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Mobile Subscribers Yearwise comparision

New players: The going gets tough

December 07, 2010
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The frenzied rush and enthusiasm of national and global companies for telecom licences in 2007 has tempered since, giving way to anxious introspection. Struggling to survive in the hyper-competitive Indian mobile market, where frequent tariff cuts have chipped away at ARPUs, the new entrants – Uninor, Sistema Shyam TeleServices Limited (SSTL), S Tel, Videocon Telecommunications Limited (VTL), Etiasalat DB and Loop Telecom are either revisiting their strategies or considering exit options. With business viability now in question, some of these companies have even asked the government to take back their licences and refund their fee.

Last year, Uninor, SSTL and S Tel rolled out their services and garnered substantial subscribers as well. However, over the months, the fizz went flat. Clearly no match for bigger players like Bharti Airtel, Vodafone Essar, Reliance Communications (RCOM), Bharat Sanchar Nigam Limited (BSNL), Tata Teleservices Limited (TTSL) or Idea Cellular, they found themselves jostling for business. With a dozen or so players in some circles, it became tough to make a dent in the market, let alone grab a significant share in the business. The new players managed a market share of less than 1 per cent each. Uninor was the exception; it mustered a share of 1.05 per cent.

With tariffs at rock bottom, these companies have registered mounting losses even as investments in networks, etc. have had to be made. Companies like SSTL registered a net loss of Rs 4.93 billion, which is more than three times its last year’s loss of Rs 1.06 billion. Uninor too reported a net loss of Rs 8.5 billion. These companies clearly have many years to go before they can break even.

In Uninor’s case, the mounting losses had the Norwegian shareholders of Telenor (the main stakeholder in Uninor) worried. One option was to sell out. Telenor, however, decided to revamp.

To steer Uninor on a path of growth, Sigve Brekke was handpicked as the new managing director for India. To begin with, the focus will be on tariffs. The strategy is to make them more customer centric, simple and innovative, and position Uninor as the preferred brand of users. Brekke may even consider reshuffling the top management. Already, the company’s fortunes seem to be looking up. Uninor had the highest subscriber additions among all the telecom operators in August this year.

SSTL, meanwhile, is focusing on data services to push up revenues. The company, which offers mobile services on the CDMA platform, has been delivering high speed data to consumers and not merely voice services.

S Tel, which operates in only six circles, is keen on offering 3G services by mid-2011, having won 3G licences. This, the company hopes, will help it derive better revenues.

For the other new players – Loop Telecom, VTL and Etisalat DB – surrendering their spectrum seems to be the easier option. Unlike Uninor or SSTL, which have made investments of over $4 billion in the sector and thus have more at stake, these players have made limited investments and hence are seriously considering consolidating or selling out.

However, a bail-out package from the government does not seem to be coming any time soon. The Telecom Commission cannot take a decision on this as the entire process of awarding the licences has been fraught with controversy and is now under the scanner of the Comptroller and Auditor General (CAG) of India.

Moreover, the present regulations do not permit spectrum to be transferred as an asset in an acquisition. Therefore, the new entrants, with practically no subscriber base or assets, have little to offer domestic companies.

Mobile number portability (MNP), as and when it is introduced, will be the only good opportunity for these players to corner market share. “There will be a churn among users, especially high-value users, to operators that promise better service. If the new operators can differentiate themselves in terms of service quality, MNP will provide an attraction to switch,” observes Mrityunjay Kapoor, country head, Protiviti India.

In light of these developments, the coming months are bound to get more interesting as changes and consolidation mark the telecom market dynamics.

tele.net takes stock of the performance and plans of the new telecom players...

Uninor

Uninor – the joint venture (JV) between Norway’s Telenor and India’s Unitech Wireless – is by far the most promising of all the new players that were awarded mobile licences in 2008. With 11.26 million subscribers notched up in the ten months since its debut, it is way ahead of its peers in the telecom space.

However, the JV ran into rough waters recently as Uninor incurred operating losses of $556 million and set the alarm bells ringing for Telenor’s investors. The Norwegian company, which has a controlling stake in Uninor, was under considerable pressure from investors to exit the loss-making India venture.

To allay fears that the company would not make money as the Indian mobile market was overcrowded and running on ultra-thin margins, Telenor listed a series of corrective measures it would take to keep the JV on track, starting with delaying the infusion of additional capital until revenues improve.

So far, Uninor’s targets remain the same: 8 per cent market share; break even at a core profit level (earnings before interest, tax, depreciation and amortisation) by 2012; and getting cash positive by 2014. In a presentation to investors, Telenor noted that the Indian operations would see a loss of Rs 45 billion-Rs 55 billion this fiscal year and take a further hit of Rs 65 billion-Rs 75 billion the following fiscal before breaking even. This is in line with its projections in 2008.

As such, analysts say that Uninor is on a good wicket. It has touched the right nerve in packaging and marketing its mobile services. In August 2010, for instance, the company added 2.2 million subscribers, taking its total user base to over 9 million.

According to Telecom Regulatory Authority of India figures, Uninor’s net addition in August accounted for nearly 16 per cent of the pan-Indian net subscriber addition of all operators, despite Uninor operating in only 13 of the 22 telecom circles in the country. The company achieved a 21 per cent subscriber addition in all 13 of its circles.

“This is the highest net addition in a month since we launched services last December. The August numbers place us as the third highest GSM operator pan-India in terms of net-adds,” stated a company release. “While it is early days yet, we believe our strategy is taking us in the right direction.”

Though Uninor is yet to get spectrum for the Delhi circle, it hopes to roll out services across the country by 2011. Uninor also aims to grow its subscriber base significantly, riding on innovative tariff schemes and discounts. It recently introduced the concept of “dynamic pricing”, which offers up to 60 per cent discount on calls, which reportedly makes Uninor the best value-for-money proposition in the market.

Meanwhile, the company’s immediate focus is to improve operational efficiencies. It has identified key areas for improvement and has initiated programmes to boost margins in all business units. The idea is to reduce its operating expenditure from 39 per cent of sales in 2009 to 35 per cent by 2013, and capital expenditure from 13 per cent of sales last year to 10 per cent by 2013. The company is also looking to bring in the best talent, strategy and know-how from Telenor’s operations in other Asian operations to achieve a faster turnaround.

SSTL

Since its entry into the Indian cellular space in late 2007, Russian telecom operator Sistema has been steadily expanding its footprint. Its first major milestone was acquiring a pan-Indian licence in January 2008 through its JV with the Shyam Group, SSTL.

Competing aggressively on tariffs and innovative value-added services, it then ramped up its presence from one telecom circle in March 2009 to 13 today with a subscriber base of over 6.11 million.

To accelerate network rollout at a lower capex, the company had in the beginning itself availed of infrastructure-sharing opportunities with existing players such as BSNL, Viom Networks, Reliance Infratel and Indus Towers.

In order to increase network efficiency, SSTL more recently selected three vendors – Ericsson, Huawei Technologies and ZTE – to manage its mobile infrastructure.

Financially, while its revenues have been growing at a significant rate, its net loss has widened. For the quarter ended June 2010, SSTL posted a net loss of $106.6 million as compared to $22.9 million in the corresponding quarter a year ago. However, its revenues increased by 200 per cent from $7.2 million in the quarter ended June 2009 to $23.1 million in the quarter ended June 2010.

In 2009, Sistema received the Department of Telecommunications’ (DoT’s) approval for the Russian government to invest over $600 million to acquire 19.8 per cent stake in SSTL. Although the Russian government deal was scheduled to close last year and funds for the acquisition were earmarked in the 2009 budget, the process got delayed. The equity infusion is now expected to be completed by end-2010. Following this, Sistema’s stake in the JV would come down from 73.71 per cent to 54 per cent. The Shyam Group holds 23.79 per cent stake and the remaining 2.5 per cent is held by the public.

SSTL plans to use the funds for enhancing its wireless broadband coverage, expanding its branded retail network, and accelerating the launch of operations in new circles.

The company is also considering going in for an initial public offering (IPO) once the Russian government makes its planned investment. “For regulatory purposes, the capital structure should be frozen before the IPO. As soon as the capital structure is fixed after the Russian government’s investment, we can proceed with the IPO,” says a senior company official.

Going forward, the company is planning to integrate its voice and internet services to achieve higher ARPUs. It also plans to offer mobile broadband services on handsets and a host of services around it. For this, SSTL has entered into long-term agreements with RailTel, RCOM and TTSL to lease internet bandwidth. It also plans to roll out an array of co-branded high-end mobile phones and smartphones with vendors like Samsung, Fly, ZTE and Huawei. These will be configured for high speed internet access.

S Tel

For Chennai-based S Tel Limited, a key benefit of entering the telecom space late has been its access to the extensive network infrastructure of existing operators. “We could get the positioning of our towers in the manner we wanted. So, our network planning took place very efficiently,” says Shamik Das, CEO, S Tel.

The company rolled out GSM mobile services in Himachal Pradesh, Jharkhand, Bihar and Orissa in end-2009 without setting up a single tower. Even for its later rollouts in Assam and the Northeast, it opted for the infrastructure sharing route. It signed end-to-end telecom infrastructure agreements with infrastructure providers for telecom towers, base transceiver stations and fibre backbone for intercity connectivity.

Today, the company offers mobile services in five of the six circles it has licences to operate in and has a subscriber base of 1.64 million. It is still one of India’s smaller players, offering 2G services in rural areas with relatively low teledensity. However, as Das points out, “These are early days yet. The response has been great so far and it reassures us that S Tel as a brand is being perceived positively. Our value proposition is a simple and transparent brand that seeks to uncomplicate and demystify telecom to the Indian consumer. This resonates in everything we do – be it our tariffs, value-added services, customer care, network experience, or retail distribution.”

S Tel is a privately held company. It is a JV between Bahrain Telecommunications Company (Batelco) and the Siva Group. S Tel was the first amongst the new operators to achieve financial closure for its telecom project, with an outlay of Rs 20 billion.

In line with its growth strategy for the Indian telecom market, in May this year, Batelco completed the second phase of its deal by investing a further $38.8 million to increase its shareholding in S Tel to 42.7 per cent. “We have been working very closely with our partners and are now looking forward to the launch of full services during the fourth quarter of this year,” says Peter Kaliaropoulos, CEO, Batelco Group.

Keen to tap the vast 3G potential in the country, S Tel is the only new player to have won 3G spectrum in three states – Bihar, Orissa and Himachal Pradesh. For S Tel, the investment in 3G spectrum was strategic and targeted at making the company future ready.

“With a Rs 7 billion total outlay for offering 3G services, S Tel plans to invest about Rs 3.6 billion in capital expenditure over the next five years to roll out 3G services in Orissa, Himachal Pradesh, and Bihar and Jharkhand. We are working out the details to raise this sum, and are in talks with potential lenders,” says Das.

With the launch of 3G services likely only by mid-2011, the company is at present busy differentiating itself from its rivals. Its focus is on delivering superior quality of service. The emphasis is also on innovative tariff packages and aggressive distribution. “We aim to provide a congestion-free network with excellent voice quality to consumers in our markets of operation,” Das says. In all, the telecom company expects to start making operating profits by 2013-14.

Videocon Telecommunications

Almost two years after it received pan-Indian licences to provide mobile telephony services, VTL decided to launch its services in March 2010, much later than many of its peers. Ironically, Datacom, as the company was known earlier, was the first to have everything in place for a successful and timely rollout of services.

However, the company’s plans went awry on account of a long-drawn dispute between the two promoters of the telecom venture, Videocon Industries (which held 64 per cent stake) and the Mahendra Nahata Group-owned Jumbo Techno Services (which held 26 per cent). The dispute was eventually resolved when Nahata sold his stake to the Videocon Group and exited the venture. In the meantime, several key people in the management team quit the company.

Nonetheless, beginning with the Tamil Nadu circle, where it launched services in March this year, the company has taken its brand to Madhya Pradesh, Chhattisgarh, Gujarat, Kerala, Andhra Pradesh, Maharashtra, Punjab and Haryana. Like most other telecom operators, Videocon too has outsourced its IT operations (to IBM), and has entered into telecom infrastructure-sharing agreements (with Aircel and TTSL).

As of September 2010, the company had notched up a subscriber base of 4.48 million. Aiming for a subscriber base of 100 million, the company is looking to invest about Rs 140 billion going forward. According to company officials, by 2013, it is targeting revenues of Rs 14.2 billion. The Videocon Group envisages investments of around Rs 140 billion in Videocon Mobile Services over the next three years and intends to turn profitable in two years.

The Videocon Group is also considering divesting stake in the telecom venture. It is reportedly in talks with foreign investors for offloading about 26 per cent stake. The group is looking at a valuation of about Rs 150 billion for the mobile telephony business.

Etisalat DB

Etisalat DB, the telecom venture of Indian realty major Dynamix Balwas and UAE-based operator Emirates Telecommunications Corporation (Etisalat), has been given the green signal to buy out Allianz Infratech. This marks the first acquisition among the companies that were awarded mobile licences in 2008. The company will also get the 4.4 MHz start-up spectrum held by Allianz in the Madhya Pradesh and Bihar circles.

Etisalat DB struck lucky as it had entered into the deal with Allianz in late 2008, before the three-year promoter lock-in rule was announced. Allianz Infratech, therefore, is the only telecom company which has been allowed to sell out completely.

As far as service rollout is concerned, Etisalat is the last among the new operators to launch operations. In June 2010, two years after it was awarded licences, the company soft-launched mobile services in 15 circles. At the time of the launch, the company announced: “This is an important step towards the entry of our services in the Indian market. We have currently soft-launched in Haryana, Punjab, Bihar, Uttar Pradesh (East and West), Andhra Pradesh, Kerala, Karnataka, Tamil Nadu, Gujarat, Maharashtra, Madhya Pradesh, Mumbai, Delhi and Rajasthan under the brand name Cheers.”

For the soft-launch, the company signed a Rs 100 billion passive-tower-sharing deal with Reliance Infratel, RCOM’s tower company. It also signed deals with value-added service companies and IT-enabled service companies. The company, however, has not yet set a date for going commercial. According to Telecom Regulatory Authority of India figures, Etisalat DB has 56,583 subscribers.

Meanwhile, to get a quick foothold into the fastest growing mobile market in the world, Etisalat (formerly known as Swan Telecom) is reportedly considering Idea Cellular as well as RCOM as possible investment targets. A stake in either of them would allow it to become an active player in the telecom space. However, the government has recently rejected Etisalat’s move to acquire a controlling stake in its Indian JV and has sought additional security-related information from the company. Etisalat currently holds 45 per cent stake in the venture while Dynamix Balwas holds 45.73 per cent.

Loop Telecom

The company was among the first of the new mobile operators to soft-launch its services, in Tamil Nadu and Orissa in May 2009 and in Karnataka and Kerala in July 2010. However, commercially, Loop Telecom (formerly known as BPL Mobile) is operational only in Mumbai.

The company was awarded telecom licences for 22 circles in 2007. However, the award has come under dispute with the CAG pointing out to DoT that the company should not have been awarded the licences in the first place as it did not pass the selection criteria. The CAG has issued a memo to DoT, stating that at the time of application, the company’s memorandum of association did not include its telecom business and the authorised share capital was only Rs 52 million against the required Rs 1.28 billion, as per the licence condition. Loop today faces a possible loss of its licences.

This is not the first controversy that the company has been involved in. In the past, there has been speculation that the Essar Group is financially backing the company, despite being a 33 per cent shareholder in Vodafone Essar. The Essar Group, however, claims that it has a mere 9.99 per cent indirect holding in Loop Mobile, which is within the legal limit of holding no more than 10 per cent in a second operator.

Apart from Etisalat, Loop is the only new player that is yet to launch its services. In fact, there have been reports that the company wants to surrender its licences if it gets a refund of the licence fee. Loop’s failure to launch services indicates that the competition in the telecom market has become too hot to handle and that some of the players would rather ship out than stay on.

 
 
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