Red rolls out

Cash-rich Russian telecom major Sistema plans a significant share in the saturated Indian mobile services market.

When Russian telecommunications service provider Sistema was planning to bring its international brand, MTS, to India, it was confronted with an odd problem. The symbol for MTS, which Sistema was going to use for the first time outside Russia and the CIS countries, was oval in shape and looked like an egg. The company feared the huge population of vegetarians in India could take offence at it.

A nervous Sistema then created a focused group of consumers across the country, many of whom were vegetarians, to gauge their response. To the company’s relief, the group gave its nod to the brand and its symbol. It could be sold to vegetarians and non-vegetarians alike.

 

It has been a quiet but fundamental change. Last week, Sistema Shyam Teleservices (a joint venture company in which Sistema has a 74 per cent stake and the rest is owned by homegrown Shyam Telecom) painted Pink City Jaipur red — the colour of its brand. The occasion was the change of its CDMA service brand in Rajasthan from Rainbow to MTS. It has launched the brand in Tamil Nadu, Chennai and Kerala too. By June, it will launch MTS in West Bengal, including Kolkata, and in a few short months, in Mumbai and Delhi too. Thus, in the next nine months, the MTS brand will be seen in half of the 24 telecom circles across the country. Sistema has a war chest of over $5.5 billion to give shape to its ambition.

Rainbow goes red
So, what has prompted the company to dump Rainbow and use Sistema’s international brand? MTS, mind you, was launched only in 2006 and does not have the same equity as is associated with other global brands like Vodafone, even though it uses the same red colour. Though last week, it was ranked as one of the world’s most powerful brands by Financial Times and market research firm Millward Brown. Sistema, of course, is the eighth-largest telecom company in the world with over 100 million customers.

The reason is simple: Rainbow was a regional brand limited in appeal to Rajasthan and what the company needed was a pan-India brand name. While it had the option to call it Sistema, research showed that the brand had no special recall in India. So it had to be nothing but MTS. “The most important factor was the time-to-market, how quickly we could launch the brand across India in the next nine months. With MTS, the brand material, logo and specifications were all readymade and already available,” says Sistema Shyam President & CEO Vsevolod Rozanov.

Rozanov and his team were aware that changes would have to be made in the MTS brand communication to suit the Indian market. The advertising and marketing messages in Russia where it is the market leader was one of leadership and dominance. Things would have to be different in India. “In Russia, our marketing and advertising approach was one of a dominant leader. In India, we are the sixth or seventh operator; so the message has to be friendlier with a human touch,” says Rozanov.

So, signs and shapes or symbols used in advertising campaigns in Russia became a strict no-no. Instead, it is using faces of models talking on the mobile phone to relate to the consumers and give its service the human touch. It has also decided to concentrate most of its advertising spend on the local media of the region instead of using English. “We have seen that the consumer needs to be explained the product and it is best done through the regional language,” says Rozanov.

So far, Sistema Shyam has been a marginal player in the ever-expanding Indian telecom service market. It has only 500,000 customers, a majority of them in Rajasthan (it launched in other circles less than a month ago), which is a fraction of the 288 million mobile connections in the country.

If the company has to grow fast, the message is clear: It has to wean away customers from the incumbents apart from getting new customers (first-time users). In Rajasthan, for instance, the key message of its campaign is to create a churn in the market through the slogan, Badlo life ka plan (Change your life’s plan). At the moment, the company’s plan seems to be working as over 50 per cent of its subscribers are not new customers but those who have switched from other mobile service operators in Rajasthan. “They (these customers) are doing so because they are frustrated with the quality of the old incumbent networks and they are willing to try us as it is a non-congested network,” says Rozanov.

The CDMA challenge
Observers see it with skepticism. Is CDMA the right platform to grow in India, they ask? Aren’t large CDMA service operators like Reliance Communications and Tata Teleservices moving towards GSM to expand their footprint in the country? Aren’t customers wary of being tied down to the handset provided by the CDMA service operator? “Sistema has money to put in and that is an advantage. But its entry into mobile services through CDMA is a suicidal strategy as the market has clearly rejected the technology. Also, telecom service operators cannot make money as they have to subsidise the phones which adds to the acquisition cost,” says a senior functionary of a rival telecom service company.

Sistema Shyam does not think so. It says it is getting about 12.5 per cent of the net subscriber additions month-on-month (which includes both GSM and CDMA). Rozanov points out that despite the low tariffs from Reliance Communications on its new GSM service, MTS has actually gained subscribers. Still, the company has not set very ambitious targets. Rozanov hopes to get 8 to 10 per cent of the net additions in each market he enters. If these numbers are reached, he expects the company would be EBITDA-positive in two and a half years.

The targets may be modest, but Sistema Shyam, it seems, is ready to pay the price game. The company has dropped the price of entry-level colour phones to Rs 999 and it comes with six months of free calls and lifetime validity. “The subsidy that we incur on every phone is going down as the price of phones is going down faster than the fall in new offers,” says Rozanov.

Enticing users
Meanwhile, Rozanov is already looking closely at segmenting the market based on subscriber data. He says that the numbers show that a large percentage of his subscribers belong to the SME (small and medium enterprises) segment for which the attraction is a non-congested network and attractive tariffs. The next stage will be to create offers for various segments to expand the market.

In Tamil Nadu, Sistema Shyam has found that bulk buyers have bought the service because of the large minutes offered free — on its “one million offer”, customers get validity till 2028, apart from 150 minutes of daily local calls free for just Rs 499. Rozanov says that the aggressive pricing has triggered bulk purchases in 50s and 100s from taxi service companies and courier service operators who are looking at how to keep in touch with their employees at minimal cost.

But will Sistema Shyam be able to enter the home of India’s discerning mobile customer who is being spoilt by choices? Rozanov and his team have a tough challenge to put the MTS flag on the country’s telecom map dominated by local players, Europeans and Asian service majors.