Amidst sluggish indicators of revenue, margins & subscriber additions, 3G and the promised data play were supposed to be major game changers. But evidently, it won’t be a moment too soon
When we look at service provider market share between the end of September 2010 and June 2011, the top 6 players who really lord over the market with double digit shares each – Bharti, RCOM, Idea, Vodafone, Tata & BSNL – had a combined market share of 88.37% last September. This combined market share has gone down to 86.15% by June 2011. A number of times, there is talk of consolidation to improve market share. Even if M&As happen between players beyond this coterie of 6, that can give valuable gains on a circle by circle basis. But consolidation is currently a difficult end considering that the norms are still not conducive for it. So the one way of getting rid of their performance blues is to look at ways to grow market share and aggressively grab customers from each other.
So far, they have been trying to achieve that through the ‘famous’ (for customers, at least!) price wars. However, the game may now significantly move away from pricing. Recently, Bharti Airtel, Vodafone, Idea and RCOM have all announced phased increase in tariffs of a minimum of 20%. Tata DOCOMO announced a price increase by 25-67% across various circles (see related story on price rise in this issue). RCOM also announced that it would no longer offer minute-based mobile schemes, which would offer unlimited minutes over a period. The costs of laying out network infrastructure and the heavy debt loads are the reasons for the same and it may be also be conjectured that larger players are colluding in recognition of the fact that price wars are helping no one. The constraints of a high amount of debt on their balance sheets has already lead them to cut down significantly on expansion plans. From Rs.298 billion in CY 2008, Bharti, RCOM and Idea together have brought down their capex drastically to Rs.95 billion in CY 2010 (COAI-PwC report).
In the short term, ARPUs and VAS share of revenue may fluctuate quite consistently. But as Stefan Zehle, CEO, Coleago Consulting tells us from UK, “When you are analysing post-3G impact and how it will change competitive dynamics in the sector, the most important criteria is the kind of customers each player is attracting.” While that gives more impetus to players like Bharti and Vodafone who got the cream, MNP subscriber movements post-3G will be an interesting statistic to watch out for. All leading players have reported decline in per month subscriber additions this year. Both Bharti & Vodafone had net subscriber additions of 3.1 million in December 2010, but the numbers have tapered off over the months to around 2.1 million in June, according to data from Angel Broking. For BSNL, the figure has dropped from 3.2 million to 0.8 million. Idea added 1.4 million in June 2011 compared to 3 million in December 2010, while the corresponding figures for Aircel are 0.9 million and 1.4 million respectively. RCOM had lost over a million customers to MNP till May (COAI), though the company claims that it has been gaining a sizeable number of high value clients as well.
So what will work for them in this battle for margins and not volumes? As far as 3G is concerned, a lot of the emphasis will now have to be on quality of service. The greatest gain from any M&A activity they undertake will ostensibly the one that they paid through their teeth for – spectrum. If India reaches the projected 1 billion wireless subscriber figures by 2014, the requirement of spectrum will be as high as 800 Mhz. according to TRAI. Post MNP, service will be a significant differentiating factor to avoid churn of high value customers in particular. On a benchmark basis, Indian mobile operators are working on a 3G spectrum of 5MHz. (compared to global benchmarks of 2x10 MHz. and 2x15 MHz.), which is very miniscule in terms of offering high quality data services. Incumbents are waiting for M&A norms to be eased, and a number of the new players are also reportedly sitting on spectrum waiting for the right time. Spectrum wars may get even more intense in the coming months. Another important aspect that players have to look out for more aggressively is enterprise services. At present, the market is estimated at around Rs.230 billion, and at a CAGR of around 12-13%, is estimated to be worth around $10 billion in another five years.
While 3G winners have discovered a blue ocean for themselves to revel in, the challenges in the short term towards revival of revenues and margins are pretty daunting. According to estimates by a JP Morgan report, 3G subscribers would grow to around 240 million by 2015 and operators would cumulatively earn revenues of Rs.899 billion by then. Yet, they would fall short of the expenditure incurred along with the interest rate on the debt they have accumulated (include cost of network roll out & the break even dates push back even further). Also, 240 million is a highly positive projection compared to the E&Y-FICCI report, that projects 142 million 3G users by 2015 and just over 300 million by 2020. The telecom space is well into an air pocket. On one end, players have to look at how they can best milk the investments that they have made rather than looking at making new ones. On the other, they have to look for ways to manage demand in higher value segments to their benefit, so that they can have the cream and eat it too!
So far, they have been trying to achieve that through the ‘famous’ (for customers, at least!) price wars. However, the game may now significantly move away from pricing. Recently, Bharti Airtel, Vodafone, Idea and RCOM have all announced phased increase in tariffs of a minimum of 20%. Tata DOCOMO announced a price increase by 25-67% across various circles (see related story on price rise in this issue). RCOM also announced that it would no longer offer minute-based mobile schemes, which would offer unlimited minutes over a period. The costs of laying out network infrastructure and the heavy debt loads are the reasons for the same and it may be also be conjectured that larger players are colluding in recognition of the fact that price wars are helping no one. The constraints of a high amount of debt on their balance sheets has already lead them to cut down significantly on expansion plans. From Rs.298 billion in CY 2008, Bharti, RCOM and Idea together have brought down their capex drastically to Rs.95 billion in CY 2010 (COAI-PwC report).
In the short term, ARPUs and VAS share of revenue may fluctuate quite consistently. But as Stefan Zehle, CEO, Coleago Consulting tells us from UK, “When you are analysing post-3G impact and how it will change competitive dynamics in the sector, the most important criteria is the kind of customers each player is attracting.” While that gives more impetus to players like Bharti and Vodafone who got the cream, MNP subscriber movements post-3G will be an interesting statistic to watch out for. All leading players have reported decline in per month subscriber additions this year. Both Bharti & Vodafone had net subscriber additions of 3.1 million in December 2010, but the numbers have tapered off over the months to around 2.1 million in June, according to data from Angel Broking. For BSNL, the figure has dropped from 3.2 million to 0.8 million. Idea added 1.4 million in June 2011 compared to 3 million in December 2010, while the corresponding figures for Aircel are 0.9 million and 1.4 million respectively. RCOM had lost over a million customers to MNP till May (COAI), though the company claims that it has been gaining a sizeable number of high value clients as well.
So what will work for them in this battle for margins and not volumes? As far as 3G is concerned, a lot of the emphasis will now have to be on quality of service. The greatest gain from any M&A activity they undertake will ostensibly the one that they paid through their teeth for – spectrum. If India reaches the projected 1 billion wireless subscriber figures by 2014, the requirement of spectrum will be as high as 800 Mhz. according to TRAI. Post MNP, service will be a significant differentiating factor to avoid churn of high value customers in particular. On a benchmark basis, Indian mobile operators are working on a 3G spectrum of 5MHz. (compared to global benchmarks of 2x10 MHz. and 2x15 MHz.), which is very miniscule in terms of offering high quality data services. Incumbents are waiting for M&A norms to be eased, and a number of the new players are also reportedly sitting on spectrum waiting for the right time. Spectrum wars may get even more intense in the coming months. Another important aspect that players have to look out for more aggressively is enterprise services. At present, the market is estimated at around Rs.230 billion, and at a CAGR of around 12-13%, is estimated to be worth around $10 billion in another five years.
While 3G winners have discovered a blue ocean for themselves to revel in, the challenges in the short term towards revival of revenues and margins are pretty daunting. According to estimates by a JP Morgan report, 3G subscribers would grow to around 240 million by 2015 and operators would cumulatively earn revenues of Rs.899 billion by then. Yet, they would fall short of the expenditure incurred along with the interest rate on the debt they have accumulated (include cost of network roll out & the break even dates push back even further). Also, 240 million is a highly positive projection compared to the E&Y-FICCI report, that projects 142 million 3G users by 2015 and just over 300 million by 2020. The telecom space is well into an air pocket. On one end, players have to look at how they can best milk the investments that they have made rather than looking at making new ones. On the other, they have to look for ways to manage demand in higher value segments to their benefit, so that they can have the cream and eat it too!
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.
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IIPM: Indian Institute of Planning and Management
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
