Having worked in
region very closely with telecommunication mobile service providers for past 1 year, I have noticed stark differences how they operate to survive and make profits when compared to other renowned, older global telcos. This article is business summary of my distilled observations. If you work in telecommunications area or related businesses, this could be interesting read. If you wish to know more ways India can contribute to developed countries and feel proud, read on. For others, this will be not be interesting. India
Truth about Indian telcos
Producing “cheapest talk minutes”
Operational efficiency – better network Utilization levels
Indian telcos combine power of generating low cost minutes with record high utilization levels. Goal is to treat most expenses as variable costs and track them against minutes of usage. Despite having access to least spectrum resources when compared to global counterparts, Indian telcos serve more subscribers with higher MOU! Although it has started to affect call quality adversely, telcos are continuing to hinge on growth story. Better utilization is made possible by cell densification – Airtel operates in 23 circles with more than 75% radio resources utilized. Similar are numbers with Vodafone and Idea. Recently Uninor has launched a special scheme where subscribers are given dynamic discounts based on time of day and cell of origination. They are incentivizing people to call from low call-density areas thereby increasing network utilization. Vodafone is doing similar trials in their key circle. With this comes decrease in call quality – call drops and poor voice reception etc. With rollout of Mobile Number Portability, telcos can’t ignore dissatisfied customers. Quality will be next push element for Indian telcos.
Cheap distribution model for SIM cards
Indian telcos spend thriftily on sales, marketing and customer service strategies. They serve predominantly prepaid market (~90% prepaid market). Prepaid model creates substantial cost reduction in billing and collection expenses. More critical is its inherent ability to sell more phones to low income customers. To get as many phones as possible, Indian telcos rely on local grocery stores (Mom & Pop stores as they call in US) where you can get recharge coupon for any operator and any tariff plan. Buying a phone or recharge coupon in
is akin to buying toothpaste. Many other outlets also sell SIM cards acting as distribution centers to telcos. It’s an income stream for house hold entrepreneurs. Telcos achieve high volumes with less commission to sales partners. Eg: Airtel pays 4% commission to local grocery stores on recharge coupon sales. To drive costs even more, Indian telcos encourage self electronic recharge systems rather than paper based recharging. In 2010, electronic recharges account for ~80% of all recharges across India (most of which happens with help of dealer at his shop). Telcos offer lower talk cost during off-peak hours and for students. They incentivize by offering long-distance minutes or other bonus programs. Recently Tata Teleservices has tied up with Big Bazaar to sell its SIM cards. Big Bazaar is hyper market which owns Pantaloon brand started by Kishore Biyani. It is always buzzing with people all of whom have access to Tata's SIM cards at its billing counters. They incentivize its customers with talk minutes with more purchase. Truly win-win. Tata gets free distribution channel while Big Bazaar adds zing element to its purchases. Plus Indian telcos don’t subsidise phones, you dot find any Indian telco investing in handset manufacturer. This decreases handset subsidies which they would have borne otherwise. Predominant prepaid market aids in making this possible. India
Evolving landscape in
– global telcos watch this space India
Success of Indian telcos will bring them to inevitable dilemma of service quality especially when growth story hits saturations levels. The EBITDAs which they enjoy today will no longer be sustainable. Telcos are made to pay out heavy cost for 3G licenses for which they will seek to make amends by extracting more from existing subscribers. All this while more OPEX cuts are happening with ever decreasing ARPUs. With MNP threatening churn, Indian telcos need to invest in quality. With ever increasing competition and consolidation in industry, customer experience becomes increasingly important. Its importance will be highlighted as soon as market reaches saturation in growth. For telcos, this presents them with new unique challenges and opportunities. Global telcos need to watch this part of world to see how it performs – after all an industry which has added 220m subscribers in 2010 with low APRUs yet solid returns would make right decisions.