Only loyal customer is the king when it comes to telecom. Gone are the days when operators would go all out to lure consumers through free calls and discounted rates. Telecom companies have moved on from the heady days of 2006, when only subscriber numbers mattered, to circa 2013, where making money matters.
For the last one year or so, operators have been focusing on retaining good quality customers, who can bring in assured revenues. “We are shifting our focus in terms of acquisition from number of customers to quality of customers. That is going to be increasingly important going forward,” says Vivek Mathur, Chief Commercial Officer at Vodafone India.
Idea Cellular CMO Sashi Shankar agrees that operators were giving away “a bit too much of freebies” and that returns were not commensurate with the investments made. “There was a lot of competition among operators and also at the trade level. The quality of subscribers was not good as commissions (for retailers and distributors) were high and there was no incentive for anyone to retain users,” he says.
It was then that operators collectively decided to curb fictitious sales. Fictitious sales refer to customers buying new connections, which come with free promotional minutes, and discarding the SIMs after exhausting the free talk time. Users then move on to a new SIM to take advantage of free calls.
High retailer commissions were promoting fictitious sales. Until September last year, retailer commission for bringing in a subscriber was as high as Rs 125-150. Add to it the operator’s cost of SIM and verifying and activating a subscriber, and the total cost for acquiring a customer would be Rs 200 for an operator on an average. Now, the commission has been reduced to Rs 80 per subscriber and the incentives model has been changed.
What gave operators the strength to cut promotional expenses was the cancellation of 122 telecom licences by the Supreme Court in February 2012. Soon thereafter, S-Tel and Etisalat DB exited the Indian market while others such as Uninor, Videocon and MTS (Sistema Shyam Teleservices) scaled down operations. This reduced competition, allowing incumbents to increase prices, cut sales expenses and keep a watch on the quality of customers.
“We are now monitoring that out of customers who come on board, how many remain on networks after six months,” says Mathur. The longer a customer stays, the more the retailer’s incentive. This has helped Vodafone save sales and distribution expenses. Similarly, Idea Cellular saw a decline of 11 per cent in sales and marketing costs in the first quarter of this fiscal as a result of reduction in trade margins.
Top three operators – Airtel, Vodafone and Idea – have improved their revenue per minute to 49 paise in the September 2013 quarter compared with 42 paise a year ago, largely due to reduction in wasteful sales expenses and by retaining good users.
For retaining customers, operators are banking on usage analysis of customers and segmentation of retailers. “We have data analytics to help us segment retailers from whom we get better quality customers. We are also seeking to understand our customers much better to give them more customised services,” says Mathur.
So if an operator finds a customer is a frequent STD user, she is offered a customised STD plan while a heavy data user gets a special data package. Free calendars, wallets, ties and gift coupons are other rewards being given by operators to loyal customers.
Finally, for customers opting to use-and-throw SIM cards, the party seems to be over. It will definitely be more profitable for customers to stay with an operator.
(This is first in a three-part series on the changing telecom landscape in India)