting from it live.

Our coverage of the deal: OnMobile Ties Up With Telefonica In Latin America; To Invest $50M; Market Data

OnMobile CEO Arvind Rao (on the earnings call):

We’ve been working on this for the last 9-12 months. We initiatited the first call 10 months ago. It was initially just about RBT. Now we’ve signed up for just 22-23 services, rather than just RBT. It’s a 5 year contract, with a renewal clause built into it. There’s a wide range of responsibilities that the operator has also committed to. They’re going to push services into the markets where they’re well placed.

Rationale for the transaction: The Return On Investment on existing producre ts sold in new markets is very high. A bulk of the application and platform R&D has been expensed a bunch of quarters or years ago. There will be some customizations required, but by and large, we’re really remonetizing existing platforms and products. International revenues have preferredtax treatment. The leverage is high doing a centralized India based model. The other rationale behind this and the Vodafone deal is to derisk – India revenues were 100 percent of our revenues three years ago, and we want to take those down to below 50 percent.

Takes to generate revenues from such deals: Given the way the revenue share models work, the adoption is slow. Quarter on quarter, the same products in the same markets show higher revenues. In this case, the variable cost of content is going to be picked up by the operator. It’s not going to reflect in our cost structure.

A bulk of the services that we’re launching, either do not exist in these markets, or have market penetration of 0.4-0.5 percent in those markets, while in India we have 25 percent. Our targets are to reach half, if not comparable results. It’s a huge revenue opportunity for the operator and us.

We’ve tried to tailor services to the market – for example we have a Soccer Portal, in a continent that is Soccer crazy, just in advance to the World Cup. We’re also dabbling with religion, because it is almost 90-95 percent Roman Catholic, and looking to put in hymns and bible on the cellphone. We haven’t done that in any other market in a substantial manner. We’ll be trialling new things in that market. Another service we’re launching is Mobile Bazaar, under the Movistar brand name, allowing users to trade personal items. Huge potential.

When we launch these things, the idea is to launch it in one market, and then launch in others. One key product is voice search – music, taxi, movies etc. We’re going to launch it in both Spanish and Portugese, and in voice it will be exclusive with us. We have a team in place that is working with the local operators, for planning the deployment. The deployment will be in a phased manner. Based on country and services, starting in the first calendar quarter of 2010.


Was the Vodafone deal a catalyst for this Telefonica deal?

The Vodafone deal had nothing to do with this deal. But that said, will this help us get a third deal? Definitely, yes. The word is spreading, but we treat each customer one at a time.

By when will rollout be completed?

If you dig a grid of 23 services in 13 countries. We hope that a bulk of that grid will be populated by September 2010, but there’s a caveat there. I would say that between december 2010 and june 2011, we should be able to populate the entire grid. This contract is for five years, from the date we go live with these services.

Investment that we plan to make?

Varies on the deployment required. It will be front end loaded. Question is, how many of the services do we launch on day one?

Within Latin America, how does the VAS market stand?

The market there is focused more on data, not the kind of services we do. But Latin American market is music crazy. But what happened is, wherever it’s been deployed today, it either hasn’t been deployed completely, or uses inferior technology, which we will replace.

Our Telisma unit in france has already developed a Spanish model. Customising and fine tuning it to the markets there is not going to take too much time.

We want to take a mix – one in the Andean countries, and another in the north, for the rollout, so we can showcase to other countries once they go live.

Can you sign up America Movil, or is it exclusively with Telefonica?

We are not precluded in signing up with anyone else, but we give them lead time in good faith, before signing up with any other operator. It’s more important to build long term customer relationships.

Are you going with one country, all services?

The details are being finalized. We’ll have it finalized in the next 60-70 days.

The client will take care of the content costs. How different is this different from what is done in India?

The dynamics are not different. Lets discuss on the profitability on the earnings call.

Is there some kind of performance related clause? Are you worried about scalability, given the Vodafone and Telefonica contracts, and the work in India?

There’s no performance clause. But because it is on a revenue share model, there is perfect alignment. The better it does, the more the operator invests in it. It becomes self reinforcing cycle. We’ve examined the technology in some cases, and can clearly see why its not doing well – they dont ahve a managed service model


The team that we have for doing deployments, and I was amazed that they’re putting in place a parallel scalable, deployment model. We’re gearing up – we’ve done vodafone, we’ve done telefonica, and they’re gearing up resources, both external and internal.

How is the $50 million expense being planned?

The investment includes post-launch and pre-break even. When we do planning with a project of this scale, we need to figure out how much you need to fund it for pre-operative break even, build in contingencies.

Note: We couldn’t get our questions answered, so will wait for the OnMobile Earnings call for the same:

— How do the business models differ between India and Latin America?
— Any regulatory situations that we need to be aware of?
— Hiring plans for Latin America? Where will the company HQ’ed out of for Latin America?
— Any related acquisitions planned for Latin America?

Disclosure: Telefonica group company Telefónica Investigación y Desarrollo was a research client for MediaNama

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