The Hindu Business Line : The call of competition

New entrants in the telecom sector have sounded the bugle even before rolling out services. A look at what they seek to offer, and what the incumbents say about turf sharing.

Thomas K Thomas

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This one seems to be a David versus Goliath confrontation in the making yet again. The only difference is that there are many Davids and Goliaths in this story. The battle this time is between the existing large pan-Indian operators such as Bharti Airtel, and six new companies that have been recently given letters of intent (LoIs) for new telecom licences.

Soon after receiving the LoIs, these six companies — Spice Telecom, Shyam Telelink, BPL, Videocon, Swan and Unitech — declared war on the incumbents, to grab a larger share of the booming cellular market in the country. While these companies are still far away from actually rolling out services, they have already sounded the bugle with a combined investment of over $10 billion and some innovative tariff schemes in the offing that promise to give the incumbents a run for their money.

‘Spice up’ the action

On January 25, the B.K. Modi-promoted Spice Telecom announced that it was investing a billion dollars in rolling out mobile services across the country. Spice, which currently has operations in Punjab and Karnataka, has got the nod for four more circles and is hopeful of getting the licence for a pan-Indian rollout.

The company, partly owned by Telekom Malaysia Berhad, is targeting a market share of 10 per cent in the first two years of operations.

“We are confident of taking on competition from the incumbents because we have done it in our existing circles. In Punjab, we are thenumber two operator ahead of big players such as Vodafone and BSNL. We are going to replicate that success in other parts of the country,” says Dr B.K. Modi, Chairman, Spice Group.

While Spice has been around in the telecom scene for nearly a decade, this is the first real chance for it to get into the big league. The company is planning to leverage its existing businesses involved in developing mobile content, manufacturing mobile handsets and a telecom retail chain in order to achieve its targets.

Another old timer in new wine skin is the Rajeev Mehrotra-promoted Shyam Telelink which, until now, was only a single circle operator of fixed line telephones in Rajasthan. Shyam, which is on its way to get licences for 22 circles, has struck a strategic partnership with Russian conglomerate Sistema. The company is planning to invest up to $5 billion in the next three years.

Says Alexender Goncharuk, President, Sistema, “We will invest whatever it takes for a competitive world class all-India telecom network in the shortest possible time.”

“This relationship will not only give Shyam Telelink an edge to compete in the competitive Indian market but will also bring new services and practices to benefit Indian consumers,” says Mehrotra, Chairman, Shyam Group.

Telecom first-timers

However, the actual new kids on the block are electronics giant Videocon, real-estate major Unitech and a relatively unknown entity Swan Telecom as these companies are first-timers as far as telecom is concerned. Videocon has been trying to get into the telecom space for more than five years and now, through a subsidiary named Datacom, it has been able to position itself to become a national mobile service provider. The company will roll out its services by the end of this year and is expecting 10 million subscribers in three-four years of the launch.

And how does it plan to get there in a market dominated by the likes of Airtel, Vodafone and Reliance Communication?

Venugopal Dhoot, Chairman, Videocon, responds, “As a new operator, we have the advantage of having a free network, which will enable us to offer a high quality of service. Today, subscribers are facing problems due to congestion and frequent call drops. While existing operators are running a packed network, we will position ourselves with the best infrastructure.”

Since Videocon does not have enough expertise in running a telecom operation, the company is in talks with large multinational telecom operators for a strategic tie-up. It plans to use its extensive all-India electronic goods dealer network of over 10,000 to reach out to the customers.

Dhoot believes that the cost of setting up a new network for new players will be reduced significantly since they have the option to hire towers from infrastructure companies such as GTL, Quipo and American Tower Corporation.

Like Videocon and other new players, real-estate major Unitech senses that it has a real chance of making it big in the telecom sector. Unitech is planning an investment of $2 billion to set up a network and is also scouting for a strategic partner. “The continuous rapid growth in India’s telephone services business indicates the enormous potential for future growth in this business. Further, it will help boost the group’s telecom and transmission tower manufacturing business. Thus, investment in this sector will provide immense potential for value addition to the group,” says Unitech.

Innovative pricing

Apart from making huge investments, these new players are also banking on some innovative pricing models to attract subscribers. “We are looking at some innovative models and best practices being followed around the world. The way of running a profitable telecom business is changing and we will harness new methods to get a 10 per cent market share over the next three years,” says Dr B.K. Modi.

While the companies are keeping their strategies close to their chest, it is learnt that some of them are even looking at schemes that will allow subscribers to make free calls. Insiders project that the average tariff per minute for the industry could fall to as low as 25 paise a minute from Re 1 at present.

Incumbents unfazed

While that’s good news for consumers, the incumbent operators aren’t too worried yet. “We have faced competition over the last 10 years and it has only benefited us. It will take at least a year more for the new players to get their licence, spectrum and set up a network by which time another 50-60 million subscribers would have been added to the existing operator’s network. We have also faced aggressive pricing in the past without losing our market share,” says a confident Akhil Gupta, Joint MD, Bharti Airtel.

Other incumbents say that the market is not big enough to accommodate so many operators and therefore some of the new players may not survive. They also point out that it will take at least five years for the new players to make money on their investments by which time the total subscriber base would have crossed 500 million, leaving not much for the new operators.

“At least 70 per cent of the market in 2012 will continue to be with the older players. The battle will be for the rest,” says an existing operator.

Vodafone sources point out that this is not the first time new operators are making a foray into the cellular segment and in all the previous times such an event has only grown the market. “After mobile licences were issued in 1995, we have had several new players coming, such as the CDMA operators - Reliance Communication, and fourth cellular operators such as Idea Cellular. Even State-owned BSNL and MTNL came in much later. All this has not affected our market position,” says a Vodafone official.

Eyeing new subscribers

While the challengers agree that it would be difficult to displace the incumbents from their market positions very soon, they are eyeing the 7 million new subscribers being added every month.

“It is estimated that 250 million more cellular subscribers will be added over the next three years. If we get even 10 per cent of the new subscriber base we should be on our way. Add to that the 4 per cent churn that happens every month on existing operator’s network and that gives us a sizeable market opportunity,” says an upcoming operator.

The new players are also banking on the introduction of mobile number portability to wean away subscribers from existing operators. Number portability allows subscribers to change their operators without having to change their number. A recent survey showed that subscribers would favour a change in their operator if they are allowed to retain their phone number. “At present there is no alternative for a subscriber because all the operators offer almost the same tariff and same quality of service. Surveys by the TRAI have repeatedly shown that the quality of service is poor but subscribers don’t have an option. We will become that option with our superior network,” says a new operator.

Keep ‘em hooked

Meanwhile, existing operators are quietly preparing for the onslaught. For one, they are trying to hook subscribers to their network by offering lifetime pre-paid cards for as low as Rs 199.

This means that a subscriber can continue to get free incoming calls by paying just Rs 199 and by recharging just once in six months. More than 70 per cent of the 200 million mobile subscribers presently use pre-paid cards and they tend to change operators. This could have been a fertile ground for the new players to launch their attack.

To plug this hole, existing operators are introducing cheaper lifetime validity cards in a bid to arrest the high churn rate. As an additional benefit for their loyalty, operators allow lifetime card users to get almost the full value of the recharge coupons. Non lifetime pre-paid card users have to pay a processing fee, which could be as much as Rs 100 on a Rs 300 recharge voucher.

The incumbents are also investing heavily in upgrading their network. All the existing players have announced investments worth $2-3 billion every year for the next six years in making their network resilient enough to provide high quality services to consumers.

One doesn’t know yet whether the Davids or the Goliaths will win this battle. Either way, consumers can expect cheaper tariffs coming their way.

New kids on the block

Spice Telecom: Joint venture between Telekom Malaysia Berhad and B K Modi Group. It is the number two operator in Punjab with 2.3 million subscribers and number four in Karnataka with 1.4 million cellular users. Plans to invest $1 billion with an aim to take 10 per cent market share in two years.

Shyam Telelink: Joint venture between Russian conglomerate Sistema and Rajeev Mehrotra-promoted Shyam Group. Operates fixed line services in Rajasthan. Wants to invest up to $5 billlion over the next three years across 21 new Circles.

Datacom: Subsidiary of electronic goods major Videocon. To partner one of the largest multinational telecom players. Wants to get 10 million subscribers in three-four years.

Unitech: Currently one of the largest real-estate companies in the country. Wants to get into telecom to increase its value. Plans $2-billion investment in 22 new Circles and is also scouting for a strategic partner.

BPL: Known to be backed by the Essar Group through a minority share holding. Currently offers mobile services in Mumbai to 1.3 million users. Plans to invest $2.5 billion in 19 new Circles.

Swan: New entity, earlier backed by Reliance Communications. Now owned by Dynamix Balwas, a joint venture between Mumbai businessmen Shahid U. Balwa and Vinod K. Goenka. Plans to invest $2.5 billion in two years in 13 circles.

tkt@thehindu.co.in

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