How Uninor plans to tread the cutthroat mobile telecom services market
Stein-Erick Vellan, the managing director of Unitech Wireless, stands over seven feet tall in his boots. He has in the past led the Norwegian basketball team in international championships. Yet the company he leads is a pygmy amongst giants. It is, after all, the latest entrant to the crowded Indian mobile telecom services market: Each of the 22 circles has at least half a dozen operators. The top three incumbents — Bharti Airtel, Vodafone and Reliance Communications — control as much as 50 per cent of the market.
Even so, Unitech Wireless, held 32.5 per cent by Unitech, the real estate developer, and 67.5 per cent by Telenor, the largest mobile telecom services company of Norway, wants 8 per cent of the Indian market by 2018, when it will have grown to 1.2 billion customers from around 500 million now. Not just that, it wants to hit EBITDA (earnings before interest, tax, depreciation and amortisation) breakeven in the third year of operation, and cash breakeven in the fifth year. The Unitech Wireless headquarters in Gurgaon in the suburbs of Delhi is aptly called Landscape.
It is a towering ambition. For one, incumbents’ hunger for growth is intact. All of them have ambitious plans to grow. Bharti Airtel, for instance, wants to double its customer base to over 200 million by 2012. Two, most metros, where high-value customers reside, are more or less saturated. Customers there need to be snatched from others. And three, there has been a bloodbath in the market place. A handful of service operators have dropped tariffs to rock bottom in order to grab customers. Tata Teleservices triggered it with its one-paisa-per-second tariff plan, which was followed by MTS, Aircel and even Bharti Airtel.
This has begun to tell on the bottom-line of these companies. Thus, Bharti Airtel saw its net profit grow by a mere 2 per cent in the quarter ended December 2009, and its share in the incremental new subscriber base went down to 15.9 per cent in the quarter from 25.9 per cent in the year-ago quarter. So how does Uninor plan to tread the cutthroat market?
Fast rollout
The company is not unhappy with the initial results. Uninor launched in the beginning of December 2009 in eight circles, and got 1.2 million subscribers in the first three weeks. This is not even a blip on the radar screen. Vellan and his people know that the first priority is to roll out across the country; a credible market share can be built only after that. They hope to launch across the entire country by the end of the year.
That is fast. But won’t that cost a lot of money? The trick, according to Vellan, is to be cost-efficient and build a network for less than rivals. “We know India is number one in outsourcing, and that needs to be leveraged in all aspects to build a network in a cost-efficient way.” Uninor plans to invest Rs 6,120 crore in the national rollout, which, claims Vellan, is about half of what rivals would require for a similar rollout.
Here, Uninor took some innovative steps, which it has not tried out in other countries. To begin with, it decided not to build even a single tower on its own, and take all on lease from the array of choices available. So, it has tied up with Quippo Telecom and Wireless TT Info Services, and taken on lease over 15,000 towers in the eight circles were it launched. The plan is to take on lease 40,000 towers for the pan-India launch. “Apart from reducing the capital expenditure, it also ensured that we launched quickly,” says Vellan. According to him, it would have otherwise taken Uninor two to three years to go national.
Of course, this became possible after the government last year allowed passive infrastructure to be shared. This opened new possibilities for new players like Uninor. They need not put up infrastructure from scratch. Rivals say there is really nothing innovative about the network plan of Uninor and virtually all new players are outsourcing towers, IT networks and even customer services to reduce costs and keep the organisation lean. “There is no other way to survive; so it is not really rocket science. Even incumbents are doing the same. Bharti Airtel was the innovator in outsourcing,” says a telecom expert.
Uninor’s second mantra is to keep direct employee costs at the minimum. So, Vellan says, Uninor will complete its pan-India launch with only 3,000 employees on its rolls (currently it has 2,300 employees). In striking contrast, most national players are saddled with a much larger workforce. Bharti Airtel, for instance, has over 18,000 employees! Vellan has been able to keep his workforce small because he has outsourced work to 6,000 to 6,500 employees in a variety of areas. He has, for instance, tied up with Wipro which will provide the IT services and infrastructure support through a dedicated staff of 700. Uninor has also outsourced the charging solutions for prepaid and postpaid customers to Telcordia. And network management will be handled by a bevy of companies like Huawei, Ericsson and ZTE.
Operations are on a tight leash. Uninor has appointed 11 executive vice-presidents in 22 circles who are responsible for profit and loss in their domain. “We might have our headquarters in Gurgaon, but the management structure has been decentralised so that we are responsive to the specific needs of each circle and can respond better,” adds Vellan.
Price vs value
All that is fine, but can Uninor avoid the price war? Vellan says that Uninor has not followed the one-paisa-per-second tariff plan, contrary to what the market expected. The company studied the plan carefully and came to the conclusion that intelligent customers will not fall for it. “We are looking to give value to a customer who makes four to five calls a day; for those who make less than that, our message is that you would be better with other operators,” says he. In his estimate, 60 per cent subscribers actually fall in this category and can therefore be potential Uninor customers. And this pool of customers will increase rapidly in the days to come as the economy grows. He adds that growth in India is widespread across categories, unlike China where growth is limited to only a small percentage of the population. The possibilities therefore are huge.
The company has introduced a simple prepaid plan in which a local call is priced at 29 paisa a minute, but the customer has to pay a set-up charge of 39 paisa when the call is initiated. This works out cheaper than the one-paisa-per-second plan, provided the customer talks more. For instance, if the customer talks for two minutes and 10 seconds, he pays Rs 1.26 in Uninor and Rs 1.30 in the one-paisa-per-second plan of competitors. Even for a call that lasts one minute and 40 seconds, a Uninor subscriber pays 97 paisa, which is lower than the Re 1-per-minute plan of rivals. The more you talk, the cheaper it gets.
Competitors, on their part, say that Uninor might say it has chosen to stay off the price war but it has effectively dropped tariffs further. “The only reason why it is getting customers is that its tariff plan is the cheapest. And as it is targeting the youth segment, which talks more, surely it provides an attractive offer. There is no way it can sustain it for long. It has still not launched postpaid schemes,” says an executive of a new mobile service operator.
Target market
That leaves the last piece of the mobile services jigsaw — distribution. Uninor has put a lot of money into it. For instance, in the circles in which it has launched, Uninor has appointed over 1,000 distributors and is present in over 300,000 points of sale. The sale from each point is monitored to tweak the supply chain. Uninor has put in place a system to track all sales to the shop. It has not hit the mass media so far, but has done a great deal of on-ground activation where it has launched.
The company is clearly targeting youth between 18 and 28 years, to begin with. The advertising line “Ab mera number hai” (It’s my turn now) underlines the aspirations of this age group. But this does not mean that Uninor will not have products for others. Vellan says there is an amazing scope for segmentation of the market, though he is not ready to let out all his secrets.
But he gives some hint of what is in store. There is, he says, a large population of migrant workers in India who stay away from their families and have specific telecom requirements. So you can expect a tariff plan that will allow cheap long-distance calls. Vellan also says that like in Bangladesh, where Telenor operates mobile services along with Grameen Bank, there is the possibility of micro-segmentation in the rural markets.
Surely Vellan and his team have a lot of tricks up their sleeve. The question is whether those would be good enough to woo customers. This is a no-holds-barred battle which will be tougher than any basketball match that Vellan has led his country in.
