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Brand Idea: Focus on 3G, rural areas and market positioning

June 29, 2011
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Idea Cellular’s aggressive marketing and advertising strategy around mobile number portability (MNP)  seems to have worked in its favour. The “Get Idea!” tagline along with the high visibility of the brand has helped it draw users to its networks in droves.

The Telecom Regulatory Authority of India’s (TRAI) latest data shows Idea as the top gainer from MNP in April 2011. It has overtaken Vodafone Essar, which was, till then, ahead of the others in the MNP race, clocking net additions of 639,060 users against Vodafone’s 633,589 since MNP was introduced in January 2011.

So, how did Idea get ahead of its competitors, despite telecom analysts suggesting that MNP was unlikely to be a game changer in the long run? For one, it made substantial investments in its network, technology and processes, which facilitated the subscriber switchover.

“On port-out to port-in ratio, we are ahead of all operators. For every 100 customers porting in, Idea loses only 59,” notes a company spokesperson.

The other area that Idea has been focusing on is 3G. Like its rivals, it has shown aggressive speed and scale in rolling out 3G services. Its national 3G footprint currently covers over 400 towns and is expanding at the rate of 10 towns a day.

In the past few years, Idea’s strategy has been to build on its strong brand equity and significant presence in rural and semi-urban areas. Today, it is the third largest GSM mobile operator in the country with 92 million users. It follows Bharti airtel (164 million) and Vodafone Essar (137 million) and is followed by Bharat Sanchar Nigam Limited (92 million, including wireline) and Aircel (56 million). In April 2011, Idea had the highest net mobile user addition at 2.45 million.

“The company’s performance so far has been commendable. In terms of revenue market share, it is ranked first in four circles and second in three of the country’s 22 telecom circles,” says Sridhar Pai, CEO, Tonse Telecom.

It has been a long journey though for the company. Unlike other operators, it had a slow start, losing early years to promoter-related strife (it originally had three promoters – AT&T, the Tatas and the Birla Group). The company came into its own in 2006 when the Tatas sold their stake to the Aditya Birla Group.

Ever since, Idea’s focus has been on pushing growth and increasing its footprint across the country. In 2008, after procuring licences and spectrum to operate in all telecom circles, the company aggressively rolled out its network and services. In June 2008, it acquired Spice Communications, which brought with it its sizeable subscriber base in the Punjab and Karnataka circles.

Caught in controversy 

Even as the company was consolidating its operations and preparing to roll out 3G services, the 2G scam broke, pulling much of the telecom industry, and with it Idea, into its eddy.

The Department of Telecommunications (DoT) issued notices to Idea for holding six overlapping mobile licences post its acquisition of Spice Communications in violation of the merger and acquisition (M&A) norms. On February 24, 2011, DoT decided to impose penalties of Rs 3 billion on the company, apart from withholding 3G spectrum in four circles and cancelling the overlapping 2G licences. Subsequently, in April 2011, the Delhi High Court stayed the acquisition of Spice, which has been challenged by Idea. The company denies any breach of M&A norms and states that the acquisition was approved by court and was done with the full knowledge of DoT.

In fact, according to a senior Idea official, “In 2008, the company had written to DoT and offered to surrender the overlapping mobile permits. This is on record.”

Meanwhile, as part of a Supreme Court directive, the Central Bureau of Investigation (CBI) is looking into the allocation of mobile permits between 2001 and 2007. In Idea’s case, the investigation is at an initial stage and the CBI is yet to file even a first information report. It is focusing on the validity of a licence application filed by Idea for the Mumbai circle in August 2005.

At that time, both the Tatas and the Birla Group owned more than 10 per cent stake each in the company. Based on this, the CBI felt that the Idea application was invalid and should have been promptly rejected, as the Tatas were already offering CDMA-based mobile services through Tata Teleservices Limited (TTSL) in Mumbai. The acceptance of the application was not possible as it would have resulted in the Tatas owning more than 10 per cent stake in two telecom companies operating in the same circle, which is not permitted. Instead of being immediately rejected, the application was put on hold until Idea became compliant, after the Tatas exited the company in 2006.

Speculation is also rife about Malaysia’s Axiata Group Bhd (earlier Telekom Malaysia) selling around 5 per cent stake in Idea. Axiata holds 19.8 per cent in Idea via TMI Mauritius and TMI India, and may exit the company on account of licence cancellations and penalties.

Business as usual 

Though the company has been battling controversies and court cases most of the year, its focus on business continues. It has been busy with what it does best – launching value-added services (VAS), garnering users, tapping the rural areas and furthering its brand reach.

3G launch 

In fact, 2010 was a significant year for the company. It not only established a pan-Indian presence, but also played a deft hand in the 3G spectrum auctions. Focusing mostly on circles where it has a competitive edge, Idea bid for 11 circles: Maharashtra, Gujarat, Andhra Pradesh, Kerala, Punjab, Haryana, Uttar Pradesh (East), Uttar Pradesh (West), Madhya Pradesh, Himachal Pradesh and Jammu & Kashmir. The total outgo on this was Rs 57.69 billion, far less than what other operators had to pay for a similar 3G footprint. For Idea, this also meant securing its presence in circles that contribute nearly 81 per cent to its total revenues.

Idea met over 40 per cent (Rs 24 billion) of its fund requirement from its internal accruals, which were largely sourced from funds raised through the sale of stake in Aditya Birla Telecom to private equity player Providence in 2009. It also raised Rs 5 billion through the issue of commercial paper. The remaining amount was funded through a mix of long- and short-term loans from a consortium of banks led by IDBI Bank.

Idea did not participate in the broadband wireless access (BWA) auctions, maintaining its status as a pure-play cellular service provider. With an already stretched balance sheet following the 3G payout, it made little sense for the operator to pay a high price for BWA spectrum, especially as there is no immediate demand for BWA services in the country.

In 2011, 3G continues to be at the top of its to-do list. Along with a high-profile rebranding exercise and new logo launch in March 2011, the company rolled out 3G services in Madhya Pradesh, Chhattisgarh, Gujarat and Himachal Pradesh. In April 2011, it launched these services in Uttar Pradesh (West), six towns in Uttar Pradesh (East) and 14 towns in Andhra Pradesh. At end-April 2011, the operator’s 3G services covered more than 400 cities, over achieving its target of covering 200 cities and towns by mid-April.

In order to acquaint users with the 3G experience, Idea set up “experience kiosks” across the country. It also introduced a time-based billing plan for 3G customers, enabling them to avail of high-end data services without worrying about the volume of usage. The efforts paid off as within the first month of service, it garnered about 1 million 3G users.

Interestingly, unlike its peers, Idea’s 3G strategy hinges on the rural areas. While operators like Bharti airtel, Vodafone Essar and Reliance Communications have launched their services in the metros before going to the smaller towns and villages, Idea is targeting semi-urban subscribers in the initial phases of its 3G launch. It believes that 3G will become an enabler in smaller towns as it provides quality broadband access whereas the growth will be slower in the metros and urban centres, which already have the advantage of high speed internet through fixed line as well as wireless services.

Rural touch 

Idea has for long maintained that the demand for VAS and telephony is rising fastest in rural India as mobile phones are the only medium of connectivity in these regions. The operator has maintained its focus on rural subscribers and as a result, at the end of 2010, the rural markets contributed over 40 per cent of the company’s revenues.

Idea’s services today cover more than 300,000 villages. Amongst GSM operators, it has the highest share of rural subscribers as a percentage of total subscribers (49.73 per cent). Also, two out of every three new Idea subscribers come from non-urban markets. The operator’s 3G strategy also reiterates its rural focus.

In order to customise services for rural and semi-urban users, Idea has taken initiatives such as a tie-up with VAS provider handygo to launch an information service, Behtar Zindagi. The service, priced at Re 1 per minute, provides live information on the weather, livestock, mandi prices, fishery, and health and finance schemes to rural subscribers. To provide the latest information, handygo has partnered with organisations such as Care India, Aviva Life Insurance, the Indian Meteorological Department, INCOIS and Hariyali Kisaan Bazaar.

Idea is also promoting m-banking with the launch of the Idea MyCash facility in collaboration with Axis Bank. Aside from offering basic banking services like cash deposit, cash withdrawal and balance enquiry, the mobile-based financial inclusion initiative enables money transfer by migrant populations in urban areas to their beneficiaries back home. To begin with, the remittance facility is being offered in the Dharavi-Allahabad remittance corridor; subsequently, it will be extended to other remittance corridors as well.

Analyst views 

According to analysts, the key driver of Idea’s growth has been its deep penetration in the rural and semi-urban markets. It has the highest share of rural subscribers as a percentage of total subscribers amongst GSM players. However, the very reason for its growth is an area of concern, note analysts. They feel that Idea’s ARPU is lower than that of its competitors because of its rural focus. For instance, during October-December 2010, Idea’s ARPU stood at Rs 127, while airtel’s was Rs 150 and Vodafone’s Rs 128.

Market experts also question the wisdom of following the same semi-urban/rural strategy for 3G services as well. They do not expect ARPUs to increase significantly in smaller towns as compared to the metros and Category A circles where data usage is expected to be higher.

According to Vivek Ramakrishnan, manager, strategic and commercial intelligence, KPMG, “For Idea, the focus should be on ARPU enhancement measures, which include acquiring a strong 3G subscriber base. This could be through leveraging its high quality 2G subscriber base, investments in relevant content and network quality.”

Meanwhile, as a telecom analyst from Anand Rathi points out, “Idea will get the first-mover advantage in this segment and if 3G truly becomes an enabler in smaller towns that have good broadband access, Idea could be the winner.”

The company has always maintained that, unlike other telecom players, it has not chased subscriber numbers at the cost of profitability. So, even as rivals were putting in good money into new markets, Idea focused on circles it already had a strong revenue market share such as Gujarat, Andhra Pradesh and Kerala, and then gradually stepped into new markets. Analysts say that this strategy may have worked till now, but it could be a cause of concern going forward. Currently, Idea enjoys a dominant position in about six to seven circles. However, in other markets, it entered very late, thus conceding a huge lead to its competitors.

Also, Idea has focused primarily on GSM services and not shown much interest in the internet or long distance segments. This could be a disadvantage, especially with new players coming in and vying for the same high-paying subscribers. “The company has no broadband network, no major enterprise presence and no global operations. These could be distinct drawbacks in the future,” says Pai.

He, however, feels that Idea’s key challenge will be to bring together its services across its 2G/3G circles, especially in non-contiguous circles where it will end up with multiple bands of spectrum – 900 MHz/1800 MHz/2100 MHz – which could become a complex issue while deploying its 3G RAN, something it has already begun. With its combinational spectrum bands, Idea will need to plan for good in-building coverage, which would eat into costs but would help the company improve its quality of service.

Overall, analysts agree that aggressive brand building, a reasonable quality of service, and a place among the top six operators in the country are Idea Cellular’s key strengths. Besides, being a part of the $29 billion Aditya Birla Group, which is part of the league of Fortune 500 companies, the operator has the backing of a strong promoter with financial muscle.

Looking ahead 

For Idea, 3G, voice-based services and the rural market will continue to be the key focus areas. It has already invested Rs 100 billion (including Rs 5.8 billion as auction fees) in rolling out 3G services. It plans to invest over Rs 40 billion in 3G network infrastructure, which includes erecting around 16,000 towers by March 2012.

The company’s voice business is also a key priority. According to Himanshu Kapania, who recently took over as managing director from Sanjeev Aga, “There is a lot of untapped potential in the voice business and Idea is well positioned for it, especially in the hinterland. According to our assessment, there are another 300-400 million customers who are likely to join 2G or the wireless business in the next three to four years. The growth story of voice will continue for some more time. I also believe that, with time, the current hyper competition phase will ease out and a degree of pricing power will come back to incumbent operators. This will give us an opportunity to improve our overall voice revenues.” 

All in all, with a market cap of Rs 214.02 billion, an EBITDA of Rs 10.75 billion in the quarter ended March 2011, and 11.12 per cent market share as of April 2011, analysts are upbeat about the company’s prospects, despite its current crop of problems. Going by the robust growth Idea has witnessed in the past few years and its aggressive rollout plans, their views seem well founded.

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