Telecom prepaid industry survey ( October 2009)
Alliance Business School,Bangalore
By. Anand S.D.
Monika Singh.
Rahul Arora.
Souvik Banerjee.
INTRODUCTION
At the beginning of the decade, the Indian telecom industry burdened by high licence fees was
struggling to survive. It was then that the Government came with the New Telecom Policy (NTP
99). It allowed telecom operators to move from a license fee regime to a revenue share era.
Since then, the growth has been only gaining steam. From a little over a million mobile
subscribers in 2000, today there are more than 500 million subscribers. Yet, mobile operators are
adding over 14 million new subscribers each month.
The sector has crossed all targets set by NTP 99. Against a target of 15 per cent telecom
penetration by 2010, it is at 45 per cent now. The 15 per cent target was reached in September
2006 itself. Similarly, while the NTP set a target of 4 per cent rural teledensity by 2010, the
country already has a 15.35 per cent rural teledensity as of June 2009.1
Historically, telecom industry was owned and managed by government and worked as
monopoly. But now in Indian telecom industry, there are large number of private players and lots
of competition. It is contributing more than 1.5 per cent GDP of the country, and has a multiplier
effect on growth because of connecting the people and business around it.
According to the Telecom Regulatory Authority of India (TRAI), the month of October 2009
saw telecom operators in India register a record number of 16.67 million new mobile subscribers.
The number, which combines GSM, CDMA and FWP subscribers, brings the total number of
wireless subscribers to 488.4 million as of October 2009. In all, the country's total telephone
subscriber base has increased 3.26 per cent, from 509.03 million in September 2009 to
525.65 million at the end of October 2009, according to TRAI, which added that the overall
tele-density (telephones per 100 people) has touched 44.87.
Also one fact is that 74 per cent of new wireless subscribers are now coming from our rural areas
as compared to 42 per cent from urban.
This all shows that it is one of the fastest growing in the world and India is projected to become
the second largest telecom market globally by 2010.2
At present there are 12 players in the telecom sector with 3 more to enter within the next few
months.The introduction of per second billing by TATA DOCOMO has raged a price war in the
sector.The trend of market is shifting from that of a sellers market to a buyers market.
1 Singhal Prashant,Partner and Telecom Industry Leader, Ernst & Young.
[Online] Available: /www.thehindubusinessline.com/2010/01/02/stories/2010010250730300.htm
[Accessed 2nd January 2010]
2 [Online] Available: www.trai.gov.in/ -
[Accessed7th January 2010]
Key Points
Supply Intense competition has resulted in prompt service to the subscribers
Demand Given the low penetration in the country and the continuously falling tariffs, demand
will continue to remain higher in the foreseeable future across all segments
Barriers
To entry High capital investments, well established players who have a nationwide network,
license fee, continuously evolving technology and falling tariffs
Bargaining
power of
suppliers Improved competitive scenario and commoditization of telecom services has led to
reduced bargaining power for service providers.
Bargaining
power of
customers A wide variety of choices available to customers both in fixed as well as mobile
telephony has resulted in increased bargaining power to the customers.
Competition Competition has intensified with the entry of new cellular players in select circles.
Reducing tariffs will hurt the new entrants as they will be unable to recover their high
capital investments.
MAJOR PLAYERS IN TELECOM SECTOR
BSNL, AIRTEL BHARTI, RELIANCE, VODAFONE, IDEA, AIRCEL, TATA DOCOMO
MARKETING STRATEGIES
1. Bharti Airtel
It is the leading service provider with an all India footprints covering all 23 telecom
circles of the country. It has 21 million satisfied customer base.
a) In 2002, Airtel signed on music composer A.R.Rehman for its tune Live every Moment
and it became the most downloaded tone in India.
b) In 2006, Airtel alliance with Google to bring Google search to the Airtel Live mobile WAP
portal.
c) In 2009, Airtel came up with Airtel freedom Plan in which users would be charged 1 paisa
per second for all Local and STD calls to Airtel numbers and 1.20 paisa per second for local
and STD calls to other network.
1. IDEA
a) Idea Cellular entered the Tamil Nadu market by promoting its stable and efficient networks
facility.
b) The company offers several value-added services such as vernacular SMS (in 9 languages),
games on the mobile, a large covered area for pre-paid roaming.
1. BSNL
From the beginning, attracted the users through low call rates and being state owned covered most of
the rural areas.
2. AIRCEL
With 20 million subscribers, Aircel is the fifth-largest service provider in the country. Aircel
became the seventh GSM operator to offer mobile telephony services started in Mumbai
a) Indias cricket captain and youth icon Mahendra Singh Dhoni has been extolling the
virtues of Aircel mobile services on television, billboards and newspapers across the
country.
b) Aircel put up an inflated raft at Milan Subway in Mumbai, which sees a lot of flooding
every year. The message simply said, "In case of emergency, cut rope".
c) Mainly targeted young generation, small & medium enterprises and migrants who looks
for offerings not the cheap price
1. RELIANCE
a) Reliance mainly targeted as first set of customer to its employee by offering ten
connection at a discounted rate.
b) In February 2004, reliance entered the market with prepaid GSM offer in which they
were giving free recharge voucher worth nearly the cost of RIM prepaid handset that
they buy.
c) Reliance also exploited the extensive petroleum distribution channels that it had set up
in promoting and distributing Reliance Info com services.
d) Reliance Infocomm aggressively promoted its limited mobility telecom service by
participating in or having partnerships at various shopping malls, book fairs, community
functions, kiosks, letting people have a mobile phone connection.
e) Reliance built a huge public relations exercise around the launch of the product. The
public relations effort gave much leverage to the advertising and gave rise to a word of
mouth campaign.
f) Reliance Infocomm utilized every media vehicle very effectively. It advertised on every
TV channel available and in most newspapers.
g) RWorld Reliance Way of Putting the World in Your Hands: - product
differentiation by mixing data applications with voice. Through RWorld an inbuilt
Java enabled data feature of all Reliance phones.
h) Today reliance Strategy is to gain the maximum market share. They announced the
implementation of an integrated carrierclass mobile marketing software platform called
Neon on its network. Neon is a product from Flytxt, features a mobile CRM database
and all the mobile applications required to conduct largescale mobile customer
engagement programs.
6. VODAFONE
a) Zoo Zoo is the brand ambassador of Vodafone, has been successful in giving Vodafone
a brand presence.
b) Vodafone chose the Indian Premier League 2 (IPL-2) as a platform to launch their
advertisement.
c) Vodafone promoted their services by creating different stories featuring Zoozoos.
d) Now Vodafone has announced to launch the Zoozoo goodies like zoozoo toys, zoozoo
mugs, zoozoo keychains, zoozoo t-shirts, etc.
7. TATA DOCOMO
a) DOCOMO advertises its brand first then launched in the market.
b) The basic tariff is one paisa per second for local and STD calls, a deviation from the
industry practice of a 60-second billing.
c) launched lifetime plan, wherein the mobile number will not lapse, even if its not
recharged within a specific period.
d) Tata Docomo launched its DO Year Greetings contest online, applicable only to the fans
of Tata Docomo in Facebook/ Orkut/ Twitter which could have increased the fan base of
Tata Docomo in the Social Networking sites.
LITERATURE REVIEW
Figrue 1: March GSM customer base data and Growth of wireless subscribers and Mobile
Service Provider wise net additions for November (in percentage)
The above figure shows the trend of increasing customer base per quarter over the financial year 08-09.
TATA DOCOMO has grabbed the maximum percentage(18.84%) of new mobile subscribers for the
month Nov09.Bharti,Vodafone and Reliance were neck to neck with 15.85%,15.74% and 15.70%
additions respectively. Within 4 months of its introduction DOCOMO has become the fifth largest
mobile service provider.
Given the aggressive marketing campaign that TATA DOCOMO has carried out since the launch of
their services, they have been forefront in gaining the maximum market share. The first mover
advantage has ensured that DOCOMO has grabbed the biggest chunk of market share for the past 3
months. However other players have been very fast in catching up by introducing per second billing
and very soon DOCOMO will lose its market advantage. Thus in order to maintain this growth
DOCOMO will have to come up with innovative plans or target some other segment in order to
challenge the established players.
GSM Mobile Subscribers Average Revenue per user (ARPU) and
Minutes of Usage (MoU)
Highlights
The all India blended ARPU per month has shown a decline of 6.5% from Rs. 220/- in
December 2008 to Rs. 205/- in March 2009.
ARPU for post-paid service has shown a decline of 2.8% from Rs. 559/-in December 2008 to
Rs. 543/- in March 2009.
Prepaid service has also shown a decline of 6% from Rs. 192/- in December 2008 to Rs. 181/-
in March 2009.
MOU per subscriber continue to show a declining trend. It has declined by 2.43% from
496 in December 2008 to 484 in March 2009. The outgoing MOUs declined by 2.39% and
incoming by 2.47%.
Postpaid segment alone has shown a decline of 2.34% in MOUs per subscriber. Decline for
prepaid segment has been 1.41%.
The overall ratio of incoming-outgoing MOUs has been 51:49 same as previous quarter.
Outgoing SMS per subscriber continued to show increasing trend from 29 in December 2008 to
30 in March 2009.
Figrue 2: Average revenue per user(ARPU ) and Minutes of Usage(MOU) for the month of
March 09 showing their respective declines
Thus we see that though ARPU and MOU are decreasing, Indian mobile users are using SMS more
than earlier.
One of the reason why MOU and ARPU has come down is that all Mobile service providers are
aggressively targeting at rural market, which is a high volume low margin business. Thus the research
team has drawn the implication that with increasing competition and with the entry of more new
players it is difficult for the players to sustain a business model which concentrates on generating
revenues from call expenses only. Thus it is imperative that the companies shift their focus on certain
new segments within the sector which are yet unexplored.
Figure 3: Mobile Value added service statistics for the month of March09
According to Ratan TATA, The future of telecom industry lies in value added services. The
validity of his statement can be gauged from the above findings which suggest a shift in focus to the
upcoming technologies like 3G which experts believe will bring about a paradigm shift in telecom
industry. This is the reason that the forthcoming auctioning of the 3G licenses has generated a buzz in
the telecom battlefield.
DATA COLLECTION AND ANALYSIS
This section will give an analysis of the data collected by means of a survey questionnaire among the
college students of the age group 21-25 and the survey conducted on people working in different IT
firms in Bangalore.The sample size for the students was 30 and for the IT workers was 17.The findings
of the survey are as follows:-
Figure 4: Most effective mobile value added service provider among a sample of
college students and IT workers
Thus it is clear from the survey that Airtel and Vodafone have been effective in proper
promotion of their value added services while BSNL and DOCOMO have lagged behind in
promoting their services.
Vodafone in particular has been effective with its ZOOZOO ads. On the other hand
government service provider BSNL has lagged far behind the industry performance. This shows
that the surveyed population is unhappy with the hassles involved with using their services and
it is also due to the low number of BSNL users in the surveyed population.
On the other hand new entrant TATA DOCOMO has effectively promoted its low call rates
and captured a large chunk of the market but is below the industry average for effective value
added services thus its a segment they need to concentrate on in order to maintain their
customer base in the face of increasing competition.
Basis of switching to any other network
The following figure shows the priority of students and IT people for switching their network
connections. It tells that among the students the primary reason for switching the connections is
network coverage and call rates while the population working in IT companies prefers better network
coverage as most of the calls that they make daily are official in nature. The fact worth noticing is that
there is an increase in the number of IT workers switching connections because of the value added
services.
Most official people especially in busy cities like Mumbai and Delhi spend a major portion of their
time in busy traffic. Thus in order to use that time productively and in order to stay connected many
people wants to make use of the internet facility available via GPRS. This factor has played a major
role in the success of Rworld service provided by Reliance.
Figure 5:Basis of switching to any other network among college students and IT
workers
Most used Value added service
Figure 6:Most used value added services among college students and IT workers
Thus the survey conducted by the research teams suggests that the most popular mobile value added
service among both sets of population is Internet usage. Mobile banking is another service which has
a very huge potential because many users consider it to be important and want to avail this facility to
avoid the hassles of the rush in the bank. But it is imperative that service providers make the process
fast and secure in order to give the user more assurance of a fast and secure transaction.
Drawback with value added services
Figure 7:Drawback with value added services as perceived by college students and
IT workers
It is clear from the above survey conducted by the research team that high cost i.e., affordability and
slow downloading speed are the two major factors contributing to the low usage of the value added
services. With the advent of 3G, the problem of slow speed can be taken care of as the innovation will
allow high downloading speeds but it is a challenge for the companies to make sure that they bring
down so that they can tap more market share and the value added service becomes affordable.
Other Findings
There is an increasing trend of use of multiple sim cards as 35% of the surveyed population
were using multiple sim cards and 58% among IT people use multiple sim cards as they use
different sim cards for official and personal use.
When asked about low call rates 51% chose TATA DOCOMO as the name which strikes their
mind first but still the numbers of TATA DOCOMO users were a meager 7% among the
population. This indicates that besides low call rates users also look for network coverage and
other facilities such as Value added services to chose a network connection which indicates that
TATA DOCOMO has a long road to travel.
When asked about 3G technology 84% of the people said that they were excited about the
innovation and found it to be useful for them but they also raised their apprehensions about
the cost of the service and the compatibility of their handset to make use of this service.
