Russian telecom major Sistema, which has a 74 per cent stake in a joint venture with Delhi-based Shyam Telelink, got an all-India Unified Access Service Licence (UASL) last year. It is the first among the new entrants to kick-off its services, with a launch in Rajasthan four months ago. Vsevolod Rozanov, president and CEO, Sistema Shyam TeleServices spoke to Surajeet Das Gupta and Ishita Russell about his strategy to become an all-India operator in 22 circles over the next eighteen months. Excerpts:
What is your pan-India rollout time table?
We launched our services in the Rajasthan circle last October, and already have more than 300,000 mobile subscribers — that’s around a tenth of the net additions. About 60 per cent of our subscribers were using mobile services provided by our competitors, so it shows that our product quality is being appreciated. We will launch our mobile network in another six circles, including Tamil Nadu and Kerala by end of May, and we shall have a pan-India presence in another year and a half.
Given you’re entering a market which already has six well-established players, and there are six more waiting to make an entry, what kind of a market share are you looking at?
That depends on the pace of the rollout. We’re looking at securing 10-15 million subscribers by the end of 18 months. We’ve taken into account the impact of number portability as well, but we haven’t seen too many markets where this has a big effect on subscriber numbers. Generally, people remain loyal to their service providers. We’re looking at a 8-10 per cent market share by 2012, by which time there will be 700 million mobile phone customers in the country.
So it helps to be one of the first among the new players?
Absolutely. I understand 50-60 per cent of users never change their operators, so this gives us a good base to build on.
Reliance Communications, which has just launched its GSM service, is offering a connection for just Rs 25 and is throwing in another 10 minutes of free talk time every day, for the first 90 days.
I don’t think this can be a sustainable long-term strategy. In any case, this has not affected our customer additions. Reliance launched its services in Rajasthan in January and our customer base in the same month rose by 5-10 per cent over December which is quite good. It is too early to study consumer trends, but I assume our segment of the market is different and they do not get attracted by the Rs 25 offer.
If another 350 million customers are to be added by 2012, and there are 12 competitors (six old and six new players) for it, the market for each of you will be quite small.
Newcomers are not the only source of customers for us. The majority of customers that we are getting in Rajasthan are through churn. I don’t think that subscribers are looking at buying a CDMA or a GSM service per se — they’re asking for quality. We are also looking at why our competitors’ customers are dissatisfied, so that we can offer them a product without these problems. This will also help differentiate us from our competitors.
GSM phones have beaten CDMA ones in India as well as the world over. Have you made the wrong choice? Plus, if you’re banking on your rivals’ customers moving to you, they have GSM phones while you have CDMA ones. So, they have to buy your phones. Doesn’t that make the cost of entry too high?
Mobile operators, who are offering CDMA, are going to continue to do that. They’re not going to switch to GSM. Second, the capex for a new CDMA network is around 25-30 per cent lower than that for a new GSM network. Third, customers who buy bundled handsets tend to be loyal. Our costs are not high — we have an entry level phone for just Rs 899, along with talk time.
How much will you save by leasing towers?
We will build about 20 per cent of the towers on our own and lease the rest. The towers that you build are yours for life. It is a strategic dilemma, but our main interest is to roll out quickly. However this also means that while our capex will be lower, our operating costs will go up since we’ll have to pay rentals on towers.
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Have you bought Chinese equipment to save costs or is it that some of the European players don’t want to sell their equipment to you as they already have long-term contracts with the incumbents?
There are only three big vendors in the CDMA space. Basically there is ZTE, Huawei and Alcatel-Lucent. After having in-depth discussions with all of them, we selected two big Chinese vendors — ZTE and Huawei. With Alcatel-Lucent, there were some financing issues.
What about the mobile phones?
Our phones are mainly from China and Korea; we look at value-addition and not at low-quality products. It is reasonable to expect that a majority of the customers will not be the high-end variety, so we are currently working with Huawei and ZTE. For high-end phones, we’re working with Samsung.
By when can we expect SIM card-based CDMA phones in the Indian market?
We will definitely see them in the near future. The question is when. There are some phones of Samsung and Nokia that are already available.
Why are CDMA-operators hesitant to opt for SIM-based phones? Is it the cost or does bundling the phone along with the connection and airtime help you avoid churn?
There are historical reasons for this. For example, in Russia there is no subsidy for CDMA hand phones — the CDMA is a very high-end niche product only for high-speed data and good-quality voice. It has a small market but at the same time it has very high average revenues per user (Arpu). But in India, CDMA is around a fourth of the market, and bundling has been the norm here.