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TTSL: Growing numbers

September 06, 2010
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Of late, Tata Teleservices Limited (TTSL), the telecom arm of the $75 billion Tata Group, has been in the news for more than one reason.If it is not challenging operators with innovative and aggressive price strategies, it is taking on the Department of Telecommunications (DoT) and the telecom regulator on spectrum allocation issues.

Or then, it is making telecom headlines by walking out of the Cellular Operators' Association of India (COAI) in protest against the latter's perceived partiality towards the older, leading GSM service providers while ignoring the interests of other operators, especially dual-technology service providers. In a communication to the COAI, it stated: "There have been numerous inconsistencies in the functioning of the COAI, which has now become a mouthpiece of these key older operators. Therefore, TTSL does not wish to continue its association with an organisation that doesn't seem to be able to work in a just and equitable manner. We, hereby, formally tender our resignation as a core member of the COAI."

For a relatively low-profile operator, the strong words are indicative of a change in stance over the past few years. Clearly more aggressive now, both in ambition and approach, TTSL has been making a mark in the industry by coming up with innovative pricing strategies and growing its subscriber base by a staggering 74 per cent within six months of its GSM launch.

Leveraging the expertise of its Japanese partner NTT DOCOMO (which picked up 26 per cent stake in the unlisted TTSL in 2008 for $2.7 billion), TTSL unleashed a series of innovative services, value-added options and tariff packages to take on heavyweights like Bharti Airtel, Bharat Sanchar Nigam Limited (BSNL), Reliance Communications (RCOM), Vodafone Essar and Idea. Its "pay-per-use–strategy to launch its GSM services under the TATA DOCOMO brand name was a winner. It not just changed the pricing dynamics of the industry, but also allowed the company to cut through the clutter and sign up subscribers in droves. For six straight months after launching GSM services inmid-2009, TTSL netted the highest subscriber additions in the industry.

"Today a large number of our subscribers are high-ARPU, discerning individuals looking for differentiated services. It is heartening to note that 45 per cent of our new subscribers on the TATA DOCOMO network have enabled GPRS on their connections and are healthy data users, thus leading to higher ARPUs. I am also happy that our older CDMA business, under the brand name Tata Indicom, is now cash positive. All this augurs well for our overall balance sheet and we are happy with the way things are progressing," notes a rather satisfied Anil Sardana, MD, TTSL.

The company has set its sights on pulling in 100 million users by March 2011. It is also keen to launch 3G services before the year-end, having recently won 3G licences for nine circles - Maharashtra, Gujarat, Karnataka, Kerala, Punjab, Haryana, Uttar Pradesh (West), Rajasthan and Madhya Pradesh for Rs 58.6 billion.

Its partnership with NTT DOCOMO puts it in an advantageous position vis-a-vis its rivals, say industry watchers, as the Japanese operator is a technology leader in the 3G space globally. Added to this, TTSL's infrastructure comprises next-generation networks that are 3G ready, making the company better positioned to roll out these services.

Journey so far

TTSL, until recently, had been a predominantly CDMA player, offering services under the Tata Indicom brand. In 2008, the government allowed operators to offer dual technologies under a single licence. The company received pan-Indian CDMA and GSM spectrum, except in the key Delhi circle, where it is still awaiting spectrum allocation and is more than a little impatient at being denied the same. With its infrastructure in place, it has repeatedly asked DoT to release spectrum for the circle and provide it a level playing field with other operators.

So far, TTSL has launched GSM services in all 18 circles in which it has spectrum. Listed subsidiary Tata Teleservices (Maharashtra) Limited has launched GSM services under the TATA DOCOMO brand in the Mumbai and Rest of Maharashtra circles.

A relatively late entrant in the mobile segment and a moderate risk-taker, TTSL had preferred to wait while its rivals pushed ahead to corner market share. Prior to its GSM launch in mid-2009, TTSL's market share hovered between 8 per cent and 9 per cent, which has now climbed to over 11 per cent.

Two years of careful planning and realignment of business strategies paid off handsomely. Adding nearly 2.5 million subscribers a month, its user base swelled from about 38 million in July 2009 to over 76 million in June 2010. It now trails Bharti Airtel (136.6 million subscribers), RCOM (110.8 million) and Vodafone Essar (109.06 million). In January 2010, TTSL ousted Idea Cellular to become the fifth largest operator in the country. TTSL's net subscriber additions in the wireline segment for June and July 2010 stood at 2.33 million and 2.32 million respectively. It is now the fourth largest operator in the country. The company's key focus area over the next few years will continue to be GSM. It aims is to be among the top three GSM players in the country by the end of the current fiscal year. To this end, it is focusing on a superior network, coverage and service offerings.

To stay ahead of the competition and improve its ARPU, the company is also looking to enhance its VAS portfolio. As Dr Mahesh Uppal, director, ComFirst, notes, "This is important as it provides product differentiation."

Some of the company's innovative products and services since last year have been customised VAS such as diet-SMS, i-channel and Docomics, apart from Photon TV and Photon-on-Mobile, allowing access to high speed internet connectivity on mobile phones. In the wireline segment, it has launched FM stereo on Tata Walky phones for both its post-paid and prepaid subscribers. The product has helped to reinstate TTSL's leadership in the fixed wireless telephony space.

In providing innovation and speed-tomarket, TTSL's partnership with NTT DOCOMO could not have been better timed. Early this year, the company introduced Push 4 All Mail, enabling Tata Indicom and DOCOMO customers to access their Gmail, Hotmail or Yahoo! email on any handset. It has also introduced a number of its services on Samsung Android, BlackBerry Bold, BlackBerry Curve and Windows 6.5 powered handsets.  

Meanwhile, with the tower business emerging as a promising revenue stream, TTSL, in a unique reverse swap deal, has hived off its tower business, Wireless-TT Info-Services Limited (WTTIL), to independent tower company Quippo Telecom Infrastructure Limited (QTIL), promoted by SREI Infrastructure Finance Limited. The deal was completed in August 2009. QTIL paid Rs 23 billion for a 49 per cent stake in WTTIL and transferred 5,000 towers to the new company, recently named Viom Networks. In August 2010, the joint venture sold 11 per cent stake to Macquarie SBI Infrastructure Fund for Rs 14.2 billion. The proceeds from the sale will be used to retire the company's debt completely.

Industry analysts universely agree that TTSL is a strong company with a respectable lineage and deep pockets. Its promoters are amongst the oldest and most respected business houses in the country. "Besides, the company has an excellent partner in NTT DOCOMO. Over the past couple of years, TTSL has effected a complete turnaround of its business model," says Kunal Bajaj, partner and director, Analysys Mason.

Adds Uppal, "TTSL has a very powerful brand name. It has been in the forefront of innovation, being the first to launch free incoming calls and Re 0.01 per second call charges. TTSL has also been conscious that in India, the target customer needs transparency. Its plans, therefore, are simpler than those of other operators. Also, the company has, on a voluntary basis, launched a code guaranteeing customers a certain quality of service."

These are major positives for the company. Analysts expect that winning 3G spectrum in the lucrative Maharashtra circle will help the operator consolidate its leadership position in high-growth areas like Pune, Nashik, Aurangabad, Vasai and Nagpur. However, they feel that missing out on the Delhi and Mumbai circles will put TTSL at a disadvantage compared to its peers, Bharti Airtel and RCOM.

TTSL, nevertheless, is happy with its 3G licence buy. Soon after the completion of the 3G spectrum auction, it noted: "The management is delighted with the outcome of the 3G spectrum auction, especially as we have bagged the best telecom circles from the perspective of their cumulative market potential, particularly so when we take into consideration the overall spend on these. We have covered the entiregeography of prosperous India on the western side, while there is no entanglement with Category C circles. Therefore, this has proven to be a most capex-optimised bidding for us. TTSL did pursue the major metros in the country, but decided to drop out of the bidding when the sheer outlay made it a winner's curse."

However, analysts identify some grey areas that the company may want to look into. For instance, it is a common industry perception that the company's services and products are more for the masses than for high-end users. Of course, a large part of this view is based on the company's initial mass market approach designed to woo CDMA users, which translated into a largely low-end subscriber base, impacting margins. Uppal believes that even today, "it may be difficult to lure high-end consumers with small price advantages. TTSL's margins are continuously under threat and to combat this, the company has to be more aggressive than usual."

But tariff undercutting may not be the answer, feel analysts, as the company will end up losing money in providing services at such low prices. TTSL, however, is confident of its strategy. According to Sardana, the company has done its maths and expects to make up the low tariffs with greater user volumes.

Analysts also say that the operator needs to pay more attention to its advocacy with authorities like DoT and the Telecom Regulatory Authority of India (TRAI). They believe that TTSL's run-ins with the authorities have escalated in the past few years. It would help the company to re-engineer its approach to the authorities to achieve better efficacy and speedier resolution of issues.

The company is addressing some of these concerns. It is, in fact, leaving no stone unturned in its effort to get ahead of its rivals. The GSM launch has been a huge step forward and has given it an edge over pure-play operators as it can offer services on both technology platforms, leveraging the best of both. "While GSM has an advantage in roaming, CDMA has an advantage in data. The largest number of data cards is on CDMA. If you have a wider menu of services and products to offer, you will be better off in this market," observes Bajaj.

TTSL has a lot going for it, including a strong nationwide network, innovative products and services, and good quality of services. Says an analyst from Anand Rathi, "Being a late entrant in the telecom field, TTSL probably has one of the least congested networks. It does not have many of the disadvantages that its competitors have with respect to spectrum shortages, call drops, etc."

Future priorities

The company's continuing effort is to streamline processes to achieve greater efficiencies and bring down costs. It is also focusing on handsets, an area in which CDMA operators face a huge paucity. A key part of its expansion strategy has been to introduce open-market handsets for its CDMA users and gradually phase out bundled handsets. Towards this end, the company has entered into alliances with handset vendors such as Samsung, Spice and Micromax. According to company officials, this will not only bring down cost pressures that handset makers put on operators but will also mean a greater choice for users.

Retail, therefore, is an important focus area for TTSL. The company currently has about 4,400 retail outlets. In February 2010, TTSL entered into a franchise agreement with retail giant the Future Group to offer a unique retail and talking experience to its customers. TTSL has already launched co-branded GSM services under the T24-Talk 24 banner, starting with Hyderabad. Earlier, the operator had opted for a marketing arrangement agreement with the Virgin Group - prior to the launch of Virgin Mobile in India.

The VAS and enterprise segments will continue to be other important focus areas. After the launch of diet-SMS, i-channel, etc., the company is now looking to bring in more innovative products from DOCOMO's portfolio. These include products such as i-mode, m-wallet and i-concierge that are popular in Japan.

TTSL also plans to launch unique enterprise domain solutions in partnership with DOCOMO and other global players. The company is stepping up its efforts on the rural telephony front too. It has been recently awarded a grant from the Mobile Money for the Unbanked (MMU) Fund, which is administered by the GSMA Foundation, with funding from the Bill and Melinda Gates Foundation. This funding will help expand TTSL's microfinance initiatives in rural India in collaboration with mChek, a mobile payment service company. The project is aimed at microfinance customers in rural India, particularly the large number of dairy, contract and agricultural workers.

For the coming year, TTSL's emphasis will be on GSM services and on ensuring that its network remains the least congested in the industry. TTSL's network architecture, installed with NTT DOCOMO's support, has been designed to allow innovation and scalability. To expand its existing wireless network, TTSL is reportedly looking to raise around Rs 20 billion of debt, of which Rs 10 billion will be raised in this fiscal year. It plans to raise a further debt of $500 million to build a faster mobile network over the next three years.

Its network expansion on both the CDMA and GSM platforms, which were stalled for a while as the government had imposed restrictions on equipment imports on security grounds, can now be undertaken as the government has opened up imports against some criteria.

Of course, 3G will be a key attention area for TTSL. It intends to go all out with attractive plans. It is also throwing its weight behind TRAI to kick-start the process for 4G mobile telephony, as it believes this will help the country to be at par with the rest of the world in terms of high-end services.

In all, TTSL, after a relatively slow start, has picked up pace and managed to surprise the industry with new offerings. It has also steadily inched its way up on the subscriber scale. As Uppal puts it, "I think the company should be able to capitalise on its brand value. I see it among the top three companies in the next five years."

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