CAN THE TELECOM INDUSTRY WELCOME THE NEW ENTRANTS?

Ms. Ambika Rathi*, Mr. Rajesh Verma**

 INTRODUCTION:
Indian Telecom industry – the second largest mobile network in the world with more
than 500 million wireless subscriber base, is the most happening industry of the modern
times. With 14 million subscriber adding every month the industry offers highest
growth rate and investment opportunities.
India is the fastest growing country in the world in the telecom sector with
approximately 20 million subscribers being added every month. It is expected to grow
to 800 million subscribers by 2013, as quoted in Times of India on with over 11
operators in the country. The telecom industry contributes around 1.54 % to the GDP.
(www.cybermedianews.com )
According to Business Monitor Analyst, India currently has 584 million mobile
subscribers .It is estimated that by 2012, around half of the country’s population will
own a mobile phone. This would lead to a 51% teledensity by 2012.
According to Frost & Sullivan ,the industry analyst, by, 2012 the fixed line revenues
will rise to US$12.2 Billion while mobile revenues will rise to US $ 39.8 billion in
India.( source: Times of India,-17th May 2010.)

 HISTORY
In 1992, government could gauge the gaps between government spending and the
provision of the additional resources needed to develop telephony in the country. This
led to opening up of the sector to the private players in 1994. The announcement of the
National Telecom Policy in 1994 herald the telecom revolution in India. Thus,
Telecom monopoly got disintegrated into a duopoly (not more than two cellular
operators could be given license in each telecom circle), and 19 more telecom circle
were given licenses in 1995.
It was thought proper to invite FDI. At this point of time there was a dire need of FDI
as there was no local player in the industry .And since this was a government sector
itself, it did not have much to invest. However the game was not so easy. To regulate
Foreign Direct Investment, the govt set up TRAI- Telecom Regulatory Authority of
India in 1997. After initial euphoria there was a consistent fall in the FDI, by 1999, it
fell almost 90% from approximately Rs.17, 000 million to 2000 million. The entrance
norms for FDI were made tough and the circles were opened only on the whims and
fancies of the TRAI. Keeping in view the huge potential in this sector, BSNL was
incorporated in Oct 2000(A Government of India Enterprise). 25 licences were issued
by DOT for Basic services in 2001.
This initiated the rat race for acquisition of more and more circles and to add more and
more subscribers to the ever expanding customer base. With liberalised sanctions,
subsidized rates and some industry friendly norms from TRAI, the ball got rolling.

* Lecturer-Marketing, Asia Pacific Institute of Management Studies, Delhi

** Sr. Lecturer-Marketing, Asia Pacific Institute of Management Studies, Delhi

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In May 2006 India crossed the one million mark for all the mobile subscribers in the
country. In 2009, Airtel alone crossed the 100 million mark for subscriber base,
followed by Reliance in March 2010 and Vodafone in Apr 2010. The growth in the
subscriber base has been unprecedented. (Source: www.caoi.org: www.auspi.org)

 PRESENT SCENARIO:
The reasons behind this exponential pace of the growth in this industry were as follows:
There was already a latent need for the telecommunications. Still, more important was
the low cost at which this service was being provided to the customer. And last but not
the least the government machinery helped the sector in every possible way. with the
opening up of the sector for the private equity.
While this had opened a plethora of opportunities, growth and development, the moot
question is, are the telecom players really making good money?
The big established players who had bought licenses at throw away prices are
improving their market share by adding the subscriber base at a phenomenal pace, but
are they earning profitable revenue?
A glance at the facts and figures reveals that the industry is going through a
metamorphosis. Though the operators are earning revenues, but over the last two years,
have they been able to sustain the same pace of revenue generation? The figures show a
decelerating growth in revenue generation (Table 2) (Source www.coal.org). Tariffs
war is taking huge toll on their revenue base and hence the big question now is, is the
growth for real? Till what time this trend will be borne by the industry?

 EVALUATION OF MARKETING MIX

Considering the basic of marketing lets us evaluate the 4 P’s of the marketing mix
• Product:
The product here is the service that is provided to the subscriber .In this process there is
a sim card and a basic number that the customer gets as a unique number. The network
and the spectrum are harnessed by the companies to provide the best networks. Apart
from serving the basic purpose of mobile i.e. to communicate with each other , a few
other services also called the Value Added Services ,were added to the portfolio to
give the customer that delight and at the same time earn some extra revenues (at some
extra cost).
This formed the augmented layer of the product, while the potential layer lay way
beyond this. With the changing scenario of unprecedented growth and cut-throat
competition, this augmented level became part of the expected level, hence impacting
the base tariff line and value added service also.
The result today is that the sim cards have become redundant, they come for free.
The falling ARPU`s (Table 3A) have forced the operators to make the value added
services available at cheaper prices. Not only is that, drifting away from the core
benefit the operators targeting the customer on the basis of the augmented level of the
product. That is the customers are not lured on the operations or network but on the
Value Added Services, which was the augmented level of the product.
On top of it, unique number given to the customer by this operator may become
redundant once number portability is rolled out which is that the customer can use the
same number for the different operator.
The consultation paper for Mobile Number Portability MNP was presented to TRAI on
22/07/2005. The recommendations were submitted to DOT on 8/03/2006, and the

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 decision to implement was taken on 10/12/2007. However till date the implementation
is pending (www.trai.gov.in)
The product has already reached the maturity stage (even a lower class household uses
3 mobile connections- a multi sim scenario.) All the competitive strategies are working
to elongate this maturity graph. When we discuss the networks and spectrum, we see
operators becoming aggressive. Every operator buys a Spectrum from the Government
for some fee. Spectrum is the capacity of the network in which any operator operates.
This capacity has to be increased or decreased with the level of the subscribers an
operator has on its network. Most of the operators have reached a saturation point and
are on a look out for buying additional spectrum to increase the customer base.
Presently the transactions between the business entities that had purchased it from the
Government (TRAI) and the business entities buying it now, the transactions are done
at phenomenal prices. But this may be one of the opportunity to improve revenues!

• Price:
Pricing is a major dimension in telecom industry. Earlier the price was for the sim card
and the tariff was based on the usage. The major parameters were prepaid and Post paid
and finally the roaming rates. With the sim cards coming in for free and validity losing
its ground, the value added services becoming chargeable, a new phase of challenges is
now before the industry.
In the era of dwindling ARPU`s – Average Revenue Per User (Rs. 240/- last year
dwindling to Rs 120/-/130/- this year, and, for the new operators, it is hovering between
Rs.50/- to Rs.80/-) (Table 3B).VAS- Value Added Services and other allied services
became crucial for the industry, which saw a huge upsurge and increased focus of all
operators in areas like Caller tunes, Dialler tunes, various Alert packs and Internet
options.
However the intense competition waged the price-wars. The one- min-plan was
replaced by one-sec-plan, (TATA DOCOMO) which brought about a revolution in the
industry. Thereafter many operators followed the practice and soon the remaining may
have to do it. The roaming rates were slashed to a new `low` level. What happens if the
roaming rates are slashed to an all time low?. All this has intensified the price wars
between the vendors.

• Promotions:
How to communicate about products services and benefits or to the target customers- is
the question which is troubling the minds of marketing teams of all telecoms?
The promotion mix involves all kinds of ATL- (Above the Line) and BTL-(Below the
Line) activities. The companies are spending stupendous amounts on all forms of
promotions. The creation of the brand and the brand recall takes away the major chunk
of the spending budgets, TOMA- Top Of the Mind Awareness, ITP,- Intention to
Purchase , AVI- Availability Visibility Index are taking most of the time of telecoms
marketers . Will it help, Or the industry will have pump into more moolah to brave the
front.
The industry has not only experimented with innovating advertisements, like
ZOOZOOS, for Vodafone , but also with the most innovating form of advertising-the
road block again engaged by Vodafone for the launch of I-PHONE!!!. And
ZOOZOOS in IPL 2 wherein every day there was a new ad to lure the customer and
zoo- as brand ambassador became as big as brand as Vodafone.
Exploring all the various mediums of promotions from airing different types of ads (zoo
zoos etc,/social marketing by IDEA- save trees to celebrity endorsement, save tigers by

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 Aircel, Karina Kapoor and Saif Ali Khan for Airtel) , to experimenting with the new
media’s ( the BTL being the most popular for adopting different types of advertising
( Road block).

• Place/distribution:
Presently the teledensity is close to 80% in the metro cities, 70-75% in the Urban India
and only 30-40% in the Rural markets. It seems the opportunity for the telecom
companies now lies in the rural market, or at the Bottom of the Pyramid.
The industry is trying their luck at rural India, by all means. `` go rural ``is the new
mantra for success. With 40% rural density by 2012, it translates into 160 million
connections within next 2 years, this will need Provision of 10,000 shareable mobile
towers in rural India possibly with subsidy support from USOF in next 2-3 years
(www.indiantelecom.org). The virgin Rural areas will surely help the telecoms to add
to their customer base but only with proper and adequate infrastructure.

 MARKET SCENARIO:

Considering the market dynamics, the researches show that the market started growing
at a whopping 80%.However over the years it could not sustain the same pace of
growth. There has been constant increase but at a decelerating pace which is reflected
as under:
Table: 1
Percentage increase in subscribers figures of GSM Cellular Operators
Years
Sno Company 2009 2008 2007 2006
01 Airtel 38% 55% 72% 95%
02 Vodafone 50% 52% 71% 104.2%
03 Idea 51.5% 80.5% 69.2% 92%
04 BSNL 38% 26.4% 38.5% 65%
05 AIRCEL 92% 70% 108.9% 97.7%
06 Reliance 52% 72% 64.8% 118.7%
07 MTNL 17% 31% 21.8% 58%
08 Uninor*
09 Loop*
10 STEL*
11 All India 47% 49% 63% 80%

Note: For these companies with (*) mark, only data of year 2009 is available

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Table: 2
Year wise revenue (Figures in Crores) & %age growth in Revenue of GSM Cellular Operators

Years
2009 2008 2007 2006 2005
Compan %age %age %ag %age
y e

1 Airtel 25474.53 13% 22455.85 39% 16147.45 61% 10028.15 60% 6244.18

2 Vodafone 16480.72 12% 14710.98 31% 11218.42 47% 7623.5 61% 4714.94

3 Idea 10147.45 35% 7499.28 49% 5023.61 54% 3259.05 39% 2330.45

4 Aircel 3001.97 26% 2381.32 32% 1798.52 74% 1033.6 65% 625.84

5 Reliance 1577.51 21% 1295.15 28% 1005.73 34% 749.65 53% 487.58

6 All India 57139.73 15.4% 49501.28 35% 36484.32 50% 24267.3 53% 15788.2
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Year 2009 shows a rare growth of 12-13% even for the big players. Over the years the
revenues have shown a declining trend when compared on an year to year basis. It can be seen
that the revenue growth of major GSM cellular operators, namely Airtel and Vodafone,
registered a growth of 12-13%, while in case of the other three namely Idea, Aircel and
Reliance, the growth rate was 21-35%. Despite such difference in growth rates the new
operator may perceive the market as a growing one, although the current growth rate does not
compare well with the initial years.

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Table: 3 A

Average Revenue per user (ARPU) (Figures in Rs.)

Year
2008 2008 2008
Company Jan- Apr- % age Apr- July- %age July- Oct- % age
Mar June change June Sept change Sept Dec change
Airtel 292.50 270.66 -7.47 270.66 254.48 -5.98 254.48 260.59 +2.40
Vodafone 280.37 259.33 -7.51 259.33 231.79 -10.62 231.79 227.92 -1.67
Idea 235.45 227.77 -3.26 227.77 213.58 -6.23 213.58 215.41 +1.47
Aircel 180.78 175.00 -3.2 175.00 147.78 -15.55 147.78 137.36 -7.05
Reliance 156.21 152.05 -2.37 152.05 126.25 -17.22 126.25 108.18 -14.31
All India 253.44 246.71 -2.65 246.71 226.71 -8.11 226.71 221.84 -2.54

Table 3 B
Average Revenue per user (ARPU) (Figures in Rs.)

Year
2009 2009 2009
Company Jan- Apr- % age Apr- July- %age July- Oct- % age
Mar June change June Sept change Sept Dec change
Airtel 239.14 221.68 -7.3 221.68 200.58 -9.52 200.58 177.32 -11.60
Vodafone 210.38 193.56 -8 193.56 170.85 -11.73 170.85 156.85 -8.03
Idea 201.60 191.59 -4.67 191.59 172.09 -10.18 172.09 158.66 -7.8
Aircel 134.57 121.34 -9.83 121.34 113.71 -6.28 113.71 91.89 -18.05
Reliance 111.61 105.31 -5.65 105.31 97.33 -7.58 97.33 92.19 -5.28
All India 207.87 191.28 -7.98 191.28 173.66 -9.21 173.66 155.60 -10.44

Here the cost of setting up new operations has also been calculated.

Another phenomenon that is reflecting in the researches is that the subscribers are
being added continuously year after year, the market size is growing but the
players are finding a tough time handling and retaining their customer base.

It may be because the customer of prepaid connections has lucrative options to switch
over as the switching cost to the customer is very low. If the operator wants the
customer to stick to its brand it has to work on the Brand Loyalty. Unfortunately the
new comers have not been able to work on this area as yet. The brand loyalty plays a
very crucial role in such a condition. Thus the new player has waged this price war.
The major price warfare that is being witnessed is the by product of the falling tariffs.
This is just another tactic specially used by the new operators to make some dent in this
highly competitive market.
The norms are that the incumbents or the big players survive because of their volumes
or size of the market share they enjoy, but the case is not that simple, the big operators
are hit the highest because of the large subscriber base. However the research shows
that any further cut in the price will add to the falling ARPU`S.

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 EMERGING SCENARIO

In such a scenario when the conditions of growth are so tough, the operators are
compelled to look at other uses of the telecom network which can help them in
improving their revenues.
One of the strong areas could be the Mobile Banking. It refers to providing and
availing banking and financial services with the help of mobile telecommunication
devices. The scope of the services may include facilities to conduct bank and stock
market transactions, to administer bank accounts and to access customised information.
(Article: Mobile Banking- Evolution and Business Strategy for Banks, by Mr Ashok
Singh, in The Indian Banker – Vol V NO. 4-April 2010).
Another opportunity is in the field of Entertainment. Vodafone with its Go Rural,
campaign is offering song on the mobile for a nominal amount for the entire month.
The subscriber has to subscribe for the service with the connection and avail of the
facility.
Railway Ticket Booking could be yet another area where in the mobile services can be
included and the telecoms make money from these Value Added Services.
A process of consolidation is already being seen with starting of sharing of the
infrastructure. In this process telecoms are trying to cut on the capex , in terms of
towers and network equipment. Inception of Indus Towers ltd in the year 2007 with the
equities from Airtel(42%), Vodafone(42%) and Idea(16%) is the example of the same.
(www.industowers.com)
In such a scenario, where in the growth is at a decelerating growth, legal implications
imposed by TRAI is adding more pressure on the costs, and the ARPU`S already
reeling down the ladder.

 CONCLUSION:

CAN THE INDUSTRY WELCOME THE NEW ENTRANTS?

The new players who are trying to cross various barriers are coming with innovative
sustainability model to test a complex competitive market.
From price reductions to quality reductions to quality up gradation to focussing on the
value added services, the companies are trailing to come up to the expectations to
realise the revenues. In such a state of affairs are the new players waiting for the right
period to harvest the profits? Are they exploring other possible uses of the mobiles in
near future? Will there be another bounce of the reduction in prices? What will be the
level of quality offered to the consumer? To survive in such circumstances is not only
difficult but very challenging too.
1. Firstly the cost of providing the infrastructure for reaching to the customers, i.e, on
acquiring the basic infrastructure of towers, networks and spectrum is quite high.
The cost of a well established distribution channel plays a crucial role in bringing about
the sales which only lead to the revenue generation.. However what will be the cost of
building this kind of distribution network which has to be not less than the established
FMCG`s. The channel partners also need to have a good ROI.
2.Secondly the cost of promotions in telecom is no where in comparison to any other
player in the market right now, whether, it is FMCG, Consumer Durables, Media, etc,
Telecom always scores the charts in the ad spend. To create a brand and then to
survive with that brand soaks up the major part of the budget. Do they have adequate
financial resources?

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3. Thirdly price warfare. In India it is unfortunate for the players, since more than 90%
of the connections are prepaid, and the switching cost is very low for the customer. And
with Post –paid there is the evil of number portability lurking large on the horizon.
With number portability coming into the picture even the revenues from the post-paid
connections will be a major challenge for the operators to sustain.
Govt telecom policy has so far not been fully liberalised. In fact they are at times
having adverse impact on Revenues or the ARPU`s. They want more benefits for the
customer. This parameter will be yet another challenge for the new player.
Last but not the least, is the issue of teledensity, which is about 76-78% in the metros,
70 to 75% in the urban cities and only 40-50% in the rural India. If the new operators
look at the bottom of the pyramid, will they be successful in that, because the
established players have already started tapping the rural markets much in advance.
It is only in the Indian market that we have 15 -16 players operating in the field of
telecom .All over the world, both in Developing or a fully Developed economy, there
are not more than 4-5 players, There are not even 16 soap manufacturing companies in
India in the organised sector.
Are the new players coming in with the sole purpose of making a small time- big
money or the battle lines are being drawn for an era of mergers and acquisitions?
The prevailing market conditions in India are pointing towards a dynamic phase. Here
the smaller operators will be seen consolidating themselves. Some may be either
selling their spectrums or harvesting profits they can, or they will be looking up to
bigger operators for Mergers for their survival. There will be lot of churning in the
market. The survival will be crucial for the big players as well. With the addition of the
subscriber base, they will need the spectrums to keep the ball rolling. So they will be on
a look out to buy the players with the spectrums. In the process they will look for a Plan
B. This would be the inorganic growth through Mergers and Acquisitions.
In such a volatile situation, how far the Regulatory bodies will favour them is
another question mark.

Authors can be reached at ambikarathi@asiapacific.edu.in and

rajeshverma@asiapacific.edu.in