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Mobile Subscribers Yearwise comparision

A Heady Start - New players rapidly notch up subscriber numbers

February 15, 2010
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After an initial delay in rolling out serices, most of the new telecom playrs are off to a heady start. MTS, Sistema Shyam TeleServices Limited's (SSTL) CDMA brand, which rolled out services in March 2009, has already picked up 3 million subscribers. Uninor, the Telenor-Unitech Wireless brand, has signed on 1.2 million subscribers in just a little over a month of launching operations and is targeting a market share of 8 per cent by 2018. S Tel, more ambitiously, is eyeing a 15 per cent market share by 2015 after having got on to the mobile bandwagon in late 2009 and offering services in three Category C circles.

This is a strong start for the new players considering that in some circles, they are the twelfth mobile operator and are competing with industry heavyweights such as Bharti Airtel, Vodafone Essar, Reliance Communications (RCOM), Bharat Sanchar Nigam Limited (BSNL), Tata Teleservices Limited (TTSL) and Idea Cellular, which have more than a decade of experience in this sector. As these new entrants expand their footprint, they are eagerly looking at higher subscriber numbers, an 8 to 10 per cent market share and cash break even in three to five years.

But is their business model sound enough to take on the pressures of the current hyper competition? Do they have the scale to profitably compete for the lowARPU customers? Perhaps not, some analysts say. Even though most of the new operators are targeting the lower end of the socio-economic pyramid where mobile penetration is low, as in the case of migrant labour or the youth segment, they are distinctly disadvantaged when pitted against the larger existing players. Even the tariff card that new players invariably use to introduce services does not hold in the long run as the margins get pinched, according to analysts. Big operators, on the other hand, have the financial muscle to withstand margin pressures as well as better economies of scale.

This is one point of view. The other is that the new players have the advantage of being able to learn from the experience of the existing players and work around their mistakes. They have also been prudent about their overall investment outlay. For example, they have opted for infrastructure sharing as against investing in new infrastructure, thereby reducing their capex significantly. Besides, with equipment prices dropping internationally, the new players have been able to negotiate better deals from equipment vendors than their older rivals.

Significantly, as Dr Mahesh Uppal, director, ComFirst notes, "People mistake the new players as novices, which they are not. Players like Telenor and Etisalat are big boys and come with a lot of financial backing and experience. They are qualitatively different kind of competitors."

Today, with four of the six new entrants already on a roll, and the other two –­ Videocon (earlier Datacom) and Etisalat –­ readying to offer services in 2010, competition will intensify, putting a further downward pressure on tariffs.

Over the year, the developments in the telecom industry are bound to get more interesting with changes and consolidation expected to mark the market structure and competitive landscape.

tele.net takes stock of the performance of the new players till date...

Sistema Shyam TeleServices Limited
Operational in 12 circles, SSTL, offering CDMA-based services under the brand name MTS, has already garnered 3 million subscribers. Competing aggressively on tariffs and innovative value-added services, the company is looking to give existing and other players a run for their money. "We have given ourselves a timeframe of three years to be EBIDTA positive (by the last quarter of 2012) and cash positive by 2013," says SSTL's CEO, Vsevolod Rozanov.

The company is not looking at subscriber numbers alone. Its focus is on revenues. In that context, increasing the basket of data services fits in well with the company's overall plans. Recently, SSTL introduced high speed data services under the brand MBlaze, giving users download speeds from 150 MB to 10 GB, at monthly rentals of Rs 198 to Rs 595. According to Rozanov, "If we can provide good highend handsets for increased data use, it will lead to increased ARPUs, irrespective of the tariffs we offer."

As such, SSTL does not seem to be overly concerned about the falling ARPUs in light of the significant drop in tariffs. In fact, senior company officials believe that the current pricing is sustainable in the long run as ARPUs are not entirely tariff dependent. The success of the business, according to them, lies in the choice and implementation of the business model.

The company plans to be commercially present in all circles by end-2010. SSTL has estimated a requirement of $300-$400 million for the year. For faster rollout at reduced capex, SSTL has signed tower-sharing agreements with BSNL, Tata-Quippo, Reliance Infratel and Indus Towers.

A joint venture (JV) between Russian telecom major Sistema (with over 73 per cent stake) and the Shyam Group, in 2009, SSTL received Department of Telecommunications' approval for the Russian government to invest $676 million to acquire 19.8 per cent stake in the company. However, according to media reports, this has been delayed.

Meanwhile, SSTL is proposing to launch its initial public offering. The proceedings to list the company on the local bourses have been initiated. However, it will, perhaps, wait for at least two to three quarters of stable results before it goes in for the actual listing.

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

Recently, SSTL tied up with Utiba, a leading global supplier of mobile financial transaction platforms for mobile operators and financial institutions, for electronic top-ups and m-commerce platforms.

Uninor, a JV between Norway's Telenor and India's Unitech Wireless, launched operations in Tamil Nadu, Kerala, Karnataka, Andhra Pradesh, Uttar Pradesh (East and West), Bihar and Jharkhand in December 2009 with tariffs as low as Re 0.29 per minute for local calls and Re 0.49 for long distance calls. A month later, the company signed on a record 1.2 million subscribers, making an example of its extensive marketing and distribution reach across the eight telecom circles.

While these are still early days for the company, the numbers are encouraging. Says Uninor's managing director SteinErik Vellan, "We are building on our launch, scaling up the network and distribution. In a competitive market, it will never be easy, but we have a long-term ambition and we have made a positive start."

The company has set its sights on an 8 per cent market share by 2018, apart from EBITDA break-even in three years and positive operating cash flow within five years. Recently, the Telenor Group infused the fourth round of investment of Rs 20 billion into the company, taking its ownership to 67.25 per cent. The investment follows the Cabinet Committee on Economic Affairs' approval in October 2009, allowing Uninor to increase its foreign shareholding to 74 per cent. Earlier, Telenor has made three such transactions, involving an investment of nearly Rs 56 billion.

The fourth round of investment will provide Uninor with working capital to fund its service rollout across India. Uninor's peak investment is pegged at Rs 150 billion to establish a pan-Indian presence.

According to the current plans, services will be launched in another three to five circles over the next few months. Putting its rollout objectives on a fast track, the company has decided to lease and rent towers. For this, it has tied up with Wireless-TT Info Services, BSNL and others. Further, in order to reduce the time-to-market, the company has outsourced its entire back-end service needs to Wipro and Telcordia. It has also signed outsourcing deals with Genpact to provide it support in process re-engineering, inbound and outbound customer services, and training for five years.

Recently, Uninor signed an all-inclusive deal with US-based vendor Harris Stratex, for microwave connectivity. The contract involves equipment supply, installation, commission and maintenance as well as provision of backhaul access microwave links.

Loop Telecom
Loop Telecom, which already had a presence in the Mumbai circle through BPL Mobile, obtained a licence to offer GSM services in 2007. The company became the first among the new GSM operators to start operations, launching services in Tamil Nadu and Orissa in May 2009, and in Karnataka and Kerala in July.

However, it has been unable to expand its services since. The slow progress can be attributed to the ownership issues that the company has been facing for the past one year. In fact, by October 2009, Loop Telecom had been facing a possible forfeiture of its 21 operating licences after DoT asked the Ministry of Corporate Affairs to  carry out a second investigation into the company's shareholding pattern. There has been speculation that the Essar Group has been financially backing the company, despite being a 33 per cent shareholder in Vodafone Essar. The Essar Group claims that it has only a 9.99 per cent indirect holding in Loop Mobile, the parent company of Loop Telecom. This is within the legal limits whereby the same operator cannot hold more than 10 per cent stake in another telecom firm. The Ministry of Corporate Affairs carried out an investigation and reported that Essar had been routing funds to Loop Mobile via other companies –­ a claim that Essar has denied.

The company recently shortlisted Tech Mahindra, Wipro and IBM for an IT outsourcing contract worth around $400 million. The contract is reportedly spread across 10 years and entails integration and maintenance of the operator's IT system across 22 circles. Loop is exploring an operating expenditure model, under which the shortlisted players can take its IT assets on their books.

S Tel
Chennai-based S Tel launched services in Himachal Pradesh, Jharkhand, Bihar and Orissa in December 2009. It has since then notched up 400,000 users.

In 2010, the company plans to launch services in Assam, Jammu & Kashmir and the Northeast. In these circles, the company has set a target of 15 per cent market share by 2015. "With the number of mobile users expected to double by 2015, we are now entering an exciting phase in telecom growth. The six circles that S Tel will be operating in are where the next level of growth lies. These growth circles, which have a population of 226 million people, provide us an opportunity to deliver a tailored, relevant value proposition," noted P. Swaminathan, director, S Tel, and president, Siva Group, at the time of the launch.

Privately held S Tel is a JV between Bahrain Telecommunications Company (Batelco) and the Siva Group. The latter is a $3 billion group with diversified business interests in verticals such as wind energy, shipping, logistics and hospitality, while Batelco is a diversified, integrated telecommunications operator with mobile, fixed and wireless broadband, data and fixed line services.

In 2007, S Tel had applied for licences in all 22 circles, but was granted licences for only six. Unfazed, the company went about facilitating its rollout plans. According to the company, Category C telecom circles have high potential and make for better business. S Tel put together a sound operating model to focus on these markets. For one, it decided not to put up any tower of its own. Instead, it signed infrastructure-sharing deals with the existing operators. It has signed an end-to-end telecom infrastructure agreement with Reliance Infratel for telecom towers, transmission for base transceiver station sites and fibre backbone for intercity connectivity. Its agreement with RCOM covers all telecom circles where the operator plans to roll out GSM services.

Recently, S Tel has awarded a five-year IT outsourcing contract to Tech Mahindra for outsourcing its system integrationmanaged services. The contract also includes maintenance of the firm's business and operational support systems.

In November 2009, S Tel achieved financial closure of its project with an outlay of Rs 20 billion. In addition, the Siva Group and Batelco have brought in equity capital of Rs 12.53 billion.

S Tel has joined the tariff war in the circles in which it has rolled out services by introducing a pay-per-second plan and other competitive schemes. Besides, the company has put together innovative value-added service offerings, covering entertainment as well as knowledge-based content, such as Learn English and examination tips over its IVR service.

On the distribution front, S Tel has leveraged non-traditional channels to make its products available to the user.They include business units such as insurance agencies, cable operators and courier services.

Etisalat DB
Etisalat DB, the telecom venture of Indian realty major the Dynamix Balwas Group,
and UAE-based telecom operator Emirates Telecommunications Corporation (Etisalat), is busy with pre-launch preparations prior to joining the Indian telecom bandwagon. As part of these preparations, it recently signed up actor Aamir Khan to endorse its forthcoming mobile service brand. Earlier, the company appointed McCann Worldgroup's MRM Worldwide as its creative agency and Karishma Initiative (part of the Lintas Group) as its media agency. These agencies will partner with Etisalat to launch services in 15 of the 22 telecom circles.

Though no launch date has been announced, the marketing and service rollout plans seem to be heading in the right direction. Meanwhile, Etisalat is also working on increasing its shareholding in the company from the present 44.73 per cent to over 50 per cent, giving it majority ownership. Towards this end, in December 2009, Etisalat decided to acquire 5.27 per cent stake from Chennaibased Genex Exim Ventures for about Rs 3.8 billion. The company has approached the Foreign Investment Promotion Board for approval of the deal.

As far as its journey so far is concerned, the erstwhile Swan Telecom was one of the first new licensees to divest a part of its stake to a strategic foreign player. In September 2008, Etisalat bought about 45 per cent stake in Swan for $900 million. The remaining 55 per cent is held by several entities including the Dynamix Balwas Group. In June 2009, Etisalat DB's board announced a change in name to Etisalat DB Telecom India.

In a key development, the company awarded a 10-year IT applications' outsourcing contract worth $400 million to Tech Mahindra. The partnership with Tech Mahindra helped it in attaining cost and market efficiencies.

Etisalat DB also signed an infrastructure-sharing pact with RCOM. Under the terms of the agreement, Etisalat DB will outsource its telecom infrastructure requirements for 15 telecom circles, encompassing end-to-end tower and transmission infrastructure, to Reliance Infratel and RCOM respectively.

In October 2009, the company received DoT's approval to offer long distance (national and international) services. This was in addition to securing the government's approval to operate as an internet service provider. These three licences are expected to enable the company to offer mobile and fixed line services, carry voice and data traffic, and offer internet services.

Videocon Telecommunications
Videocon Group firm Datacom seems all set to launch GSM-based mobile services. As a first step, the company has decided to change its name from Datacom to Videocon Telecommunications Limited (VTL), signifying the change in management control rights.

After more than a year, the long-standing battle between the two promoters of the telecom venture, Videocon Industries (64 per cent) and the Mahendra Nahata Group-owned Jumbo Techno Services (26 per cent), has been resolved with Nahata exiting the venture by selling his stake to the Videocon Group. He is set to receive Rs 14 billion for offloading his entire stake in Datacom. A formal announcement in this regard is yet to be made.

VTL plans to start its mobile services in Mumbai on February 20, 2010, followed by the Tamil Nadu and Punjab circles. The company aims to cover the entire country within 18 months of the Mumbai launch.

The company seemed aggressive initially. It received spectrum early and had plans to launch services by August 2008. However, mid-2008, problems cropped up between the two promoters –­ the Dhoots and Nahata. The differences over management control escalated to such an extent that things came to a near standstill for more than a year. This also led to the exit of the company's chief executive officer, Ravi Sharma, and others at the helm. Finally, Videocon group chairman R.N. Dhoot took over charge of company affairs and is now assisted by his brother P.N. Dhoot in promoting the telecom venture.

Things at Datacom started looking up in 2009 when the company awarded an IT outsourcing contract to IBM. The company's advertising contract was also up for grabs and Singapore-based T.A.G. was a frontrunner to bag the contract. It signed towerand transmission line-sharing agreements with Aircel and TTSL. Similarly, incumbent BSNL entered into an agreement with Datacom for sharing of passive infrastructure. The agreement has given Datacom access to more than 42,000 BSNL towers across the country (except in Delhi and Mumbai). For wireless equipment, the company has signed an MoU with Huawei.

Furthermore, the company's prospects of gaining a suitable international partner are also looking up. Vivendi SA, a French media and telecom company, is in exploratory talks to buy a stake in VTL. According to company sources, officers from Vivendi have held two rounds of talks with VTL to acquire a majority stake. If the deal goes through, VTL will enter the league of new players who already have a foreign strategic investor back-up. These include Uninor, SSTL, Etisalat DB and S Tel.

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