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TTSL - New alliance, new game

September 15, 2009
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Tata Teleservices Limited (TTSL), the telecom subsidiary of the $70 billion Tata Group, has been nothing short of aggressive of late. In the past two months, it has rolled out GSM services in eight new circles under the brand, Tata DOCOMO.

Leveraging the expertise of partner NTT DOCOMO, TTSL has unleashed a high-profile "Do the new" brand building campaign, under which it is offering a series of innovative, trailblazing services, value-added options and tariff packages that are being called "game changers" and leaving even rivals in awe.

One such game changer that is making a mark on the market is its novel "pay-forwhat-you-use" plan, which offers a onesecond pulse and an ultra-low tariff of Re 0.01 per second. "The concept is to enable users to pay for exactly what they have used. There is no hidden agenda," explains Anil Sardana, managing director, TTSL. In other words, if a subscriber uses talktime worth 20 seconds, the charge is for 20 seconds only as opposed to other operators who have a minimum pulse rate of one minute. The innovative tariff model has attracted the desired attention, and reasonable success.

"In a market that is cluttered with many operators and throws up confusing options, we offer simplicity to consumers by being the country's most transparent, innovative and liberating telecom brand. The first move on this front is to cut through the clutter and redefine the entire pricing paradigm. From day one of our launch, we will work on a per-second pricing model for almost everything, be it voice calls, VAS or IVR interactions," notes Sardana.

The company has also recently come out with what it calls a "game-changing" tariff plan for its CDMA subscribers that is likely to bring about a major shift in airtime pricing. The tariff package gives its prepaid CDMA users unlimited talktime at a flat rate of Re 1 for local calls, Rs 3 for national calls, and Re 0.50 for an SMS.

The package is smartly conceived. Says one analyst, "People who use more than one phone could pick up a Tata Indicom connection for making longer calls."

TTSL's competitors, naturally, are wary of TTSL triggering another tariff war. Already Aircel, which is looking for a pan-Indian presence, has responded by introducing per-second billing for calls. In this tariff war, TTSL stands to gain. Since it has a pan-Indian network and a not very high subscriber base (about 40 million), its network is less congested, giving it room to add subscribers without compromising on service quality.

There is, of course, a downside. As HSBC Global Research cautions, "If all companies follow TTSL's example, it could lower sector revenues by 10-15 per cent."

While a fight on price points may be disruptive, it has helped the company sign on over 6 million subscribers on its GSM network within two months. Not that TTSL had too many choices. As the sixth largest operator in the country and a late entrant into the GSM field, it faces stiff competition from heavyweights like Bharti Airtel, Bharat Sanchar Nigam Limited (BSNL), Reliance Communications (RCOM), Vodafone Essar and Idea. Besides, at least five telecom brands have been launched in the past 15 months and many more are expected by the year-end.

To establish itself, Tata DOCOMO needed to break out of the clutter. "Doing something new", like offering innovative tariff plans, was the way forward. RCOM, TTSL's rival dual-technology operator, did it, with great success, in its early years and gained tremendous market share.

Market position In a country where three-quarters of the mobile population is on GSM, TTSL has until recently been a predominantly CDMA player. It acquired a GSM licence in 2008 following a government policy allowing operators to offer dual technologies under a single licence. The company received pan-Indian CDMA and GSM spectrum, except for GSM spectrum for the lucrative Delhi circle.

In June this year, TTSL launched GSM services in eight circles –­ the four southern states, Orissa, Madhya Pradesh, Maharashtra and Mumbai. Like its bigger CDMA rival RCOM, which accelerated its pace of subscriber additions after launching GSM services in January, TTSL too witnessed a surge in monthly additions following its GSM launch.

TTSL's market share had been slipping somewhat in recent years. In fact, even Idea Cellular, which did not have a panIndian presence, had shot ahead of TTSL. Prior to its GSM launch, TTSL's market share was hovering between 8 and 9 per cent. As of July 2009, TTSL had 39.37 million subscribers as against Bharti Airtel's 105.17 million, RCOM's 81.28 million, Vodafone Essar's 78.68 million, BSNL's 50.7 million and Idea Cellular's 48.51 million. In the wireline segment too, TTSL had a marginal share of 2.59 per cent (967,554 subscribers) as of July 2009.

The key focus for the next few years will be GSM. The company intends to roll out GSM services across the country within the next six months. It is eagerly awaiting spectrum to launch its services in Delhi, where it already has infrastructure in place. Having paid the licence fee more than a year ago, TTSL is more than a little impatient at being denied spectrum in Delhi, a key telecom circle. "We have knocked at the Department of Telecommunications' (DoT) door and will keep doing so. We have become good at pressing doorbells and will keep on doing so till we are heard," says Sardana.

The company has earmarked an investment of $2 billion for its pan-Indian GSM network rollout. It has also drawn up an additional investment plan of $1 billion to participate in the 3G and broadband wireless access spectrum auction. "We will be approaching our shareholders for raising $1 billion to part-fund our 2G network expansion plans and participate in 3G spectrum auctions," says Sardana. This will take TTSL's total investment over the next few years to $3 billion.

For TTSL, the aim 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. "Tata DOCOMO will soon unveil a portfolio of valueadded services (VAS) that will reinvent mobile telephony in India with products and services like Free Voicemail, Timed SMS Service, Free Missed Call Alerts and Call-Me Tunes –­ all of them customised to liberate and refresh our subscribers," says Sardana.

"To stay ahead of the competition, the JV will have to be innovative. There is a need for differentiation. VAS will be important for Tata DOCOMO to provide that differentiation," observes Toshinari Kunieda, senior vice-president and managing director of NTT DOCOMO's global business division, which is open to offering VAS on both CDMA and GSM platforms to TTSL.

TTSL's Japanese partner is expected to bring in some of its customised VAS to India by the year-end. In fact, one of its VAS partners, DeNa, a large aggregator of gaming content, is already looking at entering the Indian market.

Paying alliance
For TTSL, the alliance with NTT DOCOMO has been both timely and strategic. NTT DOCOMO picked up 26 per cent stake in the unlisted TTSL in 2008 for $2.7 billion. The Japanese major, which has over 50 per cent market share in its home country, has brought to the table its extensive experience in 3G and VAS, besides, of course, funds for expansion. This will expectedly give a big fillip to the company's future operations as the cooperation between the two extends across various segments –­ marketing, handset development, technical support –­ and to creating new opportunities.

At home, DOCOMO is the telecom market leader. Its data services are popular and the average revenue per user (ARPU) exceeds $50 a month. "The company has been very successful in developing a robust ecosystem comprising a lot of application developers around its technology platform and hence generating very high revenues. Using its partner's expertise, TTSL has a good chance of duplicating this success in India," observes Pankaj Agrawal, associate director, BDA Connect (India).

DOCOMO is TTSL's hope once 3G services take off in the country. Already, the two companies are looking to offer services based on DOCOMO's i-mode mobile internet technology and mobile payment systems. Leveraging DOCOMO's expertise, TTSL expects to turn profitable in three years. Likewise, the Japanese company expects the JV to start contributing to its bottom line within the next three years. DOCOMO believes that it will make money from dividends, international roaming and technology licensing, as well as from its knowledge of advanced mobile networks, which is useful in developing countries like India where networks are being rolled out.

At present, DOCOMO is satisfied with its board representation of three members and nine officials, who are working in various capacities at TTSL. The company has indicated that it is open to increasing its stake in TTSL in the future.

Outside view
A relatively late entrant into the mobile segment and a moderate risk-taker, TTSL preferred to wait while its rivals pushed ahead to corner market share. Owing to the slow start, TTSL till today trails behind the top five telecom players in the country.

However, it has been making concerted efforts to strengthen its image and operations in the past few years. It has certainly become more aggressive. It also has a number of inherent strengths, one of them being its Tata lineage. Says Dr Mahesh Uppal, director, ComFirst, "TTSL's strengths are obvious. It has a pretty large nationwide network. It has the best technology. And in terms of funding, there is bluebloodedness since it comes from the Tata stable."

Its late entry, despite the disadvantages, also has a positive to it. According to Uppal, "Being a late entrant, it 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."

Still, there are issues that have kept the company trailing behind others operators on the growth curve. Analysts believe that the choice of CDMA technology, though superior in data capabilities, has proved to be limiting for the company. There are very few takers for this technology in India today.

The other factor that has worked against the company has been its initial mass market approach. This has translated into a largely low-end subscriber base, impacting the company's margins. Also, a lot of the high-end subscribers are already with GSM players. And, as Uppal points out, "it is difficult to lure high-end consumers with small price advantages".

Some analysts believe that TTSL is not able to leverage the data expertise capabilities of its other telecom arm, Tata Communications. The company also needs to pay more attention to its advocacy with authorities like DoT and the Telecom Regulatory Authority of India.

The company is trying to fix a lot of these issues. It has left no stone unturned in its effort to get ahead of its rivals, as is evident from its recent launch of innovative offerings. The GSM launch will, moreover, give it the advantage of playing on both technology platforms and allow it to extract the best of both. "While GSM has an advantage in roaming, CDMA has an advantage in data. The largest number of data cards is in CDMA. Wherever people don't need to move their phone number, they prefer CDMA data cards. If you have a wider menu of services and products to offer, you will be better off in this market," observes Uppal.

A major increase in subscriber additions can already be seen. "The company has managed to accumulate 1.6 million GSM subscribers after just the initial launch of GSM services. That is about three times higher than its net monthly addition on CDMA," observes Sourabh Kaushal, principal analyst, BDA Connect (India). In July 2009, the company added 2.26 million subscribers, of which 1.6 million were on GSM and only 0.7 million were on CDMA.

Though one view is that the company may lose money in providing services at such low tariffs, TTSL is confident of its strategy. As Sardana points out, the company has done its maths and expects to make up the low tariffs with greater user volumes.

Earlier, Virgin Mobile had tied up with TTSL for co-branding mobile services. Like its strategic alliance with DOCOMO, this pioneering step is seen as a positive for the company.

Future priorities
Over the next few years, broadband will be a key focus area for the company. Diversifying its product portfolio from only voice, the company has recently launched a bundled offer of its Photon+ broadband service with Olive Telecommunications' 3G-equipped netbook. This is TTSL's first ever notebook and so there could be some trust issues initially with Indian customers more inclined to opt for notebook staples like Dell and HP. Moreover, the company faces competition from other similar tie-ups in the industry. For instance, Dell and MTNL have tied up to offer 3G netbooks. With the competition intensifying, it would be interesting to see how the X-series notebooks of TTSL and Olive compete with others.

TTSL also plans to expand coverage of its mobile broadband internet service, sold under the Photon+ brand. The service provides high speed internet with speeds of up to 3.1 Mbps. "While the rollout is complete in the metros, we now plan to hit tier II cities. We will soon launch Photon+ in markets like Patna, Ranchi, Siliguri and Durgapur," says a senior TTSL official. The company already has a base of 10,000 Photon+ subscribers in Kolkata.

On the GSM front, the company is quickly rolling out its network to achieve a pan-Indian presence. Alongside its GSM expansion plans, the company now intends to widen the services horizon for both technology platforms. It has recently rolled out a unique QUICKFINDER aGPS service, powered by Qualcomm's QPoint solution and gpsOne technology.

Meanwhile, like other CDMA operators, TTSL has been facing a huge paucity in handset varieties. Thus, a key part of its expansion strategy is to introduce open market handsets for its CDMA customers. For this, the company has entered into alliances with handset vendors like Samsung, Spice and Micromax to build a portfolio of such phones in the Rs 2,500 to Rs 5,000 range. Many believe that open market handsets are the answer since they not only offer a choice to consumers but also benefit operators as they can be sold via mobile phone distributors. More importantly, these handsets will not be locked with any CDMA operator, as is the case now.

Retail, therefore, is an important focus area for TTSL. The company, which currently has over 4,500 retail outlets, has chalked out a major expansion plan to enhance its retail presence in 2009-10.

Enterprise is another area the company is focusing on. TTSL is leveraging its NTT DOCOMO connection to win enterprisewide telecom deals from Japanese companies for their Indian operations. DOCoMO provides enterprise services to several Fortune 500 Japanese companies, some of which like Sony, Toyota and Fujitsu have large-scale operations in India.

And of course, the company is waiting for the 3G spectrum auction, an area in which it expects to score better than its rivals. It already has a 3G-ready infrastructure with an assured migration path to 4G. With its DOCOMO alliance, it is at an advantage to achieve a target of 100 million subscribers by 2011.

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