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| Virgin Mobile: Wrong call? |
| Shobhana Subramanian / Mumbai Apr 14, 2009, 00:39 IST |
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A year after its launch, Virgin Mobile still hasn’t been able to pull enough subscribers. Can it make a difference to the market?.
There is no point in Virgin doing anything unless we can make a difference,” a bungee-jumping Richard Branson had said at the launch of the company’s telecom service in March last year. Well, in the one year that it’s been around, Virgin Mobile hasn’t exactly set the Indian mobile telephony market on fire. The team at Virgin refuses to talk numbers, but Chief Marketing Officer Prasad Narasimhan claims that in the last 12 months, Virgin’s share of the subscriptions would be a tenth of that added by Tata Teleservices, with whom it has teamed up.
That would put Virgin’s user base at just about a million, given that Tata Teleservices has managed to hook around 10.5 million subscribers in that time. At a market share of less than 1 per cent, that doesn’t sound too impressive, given that nearly 125 million people have bought themselves a mobile phone connection in the last 12 months. To make sense of Virgin’s numbers, market leader Bharti Airtel got 31.5 million customers during the period and Reliance Communications managed to get five million subscribers in a single month when it rolled out its GSM option in January.
Foot in the door
For sure, Virgin does not have a pan-India presence. Moreover, a year may not be a very long time in an already-crowded market in which incumbents have been around for nearly 15 years and the best of them have already cornered a fourth of the market. Again, Virgin has all along been clear that it is selling to the urban youth in the age group of 15-25 of which the country has an estimated 200-215 million. While the proposition may hold promise when viewed from the point of the country as a whole as mobile penetration is around 50 per cent, cities like Delhi are fully saturated. So did it make sense to launch a service for such an audience?
Virgin is optimistic. Officials point out that 70 per cent of its users today are those who have switched service providers, while the rest are first time mobile phone users. “We have roped in more users than we targeted,” says Narasimhan, pointing out that when Virgin entered the Delhi market, 95 per cent of the target audience already owned a mobile phone.
Of course, since Virgin operates in India through a joint venture with Tata Teleservices, it has not needed to put down hard cash to build a network that costs billions of dollars. The commercial terms between the two partners aren’t known but industry experts guess there would be some kind of sharing of revenue between them.
Again, in the absence of numbers, it’s hard to tell how much money the company is making. And to try and estimate when the business will start making money. Narasimhan says Virgin’s ARPUs or average revenue per user, a popular metric used to gauge how much a telecom service operator is making from each of its users, are 30 per cent above the industry average. That, in itself, doesn’t seem too exciting because at Rs 170-180, and trending down, the average ARPU in India is probably the lowest in the world.
Tweaking the tariff
So while Virgin may not be out of pocket once it builds up a certain subscriber base, the question is whether it can make big money. Already, with tariff wars breaking out every now and then, and free minutes being the order of the day, Virgin has had little option but to join the game. In fact, it realised pretty soon how price or value conscious Indian users are. When it first kicked off the service last year, the USP was that those who received calls from a Virgin user would be paid for it. That benefit is still available today but the bait wasn’t quite enough to net subscriptions.
Towards the end of August last year, Virgin brought down call rates. Apart from making the basic package more affordable, it also launched some weekend and night packs. Having realised that youngsters constantly message their friends, it introduced a scheme in which users paid only for the first three messages, after which the messages were free. Long-distance calls too were made cheaper at 50 paise per minute because research showed that students studying away from home stayed in touch with their families and friends. And like many of its peers, Virgin too came up with “on net” packages — discounts for speaking to people on the Virgin network. The key to the re-pricing strategy was that consumers were not expected to commit to a minimum usage, even for SMSs — that was left open-ended. Re-pricing pays off
To its credit, the idea seems to have got consumers excited. Explains Narasimhan, “We are not the cheapest service and our call rates may not have been disruptive but the package definitely was. The part that the user liked was that he or she did not have to commit to spending a minimum amount, which is often the catch with some of the competing offers.” He explains that contrary to popular perception that youngsters are indifferent to call rates, many of the youngsters are actually “hypersensitive” to what they’re paying. They have, he says, limited amounts to spend and so want maximum bang for the buck. That’s why, much like with the rest of the industry, 90 per cent of Virgin’s subscriptions are pre-paid. The re-pricing seems to have had some impact because Narasimhan says subscriptions have picked up sharply in the last six months or so and are growing at about 20 per cent month-on -month. And it’s not just that more connections were sold, he claims users were talking more with the result that the minutes of usage has seen a fairly big jump.
The CDMA handicap
In all fairness, it’s also true that Virgin started out with a huge disadvantage because it operates on the CDMA platform of its joint venture partner, Tata Teleservices. But then it must have been aware that in India today GSM operators control virtually three-fourths of the market simply because the variety of handsets that can be used for CDMA connections is rather limited. According to industry watchers, it’s possible Virgin is waiting for Tata Teleservices to roll out its GSM operations, after which it would be better positioned to sell its service. Meanwhile, the company has tried to make the best of a range of Virgin handsets, pricing them anywhere between Rs 1,400 and Rs 4,500. Of course, buyers are free to use the dual use handsets and the CDMA handsets of other manufacturers. But since this is a badge value category, Virgin has taken care to select popular colours especially reds and pack in as many features as possible and, of course, the range is being continuously expanded. The recently launched V Glide, at a price of Rs 2,399, is the only glider instrument at this price point. In fact, Virgin works closely with Samsung to try and make sure that the products look good.
Building the brand
In a crowded market, Virgin has also tried to focus its advertising effort, strictly catering for the 15-25 age group. Says Sandeep Pathak, CEO, Bates 141, which has handled Virgin’s advertising from the start: “Today almost every marketer is addressing the youth because by default they are the biggest spenders. So one needs to work that much harder to be able to stand out.” Pathak observes that where the industry biggies spend around Rs 300-400 crore a year, Virgin’s budget is about a tenth of that amount. And therefore, it has tried to stick to youth channels such as MTV or Channel V and restricted hoardings to locations near colleges.
There are those who feel that the brand is not so well known and that its attributes aren’t too well-defined but Prashant Singhal, who heads the telecom practice at Ernst & Young, believes the brand is young and energetic and has definitely managed to create some appeal in the target segment. “The pricing alone would not have been enough to bring in subscribers,” he says, adding that with increasing awareness, the subscription numbers too have picked up. “A million subscribers is not bad for this kind of a model which has very specific target.”
Connecting with the youth
Most of the action in the future though will not be on television or in the print media. In order to reach out to youngsters, Virgin has invaded college campuses. It plans to invite students to be brand ambassadors and request them to sell Virgin merchandise such as T-shirts. In return, it invites groups of students for counselling sessions. As Narasimhan explains, there are youngsters who may not be from very well-to-do families and want to be counselled on a host of things starting from careers to presentation skills. Virgin has also installed television sets in college canteens to encourage students to produce content on any subject which is then aired. Virgin, of course, provides some content. For instance, students have been asked to come up with ideas for advertising campaigns for the Virgin brand. Narasimhan claims one survey put Virgin among the “top 10 buzz worthy brands.”
That may be so but at the end of the day the brand must pull in subscribers. Already, the growth momentum in the urban areas is slowing given that more players are fighting it out. Besides, there are new telecom companies waiting in the wings. Number portability, when it comes in towards the end of this year, could help but otherwise it’s going to take a long time before Virgin makes a difference to this market.
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