Telenor and Sistema are revamping their strategies in a market that is tougher than any they may have encountered before. But will they work?
Last week, the Telenor-appointed Managing Director for India, Sigve Brekke, flew to Oslo to assuage the sentiments of his company’s minority shareholders. They want the Indian operations sold because of $340 million racked up in losses. Brekke, who has headed Telenor’s Asian operations, was handpicked in July to replace the first CEO, Stein-Erick Vellan, of its Indian joint venture (JV) Uninor.
Brekke told the shareholders he was revamping strategy: scrapping old tariffs and replacing them with innovative, but simple schemes that focused on consumers, enticing them to make Uninor their primary connection. He said he was ready to reshuffle the top management if it did not deliver. “The shareholders may not be convinced, but we are taking corrective measures. We have had a slower start on the revenue front than we had expected,” admits Brekke.
Just a few kms away from Uninor’s office in Gurgaon, the boss at Russian giant Sistema’s JV with Shyam Telecom (which markets under the MTS brand), Vsevolod Rozanov, is nervously changing tack. Rozanov, who has been with the company since its launch in India, is focused on delivering high-speed data to consumers, instead of pushing voice services through its CDMA network.
He is doing so by aggressively hawking dongles, which are plugged into laptops for Net access on the move. This, he hopes, will help increase overall revenues, as well as average revenues per user (ARPUs). Says Rozanov: “We want to be the incumbents in the data business. And I am confident we are on the right track.”
Uninor and Sistema-Shyam are two of the half-a-dozen telcos given a licence in January 2008 that are fighting a bitter battle for survival in the country’s fiercely competitive and overcrowded telecom market. With a total of a dozen or so players jostling for business, tariffs are at rock bottom. ARPUs that the new players generate are half or even a third the industry average, and there is no revenue growth, even though investments are needed to expand.
But unlike other new players, these two companies have already invested over $4 billion in the country and mean serious business. Fledgling rivals like Loop Telecom, Datacom and DB-Etisalat are already looking to throw in the towel by surrendering their spectrum or have made only limited investments in an industry crying out for consolidation.
Sistema-Shyam’s new aggression is reflected in Rozanov’s expectation of about 50,000 new dongle subscribers every month, out of an incremental add of 500,000. In the last two months, MTS has managed to garner over 250,000 dongle customers, whose usage is much higher than the average voice customer. “Currently, 10 per cent of our revenues come from data, and this does not include the 8 per cent from value-added services like SMS. We think this number will hit 30 per cent in three years,” says Rozanov.
But many telecom analysts say that strategy could prove a recipe for disaster, with GSM operators now about to offer 3G services and also planning to offer dongles with speeds similar to that of MTS (3.2 mbps). The situation could worsen with the advent of LTE services, which offer even higher speeds (up to 300 mbps). The company also faces another challenge: the sale of dongles is dependent on laptop penetration, which is limited. So, even if Sistema-Shyam wants to sell more dongles, it cannot until laptop prices fall further.
Rozanov counters this by arguing that his company already provides services in over 200 key cities across the country and has a large distribution system in place, which will take a 3G service providers a long time to replicate. “As incumbents, even if we are among the top four or five in data after 3G players come, we are very much in,” says Rozanov. He also says work is on to get mass-scale laptops and tablet PCs at prices within $200, which will expand the market.
Also, with more players coming into the data market, consumers will learn the advantages of using high-speed data. “Currently, 20 per cent of our sales in Delhi and Mumbai are of dongles, which give only speeds of 128 kbps. Education will help more people go up the speed ladder,” adds Rozanov.
Uninor, on the other hand, is focused on voice. It believes that most customers actually have multiple SIM cards, so the challenge is to make them use your service as a primary. Brekke is trying to do so by being the first operator to offer dynamic pricing and scrapping the earlier “talk more, talk longer scheme”. Under the new scheme, the operator offers discounts of 5-60 per cent on calls depending on time and location. Says Brekke: “This scheme is simple: it incentivises customers to use Uninor as a primary SIM. Also it optimises network utilisation, as we can give more discounts when network use is low.”
Brekke has also yielded the stick when required. Since he took charge in July, the new rule is that circles, which do not perform on revenue parameters, will not get fresh capital investment until they put their house in order. Brekke says four circles might face the axe. He has already reshuffled the top management in at least two circles, Tamil Nadu and Karnataka. Berkke also sent special teams to circles that were not performing well to understand the problems and fix them.
Uninor under Brekke has also changed its marketing strategy: money would now be diverted to the trade and selling at street level. He has also replicated practices that Telenor has used successfully in other markets like Malaysia and Bangladesh. One example is the dynamic pricing tariff.
Brekke, who was sent to India to take tough decisions, has not spared the top management in the company s headquarters, either. Uninor has shifted out its earlier managing director, chief financial officer as well as chief marketing officer, who were instrumental in the initial rollout of services. Says Brekke: “We made changes in the top management. They helped us in the rollout phase. Now, we require expertise at the operational phase and people with expertise there were brought in.”
Detractors, however, say while Uninor’s tariffs are cheap, it cannot continue to offer customers such low prices. When its tries to raise prices, customers will vanish, as has been the experience of many other operators, they point out.
But Brekke says the new strategy is already showing dividends. One way to gauge this is the fact that the company’s revenues have gone up by a staggering 110 per cent from a mere '76 crore in the second quarter of this year to over '160 crore in Q3. In the same period, the subscriber base has also gone up by 79 per cent and ARPUs, which were less than '50, are also moving up.
Both parents Telenor and Sistema have responded to the need for a change in strategy in a market that is tougher than any they might have encountered before. But will the Indian consumer, whose churn is one of the world’s highest, give the new players a chance? Watch this space.
