 "Vodafone rethinks strategy to drive growth")
Up until now, Vodafone had primarily focused on expanding its reach from being a metro-centric service provider to one with a pan-India presence. Since its acquisition of Hutch Essar in February 2007, it has invested over Rs 50,000 crore on expansion and adding new network. It added 80,000 new network sites and expanded presence in all the 23 circles in the country by acquiring seven new licences in less than five years.
That’s impressive growth, but as the telecom business evolves and more players join the business, the company knows voice-based service is not going to be leading the way. Average revenue per user has fallen to Rs 182 in the quarter ending December from Rs 361 in the second quarter of 2007-08, when it had started its India operations.
With the number of telecom players increasing (there are over a dozen players now), new subscribers will be even harder to come by. On the whole, the industry is expected to add only 300 million subscribers in the next ten years compared to 600 million in the previous five years.
Vodafone, therefore, is overhauling its strategy to focus on enterprise business: voice, data services, leased lines, conferencing, etc, for companies. The idea is not new. Bharti Airtel already has a presence in this segment, and Vodafone may have some catching up to do.
However, Vodafone Chief Operating Officer Sunil Sood says,“Time and place is everything; we were earlier growing in the voice market at 30 to 40 per cent annually; why would we look at something which is growing slower and requires higher investment?”
While Vodafone may be slightly late in realising the potential of this emerging segment, it has the infrastructure to grow rapidly. The new business segment called Vodafone Business Service (VBS), contributed 10 per cent to the company's Rs 32,184-crore revenue in 2011-12. In the next five years, the company wants VBS’s contribution to rise to 15 per cent of the revenue.
Wide network
The world’s largest telecom operator hopes to leverage on its global reach to drive this growth. The Vodafone group operates in 30 countries, and it already has 2,000 global enterprise customers. For example, it is working with soft drink maker PepsiCo to develop a pre-programmed SIM that would track inventory in the refrigerator used by retailers to store cold drinks. The SIMs will be designed to collate the data by sensing the weight of the bottles in the refrigerator. A master server will ping the SIM to receive the data gathered, which will then be provided to the company. The information will help PepsiCo raise its distribution efficiency. Vodafone had earlier worked on a sales management tool for PepsiCo’s rival Coca-Cola in India.
To pitch the right tool to the right customer, Vodafone has segmented its customer as those having revenue over Rs 250 crores and the small and medium enterprises (SMEs) having sales between Rs 10 crore and Rs 250 crore. It is also extending its focus to government offices.
In addition to enterprise solutions, mobile money transfer and payment services are another of the company’s focus areas. With the Reserve Bank of India allowing profit-making companies to become banking correspondents who can deliver cash to customers, Bharti Airtel, Idea Cellular and Vodafone have announced mobile wallet service to provide an alternative to the money order service through the government’s post office network.
Vodafone launched its mobile wallet service in Bihar and West Bengal this year, targeting migrant labourers who remit money through post offices. Its outlets, called “Lal Dookan”, have come up in most of the villages in these two states and it now plans to appoint 5,000-10,000 agents in each state to facilitate instant transfer of money. Mobile wallets are growing rapidly as they are swifter and more convenient than the traditional money transfer options.
“I am not saying that we are going to take the market. We have 21 per cent market share in mobile; probably we will have 21 per cent of the market in this business too,” says Marten Pieters, managing director and chief executive officer, Vodafone India.
A part of Vodafone's strategy also includes promoting the use of data among its customers. At the end of the year ending September, of its 153 million subscribers, only 32 million were using data. There is a huge growth opportunity here as 75 million subscribers have handsets which are data-enabled.
“While in the developed world mobile Internet use is a subset of Internet use, in India there are going to be millions of customers who are only going to use Internet over the mobile,” says Vivek Mathur, chief commercial officer of the company. “We should see explosive growth in terms of contribution of data to overall sales numbers in the next three years.”
Unlike the developed world, the mobile phone is becoming the primary interface for Internet for a large number of customers who do not have access to personal computers or notebooks.
Priority areas
To tap into this segment, Vodafone is running campaigns in the metros and towns and is also going to rural fairs to woo young farmers by showing them how Internet can be the treasure trove for useful information such as price of commodities in various markets. The company is also optimistic about an uptake in 3G data use, as it believes subscribers will eventually upgrade for speed.
However, the going may not be easy for the company. It has been struggling to turn a profit despite a consistent increase in revenue. Its revenue grew 13.5 per to Rs 17,418 crore in the first half of 2012-13 and by 20 per cent to Rs 32, 184 crore in 2011-12. For the period, company reported an operational profit (EBITDA) of Rs 4,993 crore and Rs 8,549 crore, respectively. However, high costs of depreciating and debt servicing have been a drag on its earnings. The company had debt of Rs 33,700 crore at the end of 2011-12.
Besides, the telecom regulator's draft recommendations regarding spectrum auctions, pricing, re-farming and renewal of licenses means that the company will have to spend an additional Rs 21,800 crore by 2015. Renewal of company’s licenses in Delhi, Mumbai and Kolkata is due next year.