Videocon, the latest entrant in the hyper-competitive telecom sector, has a tough journey ahead. For one, the sector is in pain with high operational costs, low tariffs and threadbare profit margins. And two, mobile density is high. The creamy layer is gone. Only the bottom of the barrel is left to be scraped. The option left for a newcomer is to woo subscribers from the incumbents. That's easier said than done: Videocon, with just 4.4 million subscribers, is a minnow when compared to incumbents like Bharti Airtel (190 million subscribers), Vodafone (155 million), Idea Cellular (124 million) and Reliance Communications (125 million).
Nevertheless, Videocon is very much there in the market. It had won licences for 22 telecom circles in 2008, when A Raja was the Union telecom minister, and had launched services in 2010. But the licences were cancelled early last year by the Supreme Court over alleged irregularities in the grant of these licences. At that time, Videocon had managed to get six million subscribers. In the November 2012 auction of 2G-spectrum, it got back into the reckoning, though this time with six circles in its kitty, for which it paid Rs 2,222 crore. It launched its service under the Datacom brand. Then, four months back, it switched off operations in three of these circles due to the high cost of operations: Uttar Pradesh (east), Uttar Pradesh (west) and Bihar.
While some experts say that Videocon did this because it found the going tough, Arvind Bali, the chief executive of Datacom, says it is just a tactical retreat. "We plan to roll out services again in these circles within the current financial year," says he. "These are high-potential circles." As of now, Datacom operates in four circles: Gujarat, Madhya Pradesh, Haryana and Punjab, which it did not lose when the licences were cancelled.
Datacom, to be sure, knows that the task ahead is not easy. If it has to build a business of some scale, it needs to grow faster than rivals. So, it has doubled its network since January and plans to invest more. The company has an aggressive five-year subscriber acquisition plan. According to it, it wants to have 10 million subscribers by the end of this financial year. As of now, the growth in the subscriber numbers, according to Bali, is on target. "Being a late entrant, it is imperative for us to grow, and grow fast. We are pleased that we are already among the top three operators in every circle when it comes to month-on-month net subscriber additions. Between January and July, we have grown our subscriber base on a compounded annual growth rate of 60 per cent and our gross revenue at 51 per cent," says Bali.
Experts claim it is extremely important for the company to aggressively chase volumes. "The longer it takes to launch, the more difficult will it be to acquire customers. The operators who stand on the margins would be left there if they do not move fast," says Alok Shende, principal consultant, Ascentius Consulting, a research agency.
To add customers to its network, the operator is playing the same old game - low tariffs. "Telecom business is a minute factory. Our tariffs are much better than competition and we will continue to offer 20-25 per cent better value than others," says Bali. He says that Datacom can afford lower tariffs because it minutes at a lower cost. It is worth noting that the last tariff war, which was started by newcomers in 2009, made the entire industry bleed. Many analysts and industry insiders blame that for the current woes of the sector, including erosion of shareholder value.
However, Bali is quick to add that Datacom's customer-acquisition strategy does not hinge on low tariffs alone. The company also plans to earn more from these customers. So, it is looking to increase its average revenue per user (ARPU) by 15 per cent from Rs 155 at present. (The industry's ARPU stands at Rs 105, according to research portal Telecom Watch.) It wants to do that by increasing the penetration of value-added services including data play - something, it is hopeful, will result in higher customer engagement. It plans to increase the range of data products it offers with high-speed 4G services. The spectrum it acquired last year allows the company to offer these services due to its liberalised nature. Datacom is engaged in discussions with Nokia Siemens Networks, which offers 4G-network solutions. "The Nokia Siemens team is studying our network and will soon be coming up with the deployment plan. The advantage we have over others is the fact that ours is an 1800-MHz licence which is the preferred band for 4G services deployment. It accounts for over 42 per cent of the world's LTE deployment," says Bali.
The parent company of Datacom is Videocon, which owes its success, in large measures, to its wide distribution network. So, Datacom too is looking at a vigorous trade engagement programme to strengthen its distribution channel. One way of doing that is by offering them high-value gifts right at the time of enrolment: foreign trips, light-emitting diode (LED) television sets and other high-end consumer durables. "The fundamental of the programme being trust for mutual benefits, this was a never-seen-before experience which helped the brand engage better with the retailers. On the basis of this programme, Videocon Mobile Services has been able to engage with these retailers to maximise counter share from the outlets," says Bali.
The all-important question is: Will it be enough for the company to create space for itself? This is the second time that Videocon has tried to enter the market, the world's most competitive telecom space. First time round, even though it was operating across the country, Videocon had failed to build a brand, unlike other newcomers like Uninor or MTS. This time, experts feel that the operator will have to make huge investments, especially on the advertising side. "They should look at vigorous marketing promotion and advertising. They will have to spend money to promote their brand and fight it out for every single SIM card," Shende says. The odds are stacked against it. Last time, even with a pan-Indian presence, it could get only 6 million customers; this time round, with only seven circles, including Punjab, it is targeting 10 million subscribers in six months from now.