Despite having invested magnanimously in setting up telecom infrastructure, past mobile operators are being pushed to the wall due to rapid changes in technology, especially with the expected shift to 3G. Are the new entrants being provided undue and excessive advantage?by Surbhi Chawla
And one of the reasons for analysts to dwell on the pessimistic view was that then – 2008 to be precise – telecom service providers were charging their subscribers on a per-minute basis; and in that one minute earning, were pocketing about 50 paise as revenue. Cut to today, and all these companies are able to scrape out only 20-35 paise per minute of use! This revenue hit already has the stakeholders of the top tow companies in the sphere quite jittery about the future outlook; and both Bharti Airtel and RCom have witnessed a respective 30% and 40% drop of their m-cap in the past one quarter!
The same story has been translated in the quarterly results that have been pouring in. Factor this: Bhati Airtel in its third quarter performance has seen its EBITDA margins corrected by 204 points q-o-q, which was a result of a 1.7% negative growth in its core wireless business. RCom too has come out with subdued results as it witnessed a decline of 21.43% y-o-y in consolidated net profit (which fell to Rs.11.08 billion) for the quarter ended Dec 31, 2009. The scenario is being replicated even in the international market. One example is the second largest telecom operator in the United States – AT&T – which, according to Wall Street industry estimates, would require to plough in about $5 billion in its network to be at power with its arch rival Verizon. Reverse engineer that American logic, and one finally starts realising that from the very start, telecom by and large has been a capital intensive business that only players with deep pockets have been able to enter, and especially those who have the ability to bleed along with their competitors till one of them blinks!
Add to that the brouhaha and hullaballoo being generated with respect to 3G auctions. For a technology that was introduced in the European continent way back in 2003, the hype is clearly much ado about a much delayed thing. But given the fact that with 3G, past rules will surely get re-written, the signs of dirty blood bath are already clearly visible with examples of established players who have been in the market from the very start having difficulty in protecting their margins and profitability – not to mention the rate at which new operators are being added. The going is surely going to get tougher with more new players (like Uninor, S Tel, MTS, Videocon Teleservices, Loop Telecom et al) jumping into the imbroglio. Strangely, in the new tech era, the fact is that perhaps those are the new players that actually might have a bigger advantage than the old ones, as technology differentials are becoming absent, and all it takes to get a subscriber therefore is an aggressive combination of marketing and attractive tarrif plan.
Take the case of Uninor (a joint venture between Unitech Wireless and Telenor), which has launched its services in seven circles of India on Dec 3, 2009. The company has earmarked a total capex of Rs 3,500 crore for the coming five years of operations to roll out services in the pending circles and also to market its offering. The company is currently charging its subscribers 29 paise per minute for local calls and 49 paise for National long distance calls for all the eight circles that it is present in right now (it plans to launch operations in 22 circles). With such an aggressive pricing strategy, this new kid on the block has garnered a remarkable 1.2 million subscribers (TRAI figures) in just one month of starting operations. Stein-Erik Vellan, Managing Director, Unitech Wireless tells B&E, “We would be EBITDA positive in three years of operations and would have positive operating cash flow within the coming five years.”
A similar story is being repeated across the ghats with Tata Docomo (a JV between Tata Teleservices and Japan’s NTT Docomo), which innovated the pay per second calling plan in India. Anil Sardana, Managing Director, Tata Teleservices Ltd defends such a plan to B&E, “It has not even been a year since we started GSM operations but we are on the verge of being EBITDA positive.” But he hurries to add, “The reason that we have been able to achieve this hallmark in such short frame is because of the quality of service that we have been offering to our subscribers.” Post the GSM launch, Tata Teleservices has been leading the subscriber additions tally for about five consecutive months (August 2009 to December 2009) now. The truth is that the consumer base in India, in general, is an infidel mistress. Offer her a good price and she would jump ship before you can mutter Jack Sparrow! As many as 40% subscribers are getting churned out from one operator to another every year. But aren’t customers worried about losing their ‘number’, when they jump the pirate ship? According to Prasoon Majumdar, Head, Global Strategy and Investment Consulting, “Retaining a mobile number is a relevant proposition for only 15-20% of total telecom subscribers today – those would be professionals and businessmen.
The same story has been translated in the quarterly results that have been pouring in. Factor this: Bhati Airtel in its third quarter performance has seen its EBITDA margins corrected by 204 points q-o-q, which was a result of a 1.7% negative growth in its core wireless business. RCom too has come out with subdued results as it witnessed a decline of 21.43% y-o-y in consolidated net profit (which fell to Rs.11.08 billion) for the quarter ended Dec 31, 2009. The scenario is being replicated even in the international market. One example is the second largest telecom operator in the United States – AT&T – which, according to Wall Street industry estimates, would require to plough in about $5 billion in its network to be at power with its arch rival Verizon. Reverse engineer that American logic, and one finally starts realising that from the very start, telecom by and large has been a capital intensive business that only players with deep pockets have been able to enter, and especially those who have the ability to bleed along with their competitors till one of them blinks!
Add to that the brouhaha and hullaballoo being generated with respect to 3G auctions. For a technology that was introduced in the European continent way back in 2003, the hype is clearly much ado about a much delayed thing. But given the fact that with 3G, past rules will surely get re-written, the signs of dirty blood bath are already clearly visible with examples of established players who have been in the market from the very start having difficulty in protecting their margins and profitability – not to mention the rate at which new operators are being added. The going is surely going to get tougher with more new players (like Uninor, S Tel, MTS, Videocon Teleservices, Loop Telecom et al) jumping into the imbroglio. Strangely, in the new tech era, the fact is that perhaps those are the new players that actually might have a bigger advantage than the old ones, as technology differentials are becoming absent, and all it takes to get a subscriber therefore is an aggressive combination of marketing and attractive tarrif plan.
Take the case of Uninor (a joint venture between Unitech Wireless and Telenor), which has launched its services in seven circles of India on Dec 3, 2009. The company has earmarked a total capex of Rs 3,500 crore for the coming five years of operations to roll out services in the pending circles and also to market its offering. The company is currently charging its subscribers 29 paise per minute for local calls and 49 paise for National long distance calls for all the eight circles that it is present in right now (it plans to launch operations in 22 circles). With such an aggressive pricing strategy, this new kid on the block has garnered a remarkable 1.2 million subscribers (TRAI figures) in just one month of starting operations. Stein-Erik Vellan, Managing Director, Unitech Wireless tells B&E, “We would be EBITDA positive in three years of operations and would have positive operating cash flow within the coming five years.”
A similar story is being repeated across the ghats with Tata Docomo (a JV between Tata Teleservices and Japan’s NTT Docomo), which innovated the pay per second calling plan in India. Anil Sardana, Managing Director, Tata Teleservices Ltd defends such a plan to B&E, “It has not even been a year since we started GSM operations but we are on the verge of being EBITDA positive.” But he hurries to add, “The reason that we have been able to achieve this hallmark in such short frame is because of the quality of service that we have been offering to our subscribers.” Post the GSM launch, Tata Teleservices has been leading the subscriber additions tally for about five consecutive months (August 2009 to December 2009) now. The truth is that the consumer base in India, in general, is an infidel mistress. Offer her a good price and she would jump ship before you can mutter Jack Sparrow! As many as 40% subscribers are getting churned out from one operator to another every year. But aren’t customers worried about losing their ‘number’, when they jump the pirate ship? According to Prasoon Majumdar, Head, Global Strategy and Investment Consulting, “Retaining a mobile number is a relevant proposition for only 15-20% of total telecom subscribers today – those would be professionals and businessmen.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
