Indian Telecommunication Services – Corporate Strategies

Indian Telecommunication Services – Corporate Strategies of BSNL, MTNL, Airtel, Idea and Vodafone With In-Depth Analysis of Government Policies

The following article covers various corporate strategies being implemented in the Indian and Western telecom sector (BSNL, MTNL, Airtel, Idea, Vodafone and Others) and the latest technologies being adopted by the telecos under the harsh external environment in order to gain a competitive advantage.

Why Corporate Strategies of BSNL and MTNL Failed

Let us first try to understand the kind of corporate governance policies they followed and the various corporate strategies they implemented in order to gain market share.

For 2012-13, the DoT was allotted a plan outlay of Rs 15,231.39 crore, which includes Rs 10,431.39 crore as internal and external budgetary resources (IEBR) and Rs 4,800 crore as gross budgetary support (GBS).

During the 11th five-year plan period, the government had estimated an allocation of Rs 1,01,228.78 crore (Budget Estimate), which was later reduced to Rs 75,556.45 crore (Revised Estimate) for BSNL and MTNL. AT the end of the 11th Five-year plan, the state-run telecom operators failed to use more than 50 per cent of the Budget Estimates, with a reported utilization of Rs 50,003.68 crore.

BSNL’s delay in completion of the procurements and delay in completion of the various projects were among the main reasons for the under-utilisation. Major delayed projects include Defence Service Network, A&N. There were not only serious strategy corporate governance problems with BSNL and MTNL, but the projections for the bigger projects were also made unrealistically which blocked resources.

MTNL reported a widening of its net loss to Rs 5,321.12 crore for financial year 2012-13 compared to Rs 4,109.78 crore a year earlier.

These two companies were kept out of mobile services business for a long while and were allowed to start these services only in 2002; eight years after private telcos had established their network.

BSNL and MTNL lost out badly to private firms between 2005 and 2010, when they were not allowed to import equipment for telecom infrastructure while the business of private telecom companies prospered. In order to improve the situation, DoT has also pitched for preferential treatment to the services of these companies (i.e., BSNL and MTNL) in government and PSUs besides waiving loans on BSNL books.

Corporate Strategy of Airtel in Africa

Bharti Airtel has a corporate strategy of making first moves and emerging as the winner just because of that. In March 2010, Bharti struck a deal to buy the Kuwaiti firm’s mobile operations in 15 African countries, in India’s second biggest overseas acquisition after Tata Steel’s $13 billion strategic buy of Corus in 2007. Bharti Airtel completed its $9 billion acquisition of African operations from Kuwait’s Zain, making the firm the world’s No. 5 wireless carrier by subscribers.

This acquisition plan gave Airtel an access to the market of 15 African countries with a total customer base of over 42 million. It was a strategic move as Airtel would be able to access these 15 emerging markets covering a total customer base of over 450 million and telecom penetration of approximately 32%.

Airtel was looking at Africa as a new growth market. While it had a strategic deal with Vodafone for the Channel Islands, Africa was the only other market outside the Indian subcontinent (including Bangladesh and Sri Lanka) that the company entered to expand its operations.

The commonalities are compelling: similar markets, needs, responsibilities and infrastructure. The realities on the ground are somewhat more challenging: logistics, legislative compliance, supply chain of resources, external environment and serious local competition being foremost.

The logistics of infrastructure in Africa are an equal challenge for all MNOs. Where Airtel might have been overly optimistic is in hoping its Africa strategic model would run similarly to its success in India, based on a first-to-market strategy and having some leverage to overcome legislative obstacles. Unfortunately, while Airtel has a 30-year history of being first in India (with pushbutton phones, cordless phones and then mobile), they were not first in Africa. There were major EU, Middle East and South African players there ahead of them.

In fact, Airtel’s corporate strategy of expansion in African is largely thanks to its takeover of Kuwait’s Zain mobile operations in 15 countries to gain competitive advantage over its competitors. This was a beachhead, not a conquest. Zain only held dominant market share in a few countries.

Why African Market in Particular?
- Telecom industry in developed markets has been saturated
- Africa market:

• Cellular and fixed-line telephone penetration rates are low, offering significant customer and revenue growth potential.
• Wages are low; many workers speak English, French along with the enormous number of the available workforce who needed only minimal level of training.
• Government policies attract FDI: improved external environment, economic reform, private sector encouragement and better FDI regulatory framework (allow profits to be repatriated freely or offer tax incentives etc.)

Government Policies in India and its Effects on Telecom Sector

The foreign investment dropped by a steep 96 percent in 2012. The Department of Telecom announced the new M&A guidelines as an attempt to infuse life into a sector battered by controversies. The Department of Telecom also announced new corporate governance policies. After a two year run-in with controversies, telecom sector now looks stable and seems back on its feet with initial investment proposal of over Rs 11,000 crore received in 2013.

The year 2013 was basically a year which prepared this sector for huge growth in coming years i.e. a foundation year. Telecom sector in 2014 is poised for a very positive growth riding on very good market sentiments. Strategies like de-linking spectrum from telecom licences, introduction of Unified Licences and increase in Foreign Direct Investment limit were key steps that government took.

100 per cent FDI may immediately not result in influx of investment. It actually did, but even without it in terms of improving sentiments, it made an important contribution. It made people look at fresh opportunity in terms of investment in the sector.

The government in August, 2013 approved 100 percent Foreign Direct Investment (FDI) in the telecom sector, meeting a key demand of the fund-starved industry. Earlier, the FDI cap in the sector was at 74 percent. FDI during April-September 2013 period was only at Rs 197 crore. The month of March, 2013, saw poor performance of spectrum auction with only one company, Sistema Shyam Teleservices, bidding for CDMA spectrum worth Rs 3,639 crore.

There is progress in the regulatory environment. There are reasonable expectations on the sector which are majorly positive, so it is sending a positive message about the future growth prospects of the country and about the desire to really push forward.

No major investment activity took place either in resources or in infrastructure, mainly because of the lack of clarity on the M&A policy. The EGoM has accepted the Telecom Commission’s recommendation to increase the M&A limit to 50 percent of market share. This looks positive for the industry’s long-term growth.

The Department of Telecom issued demand notices to GSM operators asking them to pay the first instalment of Rs 8,115.68 crore by January 15. Telecom operators challenged the DoT’s order, like other demand notices raised by the department, and the matter is pending in court. As per records, telecom operators owe the government Rs 17,980.77 crore in licence fee and spectrum charges, but the outstanding are under litigation. Telecom department has been working on strategies to address concerns of operators, especially the new framework for imposing penalty, which has been criticised by the industry.

The year 2013 has been a revival year for the telecom sector. The 2G auction in 2012 saw the exit of several international and indigenous players much to the joy of existing players who are now looking for market capitalisation and consolidation opportunities.

The DoT has approached the TRAI about four times in the past six months for suggestions on a minimum price for CDMA spectrum. The regulator issued a consultation paper on determining the valuation of CDMA spectrum for auction. Another controversy erupted with the TRAI recommending implementation of a uniform spectrum usage charge (SUC) of 3 to 5 percent across the industry instead of the current rate of 3 to 8 percent. The SUC is levied annually as a percentage of revenue.

The DoT estimates the TRAI’s recommendation on SUC would lead to a minimum loss of Rs 3,738 crore over 20 years just on the renewal of six licences belonging to major companies such as Airtel, Vodafone and Loop Mobile, which are due to expire in 2014. While the SUC recommendation would bring relief to existing mobile service companies, it would burden holders of wireless broadband spectrum such as Mukesh Ambani-led Reliance Jio Infocomm which are required to pay 1 per cent SUC.

PWC in its forecast for 2014 says that the data consumption should grow across 2G, 3G, fixed broadband and 4G. Wi-Fi rollouts by major telecom operators may facilitate growth. The government too has plans to provide Wi-Fi networks in rural areas so that people are able to access the internet using low-cost devices.

Value Added Services
Analysis of the TRAI reports says that activation of mobile Value Added Services have declined by 59.93 per cent after the implementation of a fresh set of guidelines by the telecom regulatory of India, in July 2013. The number of activations declined 56% from 69,003,586 in June 2013 to 29,878,733 in July, and another 7.45% between June and July to 27,651,715.

More importantly:
- The number of Mobile VAS complaints has declined by 91% between June and August 2013, and 87% between July and August 2013.

- Complaints related to activation, as a percentage of activation, declined from 0.25% to 0.03%. This means that in August 2013, complaints were registered only for 0.03% of VAS.

- Complaints related to activation, as a percentage of total VAS complaints declined from
40.5% in July 2013 to 9.78%. This means that prior to the July 2013 guidelines, Activation accounted for as much as 40.5% of total VAS complaints.

The process of activation moved to the mobile web, and some telecom companies had not yet instituted a second gateway for confirmation of subscriptions, and the 2013 guidelines explicitly addressed both these issues. The TRAI has also instituted a common, toll-free number for de-activation of services, and ordered telecom companies to refund money within 24 hours of activation of the customer’s request for deactivation.

All these steps by TRAI prove that value added services were not favoured by most of the customers and hence the decline in the number of activations of value added services in the year 2013.

Implementation of this policy is clearly having an impact on revenues. Airtel has thus increased CRBT (Caller Ring Back Tone) prices by 20%.

Corporate Strategies Being Followed by Telecom Sector for Big Innovations

Each telecom operator has its own corporate strategy to innovate new processes and technologies. LTE can be considered as the next big innovation in the telecom sector. LTE stands for “Long Term Evolution”. It is a type of wireless technology that has taken hold throughout North America and is fast becoming a global standard.

LTE-Advanced (LTE-A) is an emerging and, as the name suggests, a more advanced set of standards and technologies that will be able to deliver bigger and speedier wireless-data payloads.

The most important thing to know is that LTE-A promises to deliver true 4G speeds, unlike current LTE networks. You can expect the real-world speed of LTE-A to be two to three times faster than today’s LTE.

The US will shortly see the deployment of voice over the LTE technology (VoLTE) by some of its mobile phone companies, becoming among a few markets in the world to offer such 4G services.

Telecom companies and analysts in India however belie any hopes that this development in the US – widely considered the world’s benchmark market – would act as a catalyst for Indian mobile phone companies like Reliance Jio Infocomm Ltd. to speed up starting 4G LTE services in the country. India is unique in the sense that hardly any other operator globally offers LTE over the less efficient 2300 Mhz band that carriers in the country are saddled with.

This has resulted in domestic operators choosing a 4G standard adopted only in China – a key point which many say is delaying Reliance Jio’s plans. The company has had the necessary license and bandwidth for over three years now.

LTE is still at least three to four years away. 3G is just right to meet the current demands of users in India. India is in an island as far as LTE over 2300 Mhz is concerned. If any other market, such as China, were to develop the LTE over the same band that would be the ecosystem India could hope to ape.

Telecom gear maker Alcatel Lucent is betting big on LTE and voice over the technology to lead global growth for the next 10 to 12 years, and expects Indian telecom operators to increasingly adopt the standard which improves the carrying capacity of airwaves, provides data at nearly 10 times the speed offered on 3G and significantly better quality voice, among other benefits.

Once the US implements VoLTE, it will cascade to other countries such as India as the software can be adapted, but it’s the hardware – under the 2300 Mhz band – which is the bigger problem. Telecom companies are coming up with various corporate strategies like improving the carrying capacity of airwaves and improving hardware to overcome the challenges.

Corporate Strategies of Telecom Operators in Implementing 3G in India

We must realize that by the time India had a considerable wireless consumer base, which understandably is a pre-requisite for low charges; 2G had already become quite old and matured in the international market. Moreover, while Indian companies were still following the corporate strategy of developing 2G infrastructure even in major cities, 3G had arrived in the international market. Therefore, by the time 2G had a widespread consumer base and very competitive market in India, it had gone well past its due and it was time even its successor (3G) had matured in our market.

3G, with its more advanced infrastructure is more expensive than 2G. And knowing that 2G was already well developed in India, with all those low usage rates, 3G could have only dreamed to make a mark here.

It takes around three years for any technology to mature according to a (Gartner report). Going by this statement, 3G appears to finally be taking off in India. In fact, today one can buy a 3G-enabled phone for around INR 4,000 (US$72).

The growing popularity of 3G in India can also be gauged from the financials of mobile operator Vodafone India. The company reported a three-fold growth in profit for the year ended March 2013, and earned INR 20 billion (US$361 million) from data during the same period. This marks a 50 percent growth when compared with its data-related revenues during the previous financial year. This growth can be mainly attributed to the better marketing and corporate level strategies implemented by the company.

Now, the Indian arm of Vodafone wants to build a pan-India 3G network and is open to buying airwaves from other mobile operators, according to a news report published in The Economic Times. Vodafone has implemented 3G airwaves in 11 circles and offers nationwide high-end data services through roaming plans with Bharti Airtel and Idea Cellular. However, it has been restrained from adding new data customers in circles where it does not own 3G bandwidth.

The corporate strategy of high price 3G network adopted by Indian telecom sector can be attributed to the limited band availability. In US, one can have unlimited voice without any charge. AT&T in US has six carriers of 3G with 30 Mhz of 2G and 60 Mhz of 4G whereas India has only one carrier of 3G with an average of 8 Mhz of 2G.

Corporate Strategies of Airtel, Idea and Vodafone

At first glance, the telecom regulator’s numbers reveal that in the Indian market, Bharti Airtel Ltd, Vodafone India Ltd and Idea Cellular Ltd continue to lead the revenue market share charts. But analysis of the latest numbers released by the Telecom Regulatory Authority of India (TRAI) and it reveals a landmark shift in India’s telecom sector: GSM incumbents—Bharti Airtel, Vodafone and Idea Cellular—have jointly crossed 70% in revenue market share. This shift is mainly because of the corporate strategy of providing innovative products (i.e., various value added services) to the customers by these telecom companies.

Numbers don’t lie and this is precisely what the analysis show: These three operators had a 99.6% share of the incremental revenues during the June 2013 quarter. Even if one were to assume that this was a one-off quarter, one still cannot fight the numbers—over the last 12 months, Bharti, Vodafone and Idea, have captured 91.1% of incremental revenues in a 13-player hyper competitive market.

Corporate strategies of Vodafone and Idea Cellular added more customers in 2013 relegating Bharti Airtel, India’s leading mobile phone company by revenue and customer base, to the third spot, according to the latest subscriber growth numbers by the Cellular Operators Association of India, the industry body representing GSM operators.

Bulk of the GSM market expansion took place in category B & C circles which are difficult to penetrate and Vodafone is successful in implementing the expansion strategies in these circles.

Executives at Vodafone India recently attributed its successful rural expansion strategy to successful marketing strategies and customised distribution model aimed at shoring up sales in the rural markets.

Reasons for Poor Performance of Telecom Sector in India

• There are still lots of people in India who do not own a phone — probably one-third of the population.
• One of the challenges is that, the speed is not necessarily determined by network, but also by handsets. In India, people typically go for cheaper handsets. One can find lots of handsets that are 3G-enabled but have slow speeds.
• India doesn’t have enough spectrums. So it will take time before one gets the network issue right.
• For the past two-three years, data has been making up for about 8% of the total revenues of most operators. That is amazing because before that it was about 2% of revenues. It is not replacing voice, but data is growing so much faster.
• Subscriber additions have slowed to less than 1% growth levels a month.
• India has a huge challenge to support the data growth generated by ever increasing devices of customer. Thus, a need for a better strategy formulation.
• Indian telecom sector is facing IPR challenges. In India with the rise of global and Indian companies in the industry, IP challenges occur and such challenges raise the chance of infringement and IP conflicts.
• The country is majorly dependent on the instant voice and data communication provided by the telecom networks which is irreversible.
• There is need to come up with various marketing strategies to promote the services other than voice and data.

Corporate Strategies for Improving Indian Telecom Sector

India’s telecom industry is set for a transformation in 2014 that will see it leap from a chronic spectrum crunch to an abundance of the airwaves, offering mobile phone companies opportunities to emulate global business models and corporate strategies to offer data services across radio frequency bands.

With mobile penetration in all of urban India well over 100%, one corporate strategy that can be used is to use the airwaves on offer across all bands solely to drive up data consumption.

Two policy changes that come into effect in 2014 will also enable operators to increase their holdings of airwaves and thus would force the telecom companies to implement new strategies in their business units, especially in sales. The airwaves cap in the new M&A policy is 74%, higher than the existing limit. While the recently implemented spectrum sharing rules restrict sharing of frequencies to the circle level, and also mandates that both companies have airwaves in the frequency bands that are being shared, the policy shift will further help reduce individual bandwidth requirements of mobile phone companies.

The first chance for the industry to grab airwaves will arise during the upcoming sale, now slated to begin in February. Here, the total airwaves on offer is 8% and 120% more in the 900 and 1,800 bands, respectively, compared with the unsold amount in past auctions, even as the base price for these frequencies are 52% and 26% lower, respectively, compared with March 2013 prices. Technological changes have seen both these bands, which traditionally catered to vanilla voice or 2G services, increasingly being used for high-end data services—3G and 4G—across the globe.

At the same time, the government is most likely to get the armed forces to vacate additional 3G airwaves in the 2,100MHz band during the next couple of months, and put at least three slots of these frequencies for sale in the next fiscal. This will provide an opportunity for telecom companies to expand their 3G footprint.

The following are some of the key suggestions for the market players:

• Enhancing the customer analytics: Strategic management of gathering and analysing customer data and then using it to create right quality product and services mix.
• Focus on customer experience management: Implement various strategies to encourage development of innovative products and services that are designed to attract and retain customers (i.e., improving the corporate strategy).
• Digital enablement: Understanding the relationship between online marketing and offline sales and also the relation amongst various business units.
• Better Corporate governance: New corporate strategies have to be implemented for better corporate governance and also for better employee relationship.
• Strategic partner management: Strategic partnership with other players in the broader digital space.
• Yield management: Understanding the assets available with the company and managing them for optimal value.

Indian mobile phone companies have so far struggled to roll out high-speed 4G mobile networks because there are few handsets that support data and voice services on the 2,300MHz band, which is known as TD-LTE 4G (time division–long term evolution) standard. In contrast, most companies in Europe and the US have adopted a rival 4G technology standard, resulting in leading network equipment vendors and handset makers such as Samsung Electronics Co. Ltd and Apple Inc. developing a slew of phones and related equipment on the LTE-FDD (frequency division–long term evolution) standard.

Executives with Indian telcos admit that winners of 4G spectrum in India had explored the possibility of a limited network rollout in the TD-LTE standard, and instead were prepared to wait for airwaves auction in the 700MHz that are scheduled for 2015.

The 700MHz band will enable telcos to offer 4G services in the LTE-FDD standard in line with their counterparts in Europe and the US. But the decision of China Mobile Ltd, which has more than 760 million mobile subscribers, to go in for the TD-LTE standard for its 4G network has emerged as a game changer.

While providing the requisite volumes for lowering costs, it has also forced equipment makers and handset vendors to begin making products in this band, thereby providing a much needed boost to Indian telcos’ 4G plans.

Additional airwaves are also being freed up as state-owned telcos Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd have surrendered large chunks of the 4G airwaves they were awarded in the 2,300MHz band.

These two companies which currently hold 25% of the industry’s spectrum are unlikely to participate in any future airwaves sales, as they are confronted with losses, and require billions of dollars of government bailouts to sustain their operations.

government telcos are currently sitting on 25% of industry’s spectrum and generate less than 7% of industry revenues. They are under balance sheet stress, having been victims of ill-conceived policies of ‘reserving’ 3G/4G spectrum for them in the past. It is thus safe to assume that they will not be participating in future spectrum auctions (or will not be forced to). Thus, the entire increase in spectrum supply could accrue to the private operators. Thus, the private telcos could adopt a corporate strategy which would result in a 93% increase in their spectrum allocation.

Customer Experience is the New Corporate Strategy of Indian Telecos
As the number of connected devices and transactions multiple, the market will move to the big data era, where high volume transaction processing, warehousing and analytical capabilities will matter. Big data analytics will provide immense competitive advantage to enhance customer experience, and to differentiate in a highly competitive market. Operators focusing on customer experience through campaigns around better network, speed and innovative products and services will generate substantial incremental revenue, which will lead to long term sustainability and competitive advantage for the company.

As the market matures and competition intensifies, operators will have to differentiate their corporate strategies with respect to customer focus, personalization, marketing and delivering tailored offers. The corporate strategies that are built over big data analytics and campaign management will be increasingly important for Indian telecom operators to ride through this wave in 2014.

By Tarun Gupta