The rural sector is characterized by around 40% churn rate, which will give us an opportunity: Rozanov
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Let The War Begin

India is one of the few telecom markets in the world with such a high number of service providers. And the already crowded telecom space is all set to become even more crowded with the entry of new operators.

The market is heading towards a war zone with six new operators set to enter the market. Bloodbath is anticipated with the operators getting ready to fight for each and every subscriber.

The market landscape is likely to go in for a dramatic change. However, the moot question is with ARPUs hitting rock bottom, ever increasing user-base and near saturation subscriber levels in top cities, what will be the innovative business strategies of the new operators to survive, and thrive.

Consolidation will be the order of the day. New players are likely to be acquired or merged after the three-year lock-in period. This is also considering the fact that M&As might become one of the ways to get access to spectrum.

The new telecom players having received license in January 2008 are likely to roll out services in the next three-to-four months. With the backing of foreign telcos, service providers like Loop Telecom, Swan Telecom, Unitech Wireless and Sistema Shyam Teleservices have placed orders for equipment and commissioning of networks is at an advanced stage. Datacom, which is yet to rope in a strategic partner and Bycell Telecommunications, which is having difficulties coming out of the legal loop, will be the last to kick off services. Promoted by Batelco STel would be one of the last ones to start operations since according to industry sources, they haven’t even started scouting for vendors.

This frenzy to launch services at a time when the country is going through a bad phase is also linked to DoT’s tough stance against new licencees who have failed to roll out new services. DoT is said to have given new operators time till July to launch their services or face penalty. Operators given ultimatum are Datacom, Swan, Unitech and Loop Telecom. At the same time, considering that roll out of telecom networks requires anywhere between 6-10 months from the time of placing orders, it is highly unlikely that the operators will be able to offer services in all the circles by July. The estimated fine payable by operators is Rs 450 crore.

As of now, Bharti Airtel in GSM and Reliance Communications in CDMA dominate the space and new operators will add to the competition. Unitech alongwith Shyam Telelink has got licenses to operate in twenty-two circles, while Swan Telecom has got licenses in fourteen circles. Loop on the other hand has got licenses in twenty-one. Apart from that, Datacom has licenses to offer services in all circles except Punjab.

At a recent summit on greenfield operators, new service providers shared their challenges and opportunities in India

Standing (L-R): Asit Kadayan, director (M-II), Telecom Engineering Center; Kiran Pande, president, ECI Telecom; Apu C Saha, director, service delivery & business development, Bycell Telecommunications; Shafiq Anjum, senior general manager, IT, Datacom Solutions; Ibrahim Ahmad, group editor, Voice&Data; Atul Agarwal, head, IT, Datacom Solutions; Ram Prabhu, head, roll out, Unitech Wireless; Rajat Singh, head, business strategy, Datacom Solutions

Sitting (L-R): Rajneesh Arora, CFO, ByCEll Telecommunications; Bhoopesh Raghav, head NLD, Loop Telecom; BM Baweja, senior director, Department of Telecommunications; Yoav Valadarsky, AVP solutions marketing, ECI Telecom; Sergey Savchenko, CFO, Sistema Shyam Teleservices; Alexandre Louzine, CEO, ByCEll Telecommunications; Vinay Kala, general manager, projects, Unitech Wireless

Most of the operators have got foreign investment. Norwegian telecom major Telenor has acquired 67.25% stake in Unitech’s wireless business. The company recently named its top management. Sistema, on the other hand, entered the Indian market by taking a 74% stake in Shyam Telelink. ByCell Holding AG has 74% stake in Bycell Telecommunications. The Indian partner in the deal is Hyderabad-based Jayalakshmi Group. Datacom, on the other hand, is promoted by white goods major, Videocon. Bahrain Telecommunications Co BTEL.BH (Batelco) has announced that it would buy 49% of Indian mobile telephone operator S Tel Ltd for $225 mn.

However, while the space is getting crowded, the subscriber pie itself is growing. As of now, there is a subscriber base of 300 mn (around 28% wireless penetration). This is likely to double by 2012, so there is enough space for all the players to survive. This data also means that the rural market is going to be the focus of all service providers since teledensity in urban areas and metros is quiet high, and it is the bottom of the pyramid which is going to witness the maximum action.

This is not to deny that new operators are likely to face rough weather. They are not likely to turn free-cash flow positive before seven years. The new entrants face challenges of brand building, distribution, spectrum availability, organization building, negative free-cash flow and scale.

While most of the incumbents have spectrum in 900 Mhz, the new operators have got spectrum in 1800 Mhz, which would result in new operators having double the number of towers to cover a service area. “In this scenario, infrastructure sharing, both active and passive, becomes a must for new operators,” says Alexandre Louzine, CEO, Bycell Telecommunications.

“Differentiation of services is going to be the key focus. It is not going to be just voice. Mobile is going to be the socio-economic driver and it is going to go beyond communication and the presence of so many service providers is going to change the rule of the game. For new customers, bundling is going to be the key. Total cost of ownership is going to be the big differentiating factor,” says Madhusudan Gupta, senior research analyst, Gartner.

Rural, Brand and Other Factors
Bycell Telecommunications, which is likely to get FIPB nod for license soon, is one greenfield operator which would be focusing on the rural segment. The company is likely to get licenses to operate in five circles, West Bengal, Bihar, Orissa, Assam and the Northeast (including Meghalaya and Sikkim), all of them dominated by the rural segment. The company has decided to start its operations in Orissa in about six months time after getting the license.

“Teledensity in these areas is around 13-15%, so there is a huge scope of business. These are the biggest growing markets in the country,” says Louzine of Bycell.

The biggest advantage of venturing in the rural segment is that seamless connectivity is not so much desired. A service provider can actually start offering services in a cluster, zone, district, etc. Apart from that, infrastructure sharing is given in this segment. Since the number of subscribers is less, it is beneficial for operators to go in for active as well as passive infrastructure.

“We are into passive infrastructure sharing but are likely to increase the percentage of owned infrastructure in the coming months,” says Rajneesh Arora, chief financial officer, Bycell.

For Sistema, the differentiating factor is the international brand and the simplicity of its tariff. “Our USP lies in the fact that we are offering a strong global brand experience to our subscribers. MTS is the eighth largest mobile operator in the world. We will offer our subscribers quality network and coverage and our tariff schemes are affordable and user friendly,” says Vsevolod Rozanov, president and CEO, Sistema Shyam Teleservices.

However, there are many challenges for any new operator to venture in a rural territory. The biggest challenge is the distribution model and educating the subscribers about the services the operator is offering. Traditional distribution might not work in the rural environment and bundling could hold the key to success. Apart from that educating end subscribers about the services will hold the key to success or failure of the service provider. The rural segment is also characterized by high churn rate and ARPUs might be on the lower side. The high churn rate is both an opportunity and a challenge for new operators.

“Based on our Rajasthan experience, our subscribers comprise a healthy balance of churn as well as first time customers. We will see more churn in the coming months when the ban on Chinese mobiles that do not have IMEI number becomes effective,” says Rozanov. Sistema launched its services in Rajasthan in October last year.

Apart from the rural model, the operators will be differentiating on the quality of services. While existing operators are increasingly facing quality issue because of a dramatic increase in the number of subscribers, this is not true for the greenfield operators. Another advantage for greenfield operators is that they don’t have any legacy, they can straight away move to IP-based next generation network, which would give them a clear advantage over the existing players.

“Newer operators have an advantage in the sense that the hardware cost has come down dramatically and they have an opportunity to go for state-of-the-art equipment. For instance, the equipment which BSNL deployed for $200 a few years ago is now available for $70. So the newer telcos will have to spend a reduced capex to install the latest infrastructure. In this they have an advantage over the existing telcos who had to spend a staggering amount of money for putting up infrastructure,” says Pat Donnelly of Telcordia.

According to industry sources, Datacom would be focusing on quality of network as its differentiating factor. The quality of service offered by newer players would be definitely better than what the existing players are offering. Unitech on the other hand is likely to launch the services in the southern region in phase I.

This would be compounded by the entry of the number portability regime. By any standards, the coming months are likely to witness a lot of action. A number of new operators are banking on increased churn rate post the launch of number portability in the country.

Sistema was the first one among the new operators to launch its services in the country. After Rajasthan in October last year, the company recently launched operations in Chennai and Kochi circles. The company is planning to roll out a pan-India network within the next six quarters, which means that they would be launching services in one or two circles per month in order to be done by mid-2010. Sistema is targeting a subscriber base of 30 mn within four years. It is the only one among the new operators to adopt CDMA technology as all the rest would be offering GSM services. Sistema plans to spend around $5.5 bn in the Indian market. They plan to tour honest tariff plans to appeal to its customers.

Loop on the other hand recently announced that it is giving its network order to ZTE, who would supply end-to-end network equipment for the roll-out of GSM network of Loop Telecom. Loop has received spectrum for twenty circles. ZTE is also believed to have garnered at least 50% market for equipment for the new operators. The company also got commercial contract from Sistema for pan-India CDMA coverage.

It goes without saying that while new operators will be offering services at competitive prices, any dramatic reduction in prices is ruled out. They might have to think of new and innovative tariff plan. As of now, most service providers have similar tariff plans. The only way out is innovative and quality of services.

Going Forward
The number of service providers is very high in the Indian telecommunications market and this high number is likely to lead to consolidation in the coming times. “The entry of new service providers will lead to considerable consolidation in the Indian telecom market,” says Gupta of Gartner. Apart from that customer segmentation is given in this scenario.

“It is definitely not going to be just voice. Mobile is going to be the socio-economic driver and it is going to go beyond communication. The presence of so many service providers is going to change the rule of the game. Also, the new players are not going to be pan-India and are going to focus on individual circles which is going to lead to customer segmentation,” adds Gupta.

The coming months are likely to witness a full-fledged war for subscribers in the Indian telecom market. The customer will of course be laughing all the way, with all the operators fighting to get a share of his wallet with innovative schemes and tariffs.

Gagandeep Kaur

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