The research will begin with a review of the literature available on different modes of entry into a market and criteria for selecting a suitable mode into any market. Then Strategic Alliances and Joint ventures will be discussed in detail. This will be followed by an overview of the telecommunication industry and a discussion on the performance of the Indian telecom services sector. We will also discuss the key players as well as the new entrants in the market, with emphasis on the ownership structure and strategy followed. The objective is to understand the mode of entry used by foreign companies.
Any company operating internationally employs a strategy (explicit or implicit) to run its activities. This is called the global operation strategy. There are different possible global operation strategies and they give the framework for a market entry strategy, while the market entry strategy itself gives the overall plan to enter a new market, and the components that must be considered to reach this objective.
The market entry strategy is the plan developed by a company to enter a new market or sub-market. ((Littler/Wilson (1995), p. 50.)
For instance, the market entry strategy may cover issues such as buying market knowledge, entering into a joint venture with a local partner, choosing market segment and region of operation, offers, etc.
The mode of entry is the central element of the market entry strategy. Companies expanding their operations to international markets employ five different modes to enter the foreign market:
According to Terpstra and Sarathy, the mode of entry of a company depends on many criterions. Some of the above mentioned factors are external to a company and some internal. So the selection of a mode of entry by a company depends upon the external and internal criteria of the company. Major criterions are:
The internal criteria that influence the choice of mode of entry by a company are as follows (Bennett (1995), p. 60., Douglas/Craig (1995), pp. 152 ff., Terpstra/Sarathy (1997), p. 547.):
Strategic alliances and joint ventures are discussed together because strategic alliances are a weaker form of joint venture. (Doole/Lowe/Phillips (1994), p. 278.) Strategic alliance is a contract in the beginning, which if successful, usually leads to a joint venture. The optimal choice of the mode of entry depends on the company. Each entails a different level and type of risk and control. Typically, a company starts with the low-risk/low-control option and then advances to higher levels of risk and control as it gains experience and builds confidence.
A strategic alliance can be defined as an agreement between two companies in order to combine their value chain activities for the purpose of competitive advantage. In most cases, strategic alliances involve competitors. (Doole/Lowe/Phillips (1994), p. 276, Terpstra/Sarathy (1997), p. 541.)
The objectives of strategic alliances are technological swaps, research and development exchanges, distribution relationships, marketing relationships, manufacturer-supplier relationships and cross licensing. (Doole/Lowe/Phillips (1994), p. 276)
On the other hand, a joint venture can be defined as a venture between an international company and a national company in which the international company has enough equity stake to have voice in the management but not enough to completely dominate the venture. The equity share of the international company can vary from 10% to 90%, but generally it is between 25% to 75%. (Terpstra/Sarathy (1997), p. 538.) However, the most typical form of venture is 50/50 in which each party takes 50% ownership stake.
Also the ownership stake is shared by the team of managers from both the parent companies. For example, the joint venture between Fuji and Xerox to produce photocopiers. (Hill/Jones (1998), p. 263) However, in some joint venture the equity split could be in the form of 51/49 percent, allowing the company with the majority share holding to have a tighter control.
The basis of a joint venture is to benefit from the complementary competitive advantages of the two companies. Hence, the difference between the strategic alliance and joint venture is that the former is a contractual agreement, for example to share technology or to cooperate on a research and development project without the creation of a separate legal entity, as in the case of a joint venture.
Strategic alliances and joint ventures have numerous advantages:
The disadvantages of strategic alliances and joint ventures are as follows:
From a holistic point of view, telecommunications industry can be divided into four sub-sets:
All major telecommunications equipment suppliers have setup their research and development centres in India. In last 5 years, global giants in the equipment manufacturing area have also set up their manufacturing facilities in India. However, the major force in the Indian telecommunications industry is the Telecommunications Service providers. Hence, the discussion in this document is mainly related to the Telecom Service Providers.
The telecommunications industry in India is primarily subdivided into following segments:
The industry also constitutes of some essential telecom services like:
The numbers of subscribers are growing very fast as India has a prospering market, specifically in GSM mobile services.
The telecommunications sector is one of the leading sectors in the Indian economy. India is ranked fourth in terms of the telecom industry in Asia (after China, Japan, and South Korea), eighth in terms of the telecom network in the whole world and second in terms of the telecom network among the emerging economies. India also projected to become the second largest telecom market globally by 2010.
According to a survey by Indian Ministry of communications and Information Technology, the opportunities in the Indian telecommunication sector have been growing at an unbelievable rate of 20 to 40 percent every year since past 3 years. India today is the greatest rising marketplace and represents exclusive prospects to U.S. companies in the stagnant global scenario.
In 2008, India added 113.26 million new customers. In July 2009, as per records of TRAI (Telecom Regulatory Authority of India), around 14.25 million telephone connections, were added, including wireless and wire line, taking the total number of telecom subscriber base at the end of July 2009 to 479.07 million from 464.82 million a month before. The subscriber base grew to 494.07 million (August 2009), registering a growth of approximately 42.67 per cent over last year. It grew at a CAGR of 45.21 per cent from June 2004 to June 2009. The telecom subscriber base in India is likely to reach 500 million by 2010.
Though the current tele-density is still low as compared to the global average, it has grown leaps and bounds in the past few years. According to the estimates given by Communication and Information Technology Minister, Mr. Gurdas Kamat, as of 2009, the overall tele-density in the country was 44.87 per cent, compared to the previous year’s figure of 29.83 per cent. The rural tele-density was 18.97 per cent and urban tele-density was 101.38 per cent. The global tele-density was 78.11 per cent as on 31 December 2008.
Nokia manufacturers conducted a study in which they shows that by 2014, the communications sector in India is likely to appear as a single leading element of the GDP of India with 15.4 per cent.
The Indian equipment market is estimated at US$ 24 billion in financial year 09. Nokia is the market leader, with US$ 3.4 billion revenues last fiscal, followed by Ericsson at US$ 2.11 billion.
As discussed, basic services encompass fixed wireline and wireless services.
In accordance with TRAI (Telecom Regulatory Authority of India), something like 14.25 million connections, including wireless and wire line, added in July 2009, taking the total number of telecom subscriber base at the end of July 2009 to 479.07 million from 464.82 million a month before.
Government-owned players account for the highest growth in subscriber base in the basic telephony services segment. Government-owned BSNL (Bharat Sanchar Nigam Ltd) and MTNL Mahanagar Telephone Nigam Ltd are the two largest operators in the wire line segment. MTNL is present in Delhi and Mumbai, whereas BSNL covers the rest of the country.
Though private players such as Bharti Airtel and Reliance have registered notable growth, BSNL still dominates the segment in terms of wireline subscriber base despite the nominal decrease in its market share. However, wireless services hold a major market share of 92 per cent in the basic services segment as compared to the wireline.
The cellular services zone has developed from Ten million subscribers in 2002 to achieve one hundred and fifty million by early 2007 registering the middling expansion of over 90%.
Clearly, the mobile services in India are growing more than basic wireline services. Moreover, private players have maximum subscribers in the wireless services segment. Bharti AirtelLtd is the leader in wireless segment.
Currently, there are 12-13 players, key players being — Bharti Airtel, Reliance, Vodafone, BSNL, Tata Tele Services Ltd, Idea, Aircel, MTNL, Loop Telecom (previously BPL), HFCL and Sistema Shyam—active in this segment.
As compared with 2007-08, the subscriber base of most wireless service providers has increased leading to an increase in their revenues. The subscriber base of Bharti Airtel, the leader in this market, increased from 69.38 million in 2007-08 to 102.37 million in 2008-09, followed by Reliance (79.62 million subscribers) and Vodafone (76.45 million subscribers).
As said by Sullivan and Frost business forecasters, through 2012, mobile revenues are expected to touch US$ 39.8 billion in India.
According to Business Monitor International, approximate that by the mid of 2012, the half of the population of India will own a cell phone.
The cellular services segment is further divided into CDMA (code division multiple accesses) and GSM (global system for mobile communications). The GSM sector is dominated by Bharti Airtel, Vodafone & Idea Cellular while the code division multiple accesses sector is dominated by Tata Indicom and Reliance.
Telecommunications industry in India has a prospering cellular services market, specifically in the GSM mobile service segment.
The total number of internet subscribers increased at a CAGR of approximately 21.09 per cent from 2000-01 to 2008-09. The total number of internet subscribers grew from 11.66 million in June 2008 to 14.05 million in June 2009. This is primarily attributed to an increase in broadband subscriber base from 4.38 million in June 2008 to 6.62 million at the end of June 2009.
The total revenue from internet services increased 4.32 per cent from US$ 400.6 million in March 2009 to US$ 417.9 million in June 2009. Broadband contributed 250.20 million to the total revenue from the internet services, whereas share of leased line was 93.04 million in quarter ending June 2009.
BSNL is the biggest player in this market with 7.6 million subscribers, followed by MTNL, Bharti Airtel, Reliance and Sify Technologies.
Internet services can also be accessed through mobile phones (CDMA and GSM). Bharti Airtel is the leader among the wireless internet operators with a market share of approximately 24 per cent in June 2008.
There key players in the Indian Telecommunications Industry can be categorized as:
1st October 2000, the Telecom Operations Department of India become an organization and renamed as Bharat Sanchar Nigam Limited (BSNL).
These days Bharat Sanchar Nigam Limited is the largest public sector undertaking and the leading Telecommunications Company in India. The Company maneuvers basic, cellular (CDMA and GSM) mobile, long distance and Internet services in all over India (except Delhi and Mumbai). It has a network of around 47.3 million lines covering more than 7,000 towns with over 35 million telephone connections.
The company offers wide range of tariff schemes designed to suite every customer. The company offers inclusive range of telecom services:
BSNL is number one operator of India in all services in its license area.
The government owned company has been planning an IPO to offload 10% of the stake to public in the Rs 300-400 range valuing the company at over $100 billion. Mahan agar Telephone Nigam Limited (MTNL)
To upgrade the quality of communication, expansion of the telecom network, introduction of the new services and raise revenue for telecom development needs of India’s key metros (Mumbai and Dehli), the Govt of India setup a company on 1st April 1986 and named as MTNL. The Indian Government holds 56.25% stake in the company.
MTNL as a company, over last nineteen years, grew rapidly by modernizing the network, incorporating the State-of-the-art technologies and a customer friendly approach. The Company provides various types of telecommunication services including:
The company has nearly five million subscribers and approximately 329375 cell phone users. In the mobile services, the private players in the market like Vodafone, Bharti Airtel, Idea Cellular, and Reliance Infocomm give tough competition to MTNL. The record sale of MTNL was Rs. 60.2 billion ($1.38 billion) in 2002-03, a decrease of 5.8 per cent over the previous year’s annual turnover of Rs. 63.92 billion. The company has many firsts to its credit:
To remain market leader in providing world class Telecom and IT related services at affordable prices, the company partakes all its efforts in the same business area. MTNL aims to become a global player, and also find a place in the Fortune 500′ companies.
Bharti Airtel is the flagship telecommunications company of Bharti Enterprises. With more than 92 million subscribers, the company is India’s largest cellular service provider as on February 2009. In the world, by subscriber basis, the company Bharti Airtel is the 3rd largest in-country mobile operator.
The structure of Bharti Airtel business has been divided into three strategic business units.
Bharti Airtel also provides Internet access over DSL and telephone services in 14 circles. It also offers Broadband & Telephone Services, Mobile Services, and Leased Line, Long Distance Services and Enterprise Services. It also acts as a carrier for national and international long distance communication services.
The company offers services under the Airtel brand. Within a decade, Airtel has risen to the pinnacle of achievement. Airtel as the leading company of India in telecommunication, the trademark Airtel has played the role as a most important mechanism in India’s development.
The company’s advertising campaigns are always admired. Their idea of creating a signature ringtone with A R Rehman was a huge success. The ‘Express Yourself ‘campaign was also well executed. It showcased the ubiquitous utility of the mobile phone through different situations and converted a purchase decision into an extension of one’s voice. They chose the country’s most popular people i.e. SRK, Kareena and Sachin for their campaign & made connection with people. Its advertisements always touch the chord of the people.
Bharti Enterprises holds a 64.76% stake in the company, while SingTel and Vodafone hold 30.5% and 4.4%, respectively.
The Indian promoter, Bharti Enterprises holds a 64.76% stake in the company, while SingTel and Vodafone hold 30.5% and 4.4%, respectively.
Headed by Sunil Bharti Mittal, The Bharti Group, has a diverse business portfolio and has created global brands in the telecommunication sector.
The strategy of Bharti Tele-Venture is “to capitalize on the growth an opportunity of the company believes are available in the Indian telecommunications market and consolidate its position to be the leading integrated telecommunications services provider in key markets in India, with a focus on providing mobile services”.
In May 2008, there were intense negotiations for buying the MTN Group, a South Africa-based telecommunications company with coverage in 21 countries in Africa and the Middle East. The Financial Times reported that Bharti was considering offering US$45 billion for a 100% stake in MTN, which would be the largest overseas acquisition ever by an Indian firm. However, the talks fell apart as MTN group tried to reverse the negotiations by making Bharti almost a subsidiary of the new company. In May 2009, Bharti Airtel again confirmed that it was in talks with MTN and companies. Talks eventually ended without agreement, some sources stating that due to the South African government opposition.
A subsidiary of Vodafone Group Plc, earlier Hutchison Essar, covers 23 telecom circles with over 65.92 million customers. Vodafone Essar is among top three GSM operators in India.
Over the years, Vodafone Essar, under the Hutch brand, has been named the ‘Best Mobile Service in the country’ the ‘Most Creative and Most Effective Advertiser of the Year’ and the ‘Most Respected Telecom Company’.
The company offers both post paid and prepaid GSM cellular phone coverage throughout India with good presence in the metros under the marketing brand name ‘Vodafone’. Vodafone provides 2.75G services based on 1800 Mhz and 900Mhz GSM digital technology. They offer voice and data services. In addition, they offer postpaid connections activation, prepaid SIM cards and recharge coupons sale, service activation/deactivation, postpaid tariff plan change, customer query resolution, prepaid/postpaid SIM card replacement and upgradation, mobile number change, and information on and subscription of value added services through stores.
The company is a joint venture of the UK-based Vodafone Group and Essar Communication Holdings Ltd India. Vodafone UK have 52% shares of the company, Essar Group have 33% and other people of India have 15%.
Notably, in 2005, Vodafone had bought a 10% stake in the largest Indian mobile operator, Bharti, for $1.5 billion. It sold 5.6% back to Bharti in 2007, shortly after it bought Hutchison’s controlling interest in rival Essar. Currently, Vodafone is looking to sell the remaining 4.39% stake also.
On February 11, 2007, Vodafone agreed to acquire the controlling interest of 67% held by Li Ka Shing Holdings in Hutch-Essar for US$11.1 billion, pipping Reliance Communications, Hinduja Group, and Essar Group, which is the owner of the remaining 33%. The whole company was valued at USD 18.8 billion. The transaction closed on May 8, 2007.
Vodafone acquired a controlling stake in Hutchison Essar while keeping their holding to the maximum possible limit as permitted by Indian FDI Regulations (maximum of 74% by foreign investors is permitted).
At the time of entry, Vodafone wanted to make mobile telephony more affordable to more Indian consumers. This needed economies of scale and huge initial investment that was possible only for a big company. Hence, Vodafone planned to put in several billion dollars’ investment into rural India on the back of some network sharing with Bharti or other exisiting operators. Vodafone Essar spent somewhere near Rs 250 crores on this high-profile transition.
The difference was the handset strategy. Along with the transition, cheap cell phones were launched in the Indian market under the Vodafone brand.
At the time of transition, a Vodafone Essar director was quoted as saying that “the objective is to leverage Vodafone Group’s global scale in bringing millions of low-cost handsets from across-the-world into India.”
Now, with the recent change in Indian FDI rules according to which, the stake held by a company controlled by Indian Nationals will be treated as domestic equity, Vodafone gets an opportunity to increase its stake in Vodafone Essar. Notably, Asim Ghosh (former Vodafone Essar CEO) and Analjit Singh (Max India Chairman) offered to dilute their stake in Vodafone Essar by selling a part to Vodafone. After much controversy, the deal was cleared by FIPB. This will lead to an increase in total Vodafone stake to 58% from the current 52%.
IDEA Cellular is a publicly listed company, having listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in March 2007. Idea Cellular Ltd. is one of India’s most innovative GSM mobile services operators. It is the fourth-largest GSM operator with licenses to operate in all telecom circles in India and a customer base of over 53 million.
Customer Service and Innovation are the drivers of this Cellular Brand. Idea has received international recognition for its path-breaking innovations when it won the GSM Association Award for “Best Billing and Customer Care Solution” for 2 consecutive years.
A frontrunner in introducing revolutionary tariff plans, IDEA Cellular has the distinction of offering the most customer friendly and competitive Pre Paid offerings, for the first time in India, in an increasingly segmented market. From basic voice & Short Message Service (SMS) services to high-end value added & GPRS services such as Blackberry, Datacard, Mobile TV, Games etc – IDEA is seen as an innovative, customer focused brand.
IDEA offers affordable and world-class mobile services to varied segments of mobile users. Be it high end users, or low-end, price sensitive consumers – IDEA’s tariff plans are designed to suit every pocket.
The company has its retail outlets under the “Idea n’ U” banner. A brand known for many firsts,
Idea Cellular initially started in 1995 as a three-way joint venture between the AV Birla Group, Tata and AT&T and was called Birla-AT&T-Tata. The company was formed by merging “‘Wings Cellular’” operating in Madhya Pradesh, Uttar Pradesh (UP) West, Rajasthan and Tata Cellular as well as Birla AT&T Communications.
The acquisition of Escotel in 2004 gave Idea a truly pan-India presence covering Maharashtra, Goa, Gujarat, Andhra Pradesh, Madhya Pradesh, Chattisgarh, Uttar Pradesh (East and West), Haryana, Kerala, Rajasthan and Delhi (inclusive of NCR).
Following AT&T Wireless’ merger with Cingular Wireless in 2004, Cingular decided to sell its 32.9% stake in Idea. In 2005, this stake was bought by both the Tatas and Birlas at 16.45% each.
However, Tata’s foray into the cellular market with its own subsidiary, Tata Indicom, cropped differences between the Tatas and the Birlas. As per Department of Telecom (DOT) license norms, one promoter could not have more than 10% stake in two companies operating in the same circle and Tata Indicom was already operating in Mumbai when Idea filed for its licence. Hence, it became a major reason for the delay in Idea being granted a license to operate in Mumbai. The Birlas approached the DOT while the Tatas agreed to exit Idea but only for a good price.
On April 10, 2006, the Aditya Birla Group announced its acquisition of the 48.18% stake held by the Tatas at Rs. 40.51 a share amounting to Rs. 44.06 billion.
While 15% of the 48.14% stake was acquired by Aditya Birla Nuvo, a company in-charge of the Birlas’ new business initiatives, the remaining stake was acquired by Birla TMT holdings Private Ltd., an AV Birla family owned company.
IDEA Cellular is part of the Aditya Birla Group whose combined holding in Idea stands at 49.05%. Mr. Kumar Mangalam Birla has been named the Chairman of the company. Malaysia based Axiata Group controls a 14.99% stake in the company. Providence Equity Partners also have a stake of 10.6% in the company.
Both the controlling entities, Aditya Birla Group and Axiata are well suited for the company strategy:
Globally, the Aditya Birla Group is:
In India, the Aditya Birla Group is:
Incorporated in Malaysia on 12 June 1992 under the name Telekom Malaysia International Sdn. Bhd., Axiata has come a long way. It aimed to build a portfolio which balances interest in emerging markets with low mobile penetration rates and Best-in-Class and innovation driven subsidiaries in mature markets. As part of its move to strengthen its regional footprint, the Group entered into an arrangement with Idea Cellular Limited (Idea). The Group has now shifted its focus significantly more towards organic growth by nurturing and developing its existing operations. In 2009, the Company changed its name to Axiata Group Berhad to reinforce the Group’s new business philosophy and its commitment to advancing Asia by addressing the unfulfilled communication needs of local populations with affordable and innovative products and services.
Today, Axiata Group Berhad is the emerging leader in Asian mobile telecommunications. The Group has extensive operations and businesses in 10 countries in Asia, providing a comprehensive range of mobile communication services to a combined base of over 94 million subscribers. It is committed to play a leading role in developing the local telecommunications industry in Asia.
Idea Cellular has seen phenomenal growth since its inception and today, Idea Cellular is a success story in the telecom industry. Idea has emerged as the fastest-growing listed telecom company due to its strong marketing and brand initiatives, advantages of spectrum and a clear-eyed management focus on growing and expanding its subscriber base. Since its IPO in 2007, its market cap performance is second only to Bharti Airtel and is better than Reliance Communications.
The company’s strategy is to first achieve critical mass, then drill deep instead of spreading thin. It does not believe in increasing geographic footprint only, but it also drills deep and successfully attempts to provide excellent network coverage in all its circles of operations.
In June 2008, Idea Cellular acquired a controlling stake of 41.09% in Spice Communications for over Rs.270 million. The deal gave Idea an entry into the Punjab and Karnataka markets, and Spice’s 4.4 million customers. The Axiata Group, through its affiliates, also acquired a 49% stake in Spice, taking its total stake in the merged entity to around 20%. They plan to improve the coverage, customer friendliness and good service
In May 2009, there were intense speculations that Axiata Group had unilateral plans to increase its shareholding 40 per cent by making an open offer. It was rumoured that at a minimum, Axiata planned to increase its stake to 26 per cent,a level that gives veto-power over special resolutions, under Indian company law. The claims were denied by the company officials.
Reliance Communications, formerly known as Reliance Infocomm (RIC), is the flagship company of the Anil Dhirubhai Ambani Group (ADAG) of companies. Listed on the National Stock Exchange and the Bombay Stock Exchange, Reliance Communications is the second largest mobile operator in India with over 92 million customers.
Reliance – ADAG, an offshoot of the Reliance Group founded by Shri Dhirubhai H Ambani (1932-2002), ranks among India’s top three private sector business houses in terms of net worth. The group has business interests that range from telecommunications (Reliance Communications Limited) to financial services (Reliance Capital Ltd) and the generation and distribution of power (Reliance Infrastructure Limited).
Reliance Communications is India’s largest private sector Information and Communication Company while other major group companies — Reliance Capital and Reliance Infrastructure — are widely acknowledged as the market leaders in their respective areas of operation.
Reliance Communications is capable of delivering a range of services spanning the entire infocomm (information and communication) value chain, including infrastructure and services for enterprises as well as individuals, applications, and consulting.
It has established a pan-India, high-capacity, integrated (wireless and wireline), convergent (voice, data and video) digital network, to offer a complete range of telecom services covering mobile telephony and data services along with an exhaustive range of value-added services and applications:
After the division between the two Ambani brothers – Mukesh Ambani and Anil Ambani, Reliance Communications became a part of Reliance – Anil Dhirubhai Ambani Group, or Reliance – ADAG for short. All the products are marketed under the brand name of Reliance – ADAG for short. The company constantly endeavors to achieve customer delight by enhancing the productivity of the enterprises and individuals.
Reliance has been instrumental in harnessing the true power of information and communication, by bestowing it in the hands of the common man at affordable rates. The company aims to expand beyond the traditional value chain by developing and deploying complete telecom solutions for the entire spectrum of society by extending its efforts to India’s farmers, businesses, hospitals, government and public sector organizations.
According to National Stock Exchange data, Anil Dhirubhai Ambani controls 66.77 per cent of the company.
Reliance Communications, formerly known as Reliance Infocomm (RIC), was established in the year 2004 as Reliance Infrastructure Developers Private Limited (RIDPL). In 2006, Reliance Communications Ventures (RCoVL) approved merger of RIC with itself. Post merger, RIC became a part of RCoVL, which held 100% of principal subsidiaries – Reliance Telecom Limited (RTL), Reliance Communications Infrastructure Limited (RCIL) and FLAG Telecom. With this, all of RCoVL’s communications services businesses — CDMA/GSM wireless, wireline, long distance voice, data and broadband services came under a single holding structure.
Reliance Infocomm stimulated telecommunication growth in India by challenging many of the conventional practices in product design, distribution, sales, advertising and pricing. While the competitors focused on the top segment of the market, by charging a premium, Reliance Infocomm sought to reduce the cost to the consumer, thus focusing on a market driven by volume.
The Reliance Infocomm pricing system was always in line with Dhirubhai Ambani’s dream and directive of making phone calls affordable for every Indian. Reliance Infocomm challenged the conventional cost structures with the lowest possible tariff ever in India. “According to estimates, there are around 320 million [people in] households with an annual income of Rs 1.5 lakh (US$3,333) [and above]. Of that, half are in rural areas with similar purchasing power. And this segment is expected to grow to 478 million by 2007 and to 602 million by 2010” commented B D Khurana, group President, Reliance Infocomm, hinting about the market that Reliance Infocomm aimed to capture.
Reliance Industries is the largest private sector corporation in India which provided great leverage as the company ventured into telecommunications. Reliance Infocomm shared all Reliance resources to ensure cost effectiveness. Citing Reliance Infocomm’s strategy, Khurana said: “80 per cent of our administration and operation is centralised. Compared to the best telecom networks in the world we have deployed only half the number of people per 1,000 lines making our human resources the highest productive resource.”
For marketing channels, Reliance Infocomm created a completely new model. With the Dhirubhai Ambani Entrepreneur Programme, Reliance Infocomm fostered a new breed of entrepreneurs, as channel partners. It aimed to enroll 200,000 individuals who are committed to acquiring new customers and creating a new experience for them, based on flawless service and feelings of satisfaction. To build the customer base Reliance Infocomm went where the customers were going – to grocery stores, gas stations, music stores, departmental stores, street side vendors, bookshops and even hotels and restaurants. The public relations effort gave much leverage to the advertising and gave rise to a word of mouth campagn.
The Reliance Infocomm has been successful due to the meticulous planning, ‘out of the box’ thinking in touch with reality, and significant capital productivity achieved on the strength of Reliance’s track record in project management. Tata Teleservices
Incorporated in 1996, Tata Teleservices Limited (TTSL) spearheads the Tata Group’s presence in the telecom sector. TTSL was formed when the Tata Group acquired Hughes Tele.com (India) Ltd in 2002 and renamed it Tata Teleservices (Maharashtra) Limited.
The Tata Group had revenues of around US $62.5 billion in Financial Year 2007-08, and includes over 90 companies, over 350,000 employees worldwide and more than 3.2 million shareholders.
Today, TTSL enjoys a pan-India presence through existing operations in all of India’s 22 telecom Circles. Tata Teleservices Ltd, along with Tata Teleservices (Maharashtra) Ltd, serves around 50 million customers in more than 350,000 towns and villages across the country.
The company’s network has been rated as the ‘Least Congested’ in India for last five consecutive quarters by the Telecom Regulatory Authority of India through independent surveys. From October 2009 TRAI announced that TATA tele service is India’s no.1 tele service brand.
TTSL provides a bouquet of telephony services encompassing Mobile Services, Wireless Desktop Phones, Public Booth Telephony and Wireline Services and enterprise solutions.
Tata Teleservices Provides mobile services under 3 Brand names:
TTSL is an unlisted entity. Tata Group and group firms own the majority of the company while NTT docomo holds 26% in the jointly formed company and investor C. Sivasankaran holds 8%. The Board of Directors for TTSL includes Tata Sons Chairman Ratan Tata, while the company is currently headed by its Managing Director, Mr. Anil Kumar Sardana.
In November 2008, Japanese telecom giant NTT Docomo picked up a 26 per cent equity stake in Tata Teleservices for about Rs 13,070 crore ($2.7 billion) or an enterprise value of Rs 50,269 crore ($10.38 billion).
Virgin Mobile India Limited was officially launched on March 2, 2008 as a 50:50 joint venture between Tata Teleservices and Richard Branson’s Virgin Group. TTSL announced that it would provide CDMA mobile services targeted towards the youth, in association with the Virgin Group on a Franchisee model basis.
Tata Docomo arises out of the Tata Group’s strategic alliance with Japanese telecom major NTT Docomo in November 2008. Tata Docomo marks a significant milestone in the Indian telecom landscape, as it stands to redefine the very face of telecoms in India.
Tokyo-based NTT Docomo is one of the world’s leading mobile operators. In the Japanese market, the company is the clear market leader, used by over 50 per cent of the country’s mobile phone users.
Virgin Mobile India Limited was launched on March 2, 2008 as a joint venture between Tata Teleservices and Richard Branson’s Virgin Group. Currently, the company uses Tata’s CDMA network to offer its services under the brand name Virgin Mobile, but it has also announced plans to foray into the GSM space.
Since Mobile Virtual Network Operators (MVNO) are not permitted to operate in India due to the current regulations, a 50:50 joint venture model was adopted by Virgin Mobile India Limited. But the deal structure was very similar to a franchisee model. Virgin Mobile’s entry into India created panic in the existing players as they raised a question on the legality of its entry in India. While India does not have a concept like MVNO as of now, the telecom secretary recently expressed that the government is not averse to MVNOs.
Etisalat DB Telecom Pvt. Ltd., formerly known as Swan Telecom, is a joint venture between Etisalat and Dynamix Balwas Group. The company is headquartered in Mumbai and is yet to roll-out the telecom services in India.
Etisalat DB and its subsidiary hasthe Unified Services Access License in 15 circles including Andhra Pradesh, Delhi, Gujarat, Haryana, Karnataka, Kerala, Maharashtra, Mumbai, Punjab, Rajasthan, Tamil Nadu (including Chennai), Uttar Pradesh (East), Uttar Pradesh (West), Madhya Pradesh and Bihar. These licenses enable the Company to provide a full spectrum of telecom services covering a population of over 900 million across these circles.
Etisalat stands 140th among the Financial Times Top 500 Corporations in the world in terms of market capitalization, and is ranked by The Middle East magazine as the 6th largest company in the Middle East in terms of capitalization and revenues. The Corporation is the largest contributor outside the oil sector to development programmes of the UAE Federal Government, and is an award-winning socially responsible corporation. Etisalat has also won accolades from across the region for its nationalization programme.
Etisalat DB’s services will include national & international long distance telephony solutions, full range of prepaid & postpaid products, national & international roaming and Value Added Services, which includes voice mail, audiotex services, video conferencing, videotex, e-mail, closed user group. Under the license, the Company can provide Internet Telephony, Internet Services and Broadband Services.
Swan Telecom is backed by Dynamix Balwas that has several business verticals – realty, hospitality, dairy and more recently, telecom. Mr. Vinod K. Goenka is the Chairman and Mr. Shahid U. Balwa is the Managing Director of Dynamix Balwas Group.
In October 2008, Etisalat acquired a 45% stake in Swan Telecom for a payment of about US$900 million.
In June 2009, Etisalat DB announced the ‘change of name’ of the erstwhile Swan Telecom, a joint venture between Etisalat and DB Realty. The company was re-named as Etisalat DB Telecom India Pvt. Ltd.
According to some sources, Dynamix Balwas is an equal partnership between Mumbai businessmen Shahid U. Balwa and Vinod K. Goenka. The Goenka Family has been in the real estate business since the last 25 years and is headed by Mr. K. M. Goenka. The Balwa Family has been in the Hospitality and Real Estate business since the last 98 years, headed by Mr. Usman Balwa.
Apart from telecommunication services, Etisalat also offers a range of innovative and modern services that have served to position the UAE as one of the most advanced nations in terms of telecom services. In 1982, Etisalat was the first telecom operator in the region to introduce a mobile phone service, and was one of the early adopters of GSM technology, introducing it to customers in 1994. Since then it has established itself as a regional pioneer by introducing both 3G and MMS in 2003, and most recently, the BlackBerry service in 2006.
Mobile subscribers exceeded 4.5 million by the end of 2005, up 23% from 2004. This represents penetration of nearly 100 per cent, a remarkable figure regionally and internationally. Internet and broadband penetration also witnessed huge growth during 2005, with penetration at almost 51%. Etisalat has concluded roaming agreements with over 520 operators in more than 190 countries, and even Etisalat’s prepaid mobile subscribers can roam in many of these networks.
In October 2009, the company signed a deal worth Rs.750 crores with Tech Mahindra, Aegis and Conflux. Under the deal, the BPO providers would set up state-of-the-art contact centers which will offer a host of customer management services including billing, collections, and others. The BPOs will ensure seamless service and business continuity for Etisalat DB and the customers will be able to access the contact center via email, chat and SMS besides inbound and outbound calls.
Uninor is a mobile telephony and network operator in India. The company holds a pan-India UAS license to offer telecommunications services in each of India’s 22 circles. It has also received spectrum to roll out these services in 21 of the 22 telecom circles.
Uninor is to start mobile services in India by the end of 2009, focusing on the GSM technology. It plans to be headquartered in Gurgaon near Delhi.
It will provide mobile communication and Value Added Services. The company launched its GSM services in December 2009 in Tamil Nadu, Kerala, Karnataka, Andhra Pradesh, Uttar Pradesh East and West, and Bihar including Jharkhand.
The company introduced two tariff plans: ‘[email protected]/* */ paisa’ and ‘Callmore @ 29 paisa’. The plans allow users to make calls at 29 paisa a minute and STD (national long distance) calls at 49 paisa a minute.
Uninor is a joint venture owned 67.25% by Norwegian telecom giant Telenor, and 32.75% by India’s Unitech Group.
The company Unitech Wireless was a subsidiary of Unitech Group, holding a wireless services license for 21 Indian telecom circles.
In early 2009, Unitech Group and Telenor agreed on a majority take-over by Telenor of Unitech’s wireless business, including Unitech Wireless’ national-wide mobile licence. By March, May and November, Telenor acquired a 33%, 49% and 60% stake in Unitech Wireless, respectively.
In September 2009, the mobile operation changed the name to Uninor. Post approval of Telenor’s acquisition of up to 74% in Unitech Wireless, Telenor ownership stands at 67.25% in Uninor.
As in several other markets where Telenor Group is present, the new name follows Telenor’s brand strategy of combining the global position of Telenor Group with a distinct local flavor.
The Uninor name aims to leverage from Telenor Group’s established marketing and design framework. The brand unifies the global telecom expertise of the Telenor Group and the presence in and understanding of the Indian market of Unitech Ltd. in a common identity.
“The announcement of the Uninor name is a significant milestone in the roll-out of the operations in India as we move closer to launch. As in Telenor Group’s existing markets, the Uninor brand will represent our vision and core values,” said Jon Fredrik Baksaas, President and CEO of the Telenor Group.
Uninor is targeting an 8% pan-Indian market share, and the opening of one million retail points and breaking even on EBITDA within three years.
In order to reduce time-to-market, Uninor will outsource infrastructure and back-end services to partner organizations with established core competencies. The operational model is low-cost with a gradual network-build up, infrastructure sharing, GSM equipment at competitive cost, full-scale IT-outsourcing.
To quickly launch mobile services only nine months after the foundation of the new company, Uninor has entered into network and base station service agreements with partners. Tower sharing agreements are concluded with Wireless-TT Info Service Limited and Quippo Telecom Infrastructure Limited. Telecommunications, network and radio equipment is to be supplied by Alcatel-Lucent, Huawei Technologies India and Ericsson. The company’s IT services and infrastructure is to be shared with Wipro Technologies.
Sistema Shyam TeleServices Limited (SSTL), formerly known as Shyam Telelink, is a partnership between Sistema and Shyam Group to provide mobile services.
Shyam Telelink is an Indian telecom service provider with the Unified Service Access License for the Rajasthan circle and operates Basic Telephony, mobile telephony (CDMA) and broadband services in the province.
Shyam Telecom along with their partner Sistema applied for UASL license in 21 telecom circles of India and in August 2008, they became the first new mobile operator to get a pan-India start-up spectrum to start their mobile service operations in the country.
As of Sep 30, 2009 the total subscriber base of Sistema Shyam TeleServices Limited (SSTL) was 1,960,532 and it was present in 7 circles.
Shyam Telelink was the end-to-end service provider in Rajasthan with more than 269,000 subscribers as on August 2008 and a strong brand – Rainbow.
Post acquisition by Russia based telecom giant, Sistema, they would be providing mobile services based on CDMA technology under the brand name MTS.
SSTL is a joint venture where Sistema holds 73.71% of the stake while Shyam Group holds 23.70%.
In September 2007, the largest public diversified corporation in Russia and the CIS – Sistema acquired a 10% stake in Shyam Telelink for a total cash consideration of US$ 11.4 million. In October 2007, Sistema acquired an additional 41% stake in Shyam Telelink and a call option agreement, which gives Sistema the right to increase its stake in Shyam Telelink from 51% up to a maximum of 74%. Later in December 2007, Sistema received an approval for the acquisition of the blocking stake in Shyam Telelink from the Foreign Investment Promotion Board (FIPB) of India. As a result of the acquisition of the additional 41% stake, the overall purchase price totaled US$ 58.1 million.
Incorporated in 1992, Shyam Telecom Limited, a leading manufacturer of Telecom Equipment in India is the flagship company of the Shyam Group of India. The expanding horizon of the telecom sector in India has given Shyam new vistas and avenues for growth and expansion. The company extended its basic telephony service to Jaipur and Jodhpur. The company’s service covered all the three technologies in basic telephony – wireline, CDMA and CorDect.
Shyam’s R&D wing is well-equipped with the latest and sophisticated testing instruments, CAD/CAM for design and assembly work besides having highly qualified engineers. The company manufactures Wireless in Local Loop, Fiber in local loop, Digital Loop Carriers (DLC), Digital Radios, Spread Spectrum Radios, Digital Subscriber Line (DSL) for Internet Access, Remote Energy Meeting Systems (REMS) & Supervisory control & data accusation systems (SCADA). The company has an international presence in 27 countries spread over America, Europe, Africa, Indian sub-continent and Asia-Pacific.
Sistema is the largest mobile operator in Russia, seventh in the world, and has over 81 million wireless subscribers. It’s foundation businesses are telecommunications, high technology and real estate.
Mobile TeleSystems (MTS) operating in the wireless communications market is Sistema’s largest asset and the leading cellular operator in Eastern Europe. MTS is one of the top-10 mobile companies in the world in terms of subscriber numbers. The company is the leader in Russia’s highly competitive mobile telephony market, with a market share of 33.7%. MTS is also one of the market leaders in Ukraine, through its subsidiary UMS and a leading player in the emerging mobile markets of Belarus, Turkmenistan and Uzbekistan.
Founded in 1994, Loop Mobile (Formerly BPL Mobile) is a mobile phone service provider in India.
Loop Mobile Communications Limited is an offshoot of the legendary business conglomerate ESSAR group and it is presently operating in only in the city of Mumbai. They have gained a significant market share of incremental subscriber addition in Mumbai Circle for the last several months. The company crossed the 2-Million subscriber mark in Mumbai Circle in January 2009.
Loop Mobile is the only GSM network in Mumbai that has met all the TRAI benchmarks on network and service quality parameters. It has also been rated as the best network by Voice & Data, leading Telecom magazine, in their SAARC Mobile Users’ Satisfaction Survey 2008.
It offers both prepaid and postpaid GSM cellular phone coverage in Mumbai circle. Loop Mobile will also have the latest NGIP (Next Generation Internet Protocol) and EDGE (Enhanced Data rates for GSM Evolution) technology. The operator is hoping to leverage these technologies to introduce innovative VAS, as well as micro-segmented tariffs for subscribers.
In line with this commitment, they have invested over Rs 300 crores to upgrade to NGIP (Next Generation IP) network. This highly efficient network upgrade enables unmatched voice clarity and extensive coverage along with high-speed data services.
BPL Mobile Communications, the country’s oldest mobile telecom service provider, changed its name to Loop Mobile in March 2009, following the expiry of its brand-use agreement with the TPG Nambiar-owned BPL Group.
The promoters of the company, Essar Group hold approximately 9.9% stake in the company. According to the Ministry of Corporate Affairs (MCA), Loop Telecom is owned by Santa Trading Pvt Ltd (STPL) which owns 85.75 per cent of BPL Communications, which in turn holds 73.99 per cent of BPL Mobile. BPL Mobile owns 51.24 per cent in Loop.
BPL Mobile has gained tremendous popularity due to its competitive pricing of tariffs. BPL Mobile offers high-class mobile service to its wide pool of Mumbai subscribers. Further, it ranks very high on parameters like, customer satisfaction, billing performance, voice quality etc and was thus ranked first in the category of Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA) of mobile service providers, operating in Mumbai. Superior coverage and optimum sound clarity are the strengths of BPL Mobile.
Aircel is a mobile phone service provider in India. It offers both prepaid and postpaid GSM cellular phone coverage throughout India. It is India’s fifth largest GSM mobile service provider with a subscriber base of over 27.7 million, as of October 31, 2009. It has a market share of 12.8% among the GSM operators in the country.
Aircel commenced operations in 1999 and became the leading mobile operator in Tamil Nadu as well as Assam within 18 months of operations. Currently, Aircel is present in 18 of the total 23 telecom circles (including Andhra Pradesh, Assam, Bihar & Jharkhand, Chennai, Delhi & NCR, Himachal Pradesh, Jammu & Kashmir, Karnataka, Kerala, Kolkata, Mumbai, North East, Orissa, Rest of Maharashtra & Goa, Rest of Tamil Nadu, Rest of West Bengal, Uttar Pradesh East, Uttar Pradesh West) and with licences secured for the remaining 5 telecom circles, the company plans to become a pan-India operator by 2010.
Aircel Business Solutions (ABS), part of Aircel, is an ISO 9000 certified company. ABS is a registered member of WiMAX forum – both in the Indian and International Chapters.
Aircel has won many awards for its services. Aircel was honored at the World Brand Congress 2009 with three awards, Brand Leadership in Telecom, Marketing Campaign & Marketing Professional of the Year. Aircel was honored by CMAI INFOCOM National Telecom Award 2009 for, ‘Excellence in Marketing of New Telecom Service’. Aircel had been selected as the best regional operator in 2008 by Tele.net. Aircel was rated as the top mid-size utility company in Business World’s ‘List of Best Mid-Size Companies’ in 2007. Aircel got the highest rating for overall customer satisfaction and network quality in 2006 by Voice and Data.
It offers both prepaid and postpaid GSM cellular phone coverage throughout India.
Additionally, Aircel has also obtained permission from Department of Telecommunications (DoT) to provide International Long Distance (ILD) and National Long Distance (NLD) telephony services. It is also a category A ISP.
ABS’ product range includes enterprise solutions such as Multiprotocol Label Switching Virtual Private Networks (MPLS VPNs), Voice over Internet Protocol (VoIP) and Managed Video Services on wireless platform including WiMAX.
Aircel is one of the sponsors of the Indian Premier League Cricket Team Chennai Super Kings, which is captained by Mahendra Singh Dhoni. It is also the major sponsors for Chennai Open (the only ATP tennis tournament in India), and Professional Golf Tour of India.
The Aircel Group is a joint venture between Maxis Communications Berhad of Malaysia and Apollo Hospital Enterprise Ltd of India, with Maxis Communications holding a majority stake of 74% and the remaining 26% is with Apollo Hospitals.
Maxis Berhad, with its consolidated subsidiaries (together, ‘Maxis’), is the leading mobile communications service provider in Malaysia with over 11.4 million mobile subscribers as of 30 June 2009. Since its establishment, Maxis has been providing a full suite of services on multiple platforms to fulfil the telecommunications needs of individual consumers, SMEs and large corporations in Malaysia.
In latest news, Maxis raised RM 11.2 billion (US$ 3.36 billions) for its shareholders, making it the largest IPO in Malaysia and Southeast Asia.
With the changes in the world telecom market, a plethora of telecom players are added to the industry. As seen in company profiles section, several of the major players in the world telecom market are either currently present in the Indian telecom market or have made an attempt to enter the Indian market (e.g. AT&T, MTN, Vodafone, NTT Docomo, Telenor, Sistema Telecom, SingTel, Maxis Communications, Etisalat, Virgin Telecom, etc.)
Till 1991, the Indian economy was characterized by a highly regulated business environment, with a pervasive license system and high tariff barriers. Sweeping reforms were introduced in 1991 and over time, the course of the Indian economy has changed radically.
Today, a new spirit of economic freedom is stirring India, bringing sweeping changes in its way and unleashing the vast potential of the Indian economy. India’s known strength in software and Information Technology (IT) and tremendous e-commerce potential ensures a progressive trend in the Indian economy. There exists a strong political consensus on economic liberalization at central as well as state government levels. This augurs well for the continuation and progressive strengthening of investor friendly policies that have created ample of opportunities for domestic and foreign investors. These measures have had a significant impact on promoting the development of infrastructure facilities in India, including the telecom sector.
As we observed, the telecom industry is thought to have the highest potential for investment in India. The growth in demand for telecom services in India is not limited to basic telephone services. India has witnessed rapid growth in cellular services, radio paging, value-added services, internet services and global mobile personal communication by satellite (GMPCS). A large number of foreign investors, ranging from Fortune 500 companies to small and medium sized enterprises, have already invested in the Indian telecom sector.
One of the key factors responsible for focusing the interest of foreign investors in India over the last few years has been the sheer size and growth potential of the Indian market. Recognizing that the telecom sector is one of the prime movers of economy, the Government’s regulatory and policy initiatives have been directed towards establishing a world-class telecommunications infrastructure in the country.
Initial bureaucratic hurdles to enter India may be greater than in China but once established in India it is difficult to be removed. This is because, unlike China, India has a highly developed judicial system. Also, based on parliamentary democracy and of course on the British legacy, India has developed the rule of law with all the institutions and procedures that are common in the industrialized countries in the West. In China, once the government decides on an economic priority it makes sure that the foreign investor gets a speedy and efficient treatment, at the same time, the investor can be faced with rapid policy changes that can negatively affect his business, as well as with difficult situations in which there is often no recourse to establish legal procedures.
The other difference is that although on the surface in China the bigger cities appear to be much more westernized than in India, the fact that English is the language of the Indian elites, makes this country much easier for a foreign investor.
Culturally and religiously too India has greater diversity than China. Daily life in India confronts people with much more diversity than is the case in China.
It is true that as compared to China, India lags behind in a number of important fields specially in attracting foreign direct investment, but economic show a complete picture. This is evident from the fact that the Indian middle class (which is one of the fastest growing stratum of the Indian society) is both in terms of purchasing capacity and in terms of personal assets considerably more advanced than the Chinese middle class.
In brief India is a destination for an investor with a long-term perspective, while China a destination for an investor with a short-term perspective.
Table III-5 shows an overview of key parameters for comparing the two emerging economies, India and China.
To summarize, India is one of the world’s largest and Asia’s second largest emerging economy next to China. Since a decade, it has been attracting a large number of foreign investors especially in the telecom sector ever since the liberalization and privatization of the Indian telecom market. The country is believed to be a good market for investment despite bureaucratic hassles and shortages of infrastructure. It presents vast potential for overseas investment and is actively encouraging the entrance of foreign players into the market.
Moreover, the use of English as the language for business and administration, and government policies, offer an investor friendly environment. No company, of any size, aspiring to be a global player can for long ignore this country which is one of the top two emerging economies.
Until 1990, the state owned monopoly, the Department of Telecommunications (DoT) obtained super-normal profits as it was not only the monopoly provider of services, but also the monopoly buyer of equipment, as well as the sole network operator, not to mention the supreme regulator. The role of foreign companies in the telecom market was confined to the supply of equipment. In 1992, the government decided to open up the ‘value added services’ category to private sector participation.
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