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Vodafone Strategy

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EOS –Indian Telecom Industry - Vodafone
Submitted By: Niraj Bhandari Rajesh Sarangi Rakesh A C Sushant Sehra

- 25/5 - 32/5 - 33/5 - 45/5

EOS –Indian Telecom Industry - Vodafone

Table of Contents
Executive Summary ................................................................................................................................. 2 1. Indian Telecom Industry ....................................................................................................................... 3 2. Industry Analysis ................................................................................................................................. 7 2.1 Threat of New Entrants .................................................................................................................. 7 2.2 Power of Suppliers ......................................................................................................................... 8 2.3 Power of Customer ........................................................................................................................ 8 2.4 Threat of Substitutes ...................................................................................................................... 9 2.5 Rivalry Among Competitors in the Industry ..................................................................................... 9 2.6 Industry Analysis – The integrated View ....................................................................................... 10 2.7 Summary of Overall Attractiveness of the industry ........................................................................ 10 2.8 Critical Drivers of the attractiveness in the industry ....................................................................... 11 3.Performance of Firms & Key Success Factors .................................................................................... 12 3.1 Major Players. .............................................................................................................................. 12 3.2 Firms Comparison........................................................................................................................ 13 3.3 Brand and Advertisement spend. ................................................................................................. 16 3.4 Key Success factors .................................................................................................................... 16 4 Vodafone Firm Strategy ..................................................................................................................... 17 4.1 Assessment of the Vodafone with respect to its competition. ........................................................ 22 4.2 4.3 Strategy Adopted by Vodafone ............................................................................................... 22 Outlook of future performance of Vodafone ............................................................................ 25

5. Appendix ........................................................................................................................................... 27 5.1 History of Telecom Sector in India – Important Milestones ............................................................ 27 5.2 Industry Analysis – Porter‟s 5 Forces ........................................................................................... 28 6 References ......................................................................................................................................... 28

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EOS –Indian Telecom Industry - Vodafone

Executive Summary
With the liberalization of Indian economy, the telecom industry has seen an unprecedented growth over the last decade. The government regulation has played a crucial role in boosting the industry growth and shifting it from a state owned monopoly to market oriented model. Presently there are more than 800 million subscribers with around 70 percent tele-density. The industry has 15 GSM service providers with 5 of them having pan India presence.

With the maturing of the industry, the differentiation among the services provided by the players is also on a decline. The quality of service among the service providers is also converging to the industry standard and TRAI recommendations. This resulted in a price war, especially with the new players entering the existing circles. The price war has resulted in the erosion of market share of existing players and also affected the profitability of all the service providers. The average revenue per user is on a decline in the industry, and interestingly the lower tariff has not increased the minutes of usage per connection. The existing players are working hard to maintain steady addition to the subscriber base and to keep the costs of operation low. Although the market may not be attractive for a new entrant, there seems to be a strong value and upside potential remaining for the existing telecom operators to prevent the erosion of their market share.

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EOS –Indian Telecom Industry - Vodafone
1. Indian Telecom Industry
The history of Indian Telecom industry goes back to a good one and a half century back. It was in 1850 that the first experimental telegraph line was started between Calcutta and Diamond Harbour and the first telecom line was opened for the then East India Company in 1851. The industry made steady gains till 1992 when the liberalization of the sector began as part of the larger economic reforms in India. It was again in Calcutta where the first commercial cellular network was launched in 1995. Series of policy changes after the 1992 liberalization facilitated the growth of cellular industry, but the turning point was implementation of “Calling Party Pays” regime by TRAI in 2003, which reduced the charges paid by mobile phone consumers. (Appendix4.1 lists important milestones in Indian Telecom Sector). To understand the extent of growth in the industry, let‟s look at the increase in tele-density in India over the years. The tele-density in India in 1994 stood at 0.8 per hundred person, which improved to 7.02% by 2004. But after 2004, the industry took off and there has been explosive growth since then. At the end of 2010, the tele-density stood at 66.17% of the population. Figure1 presents the growth in tele-density over the year 2004-2010. The other factor which comes in from Figure1 is that the urban tele-density stands at a whopping 147.52%, i.e. ~1.5 connections per person in the urban population, indicating a maturing market in urban areas. Rural tele-density on the other hand stands at 31.22%, providing opportunities for growth. The tele-density by March 2011 has increased to 70.89%. If we take only wireless tele-density, the numbers stand marginally lower at 67.98%, underlining the growth of wireless services over the year. If we look only in terms of growth in number of subscribers the wireless telecom industry is growing at about 40% Year-on-Year growth. The trends for the growth of wireless subscribers as well as wireless tele-density can be seen in Figure2.

Figure 1 : Growth in tele-density (2004-2010) - Source: Department of Telecommunications, Annual Report 2010-2011

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EOS –Indian Telecom Industry - Vodafone

Figure 2 - Wireless subscriber base and teledensity -Source: TRAI Press Release 35/2011

If such an explosive growth happening, where is it coming from? If we look closely, we find that the growth in rural areas is outstripping the growth in urban areas. The Figure3presents the relative percentage of urban and rural consumers as a percentage of rural consumers and as can be seen the rural area percentage in total pie is increasing, which indicates that though there is growth in both urban and rural areas as seen in Figure1, the growth in rural areas is constantly on upswing.

Figure 3 - Wireless Market Share – Rural and Urban – Source: TRAI The Indian Telecom Services Performance Indicators Jan-Mar 2011

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EOS –Indian Telecom Industry - Vodafone
Indian wireless telecom industry is composed of primarily two products – prepaid and postpaid. Most of the customers (~ 95%) are actually prepaid customers as can be seen from Figure4. Collections in Indian markets, after a service has been rendered, are difficult task and that explains why the firms have chosen to go prepaid way for growth.

Figure 4 - Proportion of prepaid subscriber – GSM Service - Source: TRAI The Indian Telecom Services Performance Indicators Jan-Mar 2011

Next, we look at the share of GSM and CDMA operators in the total market and follow it with the market share of individual firms. As seen in Figure5, GSM subscribers far outnumber CDMA consumers (almost by 6 to 1). The difference is not without basis, GSM was first to be launched in India, in 1995, followed by CDMA technology in 2000, but that is not the reason for subscriber‟s bias towards GSM providers. Infact, it was a CDMA operator, Reliance, which changed the rules of the game. Before the entry of Reliance, the wireless industry was marked by high prices and the cellular technology was considered a premium product. Reliance challenged this notion by offering calls at rates which were relatively much cheaper than those offered by GSM providers. It also offered free Reliance-to-Reliance calls all over India, for a fixed monthly charge, which was later discontinued as per TRAI ruling. It was these offerings by Reliance, which brought the cellular technology in the reach of masses, but the higher cost of handsets (CDMA handsets need to pay royalty to Qualcomm, and hence are expensive) and lock-in of service/handset with the operators were the disincentives for the CDMA operators. These offerings from Reliance also led to the ultimate price war, which resulted in explosive growth in the sector and a fragmented market. The extent of market fragmentation can be seen from Figure6, with the top three firms having a market share of 19.99%, 16.72% and 16.58% respectively.

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EOS –Indian Telecom Industry - Vodafone

Figure 5 - Wireless subscription – GSM vs CDMA - Source: TRAI The Indian Telecom Services Performance Indicators Jan-Mar 2011

Figure 6- Market Share as on March 31st 2011 - Source: TRAI Press Release 35/2011

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EOS –Indian Telecom Industry - Vodafone
2. Industry Analysis
We have used Michael Porter‟s 5 forces theory to understand the Industry. The complete analysis covering the parameters chosen, score allocated to each parameter, rational used to arrive at a score, and the interpretation of the scores is attached as an Appendix 5.2. Here we will discuss the important parameters, their significance and their scores as well as the total weight-age score. Each of the dimensions viz, „Threat of New Entrants‟, „Power of Suppliers‟, „Power of Customers‟, „Threat of Substitutes‟, and „Rivalry among competitors in the industry‟ are covered below:

2.1 Threat of New Entrants
Firms in the telecom services industry enjoy the supply side economies of scale, though it is changing of late. The major expenses while starting out in the telecom services are the cost of spectrum and the fixed cost incurred in setting up tower, infrastructure and distribution channels. The costs involved in spectrum and setting up infrastructure have moved in completely opposite directions over the years. Earlier firms didn‟t had to pay huge sums to get the spectrum and it was allocated to them to start the business at lower charge, but now the spectrum is auctioned and because of limited supply available, the cost of spectrum has increased many fold. On the other hand, initially each of the firms in the industry had to setup their own towers and other infrastructure to increase coverage and facilitate growth, and it was considered one of the big investments for growth, but in recent past the move has been towards outsourcing these to specialist providers, which have emerged in the industry over time. As a result of this none of the telecom services firm own towers any more, they just lease the facility from this specialist providers, the other IT infrastructure too has been outsourced to specialist providers. Creation of distribution channel on the other hand is still capital intensive and allows the players to lower their cost per user with the economies of scale. The demand-side economies of scale in telecom services sector are far and few, and the packages offered by various service providers are a testimony to it. We can understand this factor by considering the rates offered by providers to prepaid customers (~95% of all telecom consumers in India use prepaid), when they call within same network as compared to other network. Vodafone offers lower rate only on per-second pulse charges for calling within Vodafone network, for all other packages they charge same rate irrespective of destination provider. Similar is the case with Airtel, which offers lower rate on Airtel-toAirtel charges, but one needs to make additional monthly payment to avail the facility. In essence, none of the providers promoted in-network calls aggressively, which supports the fact that there is not much demand-side economies of scale to available in the industry. It is worth noting here that CDMA operators like Reliance and Tata, tried to build on this demand-side economies of scale by offering free calls within their respective networks for a monthly fees, but the same has not been tried by any provider in GSM sector. One reason for this could be that when GSM services were launched, market was very small and it was considered a niche product with very high charges. This coupled with the fact that licenses to offer services were awarded to different providers in different circles may not have been conducive for providers to develop demand-side economies of scale. On the other hand when CDMA was launched, market was somewhat established and growing, and licenses were also awarded for national operations enabling operators like Reliance and Tata to build on demand-side economies of scale, but this was struck down by TRAI in later part and no such incentives exist today. Customer switching costs have traditionally been lower in the industry, with bulk of consumers (~95%) being prepaid and lower loyalty to the providers. With Mobile Number Portability (MNP) being launched in

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EOS –Indian Telecom Industry - Vodafone
India, the customer switching cost have become almost negligible. TRAI recommends the MNP charges at Rs 19 and max of 2 hours of downtime for the number before it is active on the other network, which makes the customer switching costs negligible. The distribution channel for the industry typically consists of distributors and retailers. The other forms of distribution include company-owned stores, franchises and corporate connections. Most of the consumers in the industry are prepaid and retailers play a key role in engaging with these customers. Retailers typically provide new connections as well as the recharge for the existing consumers. A typical retailer offers services for multiple service providers, which keeps the costs low for industry to reach the last mile, and provides easy access to distribution channel for the players. The industry is highly protected as far as government policy related to entry of new players are concerned. Government awards licenses to the providers to operate in specific circles. Additionally there are government regulations which specify who can/can‟t bid for the spectrum/get spectrum allocated, which also increases the barriers to entry.

2.2 Power of Suppliers
For defining power of suppliers, we have considered Government as well as telecom equipment providers as the suppliers. The basis of considering government as a supplier emerges from the fact that it is government which provides/allocates/auctions spectrum to the provider which is critical for the industry to offer services. At same time government regulates the industry via Department of Telecommunications (DoT), adding to its influence over the industry. All the equipment used in the industry follow certain standards and there is very less, if any, propriety angle involved, which makes it easy for industry to switch suppliers if needed. The only factor involved in switching supplier is the tacit knowledge, which a supplier gains with the virtue of its association with the particular firm for long period of time. There is very little threat of supplier‟s threat of forward integration, primarily because telecom equipment and telecom services are completely separate businesses, and there has been no evidence anywhere in world of suppliers getting into the telecom service business. Additionally, the industry is highly regulated in India with government controlling the entry of players by the means of licenses, which makes the suppliers threat of forward integration negligible. Similar to the supplier‟s threat of forward integration is industry‟s threat of backward integration. The suppliers are into manufacturing equipment, whereas the industry provides services, both of which require very different capabilities and resources, which makes it very difficult for one to get into other‟s business.

2.3 Power of Customer
Vodafone has a subscriber base of 16.56% of the total 840.28 million wireless subscribers. Its customers are highly diversified ranging from single individuals to large corporations resulting in a very low customer concentration. The price war among the competitors has driven down the price of the telecom services to one of the lowest in the world. Although, product differentiation in terms of value-add and customer service experience play a crucial role, but they have been ubiquitously copied across the industry and have not been sustainable over a substantial period by the telecom operators. With the introduction of

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EOS –Indian Telecom Industry - Vodafone
„Mobile number portability‟ combined with low cost of new connection has resulted in a very low switching cost for customers. (pp 4 TRAI May 10 report). Baring few organized industries (such as ITES and Media) and few professions (such as contractors) the expenditure on telecom products and services is low. At a macro level the industry represents 1.4% of the GDP with 73.11% of the population using telecom services. The per capita usage of minutes per year in India is low. The wireless expenditure per customer per year was reported to be $43 in 2010. The dependence on wireless services for customer‟s output is small but businesses that depend heavily on telecom services use secured line or VoIP.

2.4 Threat of Substitutes
Although there are substitutes available in the form of VoIP and fixed line they are not highly prevalent both in terms of ownership and usage. The switching cost to such a substitute is low in absolute terms which may include installment and equipment costs. Although the price of fixed line and VoIP have been marginally less or comparable to wireless services, it does not provide benefits of mobility and value added services. Most of the telecom operators provide both wireless and fixed line services but VoIP is provided by a different set of providers. Fixed lines have seen decreasing profitability in India. For a long time VoIP was banned in India but now legal VoIP are projected to have rapid growth in revenue over the future years.

2.5 Rivalry Among Competitors in the Industry
For major segment of customers value-added service and offers (such as tickets for movies and theatres in urban locations) have been the differentiators. But they have not been sustainable and have been ubiquitously copied across the industry. For urban customers superior network quality has been one of the sustainable differentiating factors that have helped to reduce churn and charge premium price. This was primarily driven by towers density and spectrum utilization in those areas, but most of the operators now share towers and there exists little difference in spectrum constraints. Prepaid service plans of the major players (such as Vodafone, Reliance, Idea) have been of similar in all respects. For a telecom operator setting up of cellular networks needs substantial capex. But most of the telecom operators including Vodafone Essar have been experiencing a lower capex in current fiscals due to tower sharing. The opex cost still remains high which includes high license fee and operations cost. (Capitalline: March 2010 Vodafone incurred 2211.72 Crs in total expenditure which had increased at compound 8% y-o-y for the last 5 years). Infrastructure sharing has also helped in more cost effective coverage in rural areas (since rural areas use ground-based towers which are expensive compared to roof-top towers) and better penetration in rural areas. Incremental in capacity can only be done in large steps in the form of acquiring extra spectrum. Regulation does not allow spectrum sharing. The concentration of competitor can be assumed to be reasonably high with top three operators servicing to 56% of the subscriber base. The industry on the whole has been growing at around 35% y-o-y basis. (TRAI March 2010 Report pp 7). Across the industry the capacity utilization in urban areas has been high. Although the same infrastructure can be utilized for data technology, the usage and penetration of such a technology is not comparable to wireless. Hence there is low proportion of assets that can be used for other industries. The government can limit or even foreclose entry to industries with such controls as license requirements, limits on access to spectrum, restriction on the number of operators, and FDI limits.

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EOS –Indian Telecom Industry - Vodafone
2.6 Industry Analysis – The integrated View
(+) VoIP and fixed line not prevalent (+) Substitutes does not provide benefits of mobility and value added services. (+/-) Legal VoIP are projected to have high profitability. (-) Low switching cost (-) Fixed lines have decreasing revenue but may enjoy same profitability.

Threat of substitute products or services

(+) High concentration of telecom operators (+) Top 3 players servicing 56% of subscribers. (+) High industry growth. (+) High capacity utilization of towers and spectrum (+) High asset specificity.

Bargaining power of suppliers

Rivalry among Existing Competitors

Bargaining power of buyers

(+) Industry works on standardized equipments. Low supplier switching cost. (+) No threat of forward integration from suppliers. (-) Telecom operators are unlikely to manufacture equipments.

(+/-) capacity addition can be done on large steps (-) Highly regulated by government (-) Low switching cost of end customers

(+) highly diversified ranging from single individuals to large corporations. (+) Low per capita minutes per year (+/-) Moderate product differentiation. (-) MNP has resulted in low switching cost

Threat of new entrant

(+) High fixed and licensing cost – benefits of economies of scale (+) License regime (+) High Capex and Opex (-) No network dependencies. (-) Low customer switching cost. (-) Low product differentiation.

2.7

Summary of Overall Attractiveness of the industry

The attractiveness score were assigned on the dimensions mentioned above. The details can be found in Appendix 5.2. The summary of the aggregated scores is listed in the table below. Weighted Scores 0.79 0.46 0.31 0.49 0.9 2.89

Competitive Forces 1. Threat of New Entrants 2. Power of Suppliers 3. Power of Customers 4. Threat of Substitutes 5. Rivalry Among Competitors in the Industry OVERALL ATTRACTIVENESS OF THE INDUSTRY
Table 1- Five force model

Attractiveness Score (1 to 5) 2.63 3.06 3.13 3.25 3 3.01

Weightage 30% 15% 10% 15% 30%

From above analysis conclusion can be drawn that the industry is low to moderately attractive today. And following factors drive the attractiveness of the industry 10

EOS –Indian Telecom Industry - Vodafone
 Moderate to high threat of new entrants o Customers have low switching costs o Differentiation between the products , prices , services offered and business model doesn‟t exist. Moderate bargaining power of suppliers o There is little threat of forward integration from the buyers o Many equipment providers and access to global markets for procurement. Moderate to high bargaining power of the customers o Low switching cost for the customers. o For very few customers , usage of service generates revenue. Moderate to low threat of substitutes o Fixed line, and Voice over IP are few substitutes present in the industry. Moderate to high rivalry among firms o Industry is growing at rate of more than 35% o Dealers can provide SIM cards if multiple customers.









2.8

Critical Drivers of the attractiveness in the industry
Impact on competitive forces - Moderate to high threat of new entrants - Moderate to high bargaining power of customers - Moderate to high rivalry among firms Options for the firms Innovate on the business model, like providing locked in Handset offers. Enter into long term contracts with the customers and offer discounts for long term usage Build Strong brand equity Offer good quality of service

Driver of Attractiveness Low switching Cost for customers, Dealers and suppliers

-

Low to Moderate product differentiation

-

Low to Moderate threat of substitutes and High Industry growth

-

Moderate to high customer power Moderate to high rivalry among firms Moderate power of suppliers and customers Moderate to low rivalry among firms

-

Table 2 - Implications of critical drivers

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EOS –Indian Telecom Industry - Vodafone
3. Performance of Firms & Key Success Factors
3.1 Major Players.
Indian telecom industry has seen year on year growth of 44.58% in terms of number of subscribers in March 2010 compared to the same quarter last year as per data from TRAI. There are in total 16 service providers in various circles in India the breakup of the firms and the locations in which they present in provided in the figure 7 below.

Figure 7 – Service Providers (Source: TRAI.)

5 private firms and 1 government firm has pan India presence. The market share data has been mentioned above and we can infer from that, following are the major players in the Telecom area 1. 2. 3. 4. Bharti (Brand Airtel) Vodafone Essar Idea Reliance

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EOS –Indian Telecom Industry - Vodafone
5. Tata Teleservices Bharti has the maximum subscriber base followed by Reliance and Vodafone and together these firms account for 56% of the market share. BSNL, Idea, Tata and Aircel can be thought to be in next basket these four firms together have 35% of the market share in terms of number of customers.

3.2 Firms Comparison
To compare the firms this report has focused on the few key measurement criteria 1. ARPU or Average revenue per user. It is the measure of the revenue generated by the firm for itself per customer or user of its service. It is calculated as the total revenue of the firm divided by the number of subscribers. 2. Average Margin per user. It is the measure of profitability or margin that a firm has per user. This measurement also takes into consideration the cost associated with maintaining the subscriber with the firm. As per availability of data the calculation in this report has been done by dividing operating profit with the number of subscribers. 3. Market Share: The criteria of market share been used to measure the size of the firm and revenue per user and margin has also been interpreted with respect to the size. 4. Market Segment: We have also tried to measure the proportion of rural market in the market share of the firms, and some circle analysis to determine the foot prints firms have in profitable and non profitable markets. We also look at their Advertisement spends to determine the efforts put by different firms to build their Brands. The standing of various firms on first three criteria is listed in table 1

Company

Subscriber

Operating profit/Subscriber 82.31 65.93 64.77 24.05 32.46

BhartiAirtel Vodafone Essar IDEA Aircel Reliance

169186247 141519840 95108818 57980752 142400707

Operating profit( Rs Millions) 1,392.52 933 616 139.42 462.25

ARPU (Rs)

Market share 19.56 15.9 10.58 6.48 16.18

153.98 130 127.82 83.85 116.00

Table 3 - All the data listed is for 2010.All ARPU data is sourced from COAI except for Reliance which is calculated from the figures available from TRAI.

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EOS –Indian Telecom Industry - Vodafone
Based on the above data if we plot a graph of the performance of the various firms we will have below visual

180 160 140 120 100 80 60 40 20 0 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 100.00 Aircel IDEA Reliance Vodafone Essar Bharti Airtel Vodafone Essar

Bharti Airtel

IDEA
Aircel Reliance

Bubble size market share
Figure 8 Operating Profit v/s Revenue v/s Market Share

From the interpretation of the above chart few points emerge 1. Going by the operating profit per subscriber three firms , Bharti, Vodafone and Idea are doing well, and Bharti is a clearly ahead in terms of profitability per user and market size. 2. Bharti and Vodafone both have a large subscription base yet are also number 1 and number 2 in ARPU and Operating profit per user. This implies that large volume players can be also very profitable. 3. Reliance is number 2 in terms of market share while it fares poorly in both ARPU and operating margin per user. Playing on large volume is no guarantee of large profitability either per user or in absolute terms this analysis is proved by comparison of IDEA and Reliance numbers. 4. There doesn‟t seem to be a niche player in the market which can command a good operating margin per user despite having a low market share. 5. Bharti has a high value of Average revenue per user and high profitability per user. This implies that it has managed the cost of acquiring and maintaining subscribers and yet has been able to attract heavy users of its services. 6. Idea has been able to keep its cost low which is evident from fact that it has much lower revenue per user compared to Vodafone but has comparable margin per user.

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EOS –Indian Telecom Industry - Vodafone
Thus we can conclude that Bharti clearly has an competitive advantage compared to rest of the firms while Vodafone has a good revenue generating subscribers but can do a better job of increasing its operating profit.

As per March 2010 data of TRAI there are 190.88 million subscribers in rural areas and 393.45 million subscribers in urban areas. Because of very high Teledensity in metro areas compared to rural and semiurban centers it is more profitable to run the telecom in these geographical locations. If we compare the data of the firms and their relative share in metro and rural areas we will have following data. Company Percentage of rural subscribers in firms total subscribers 37.69% 36.48% 46.72% 20.74% 37.98% Percentage of Metro Subscribers in firms total subscribers 21.195 14.31 7.36 15.84

Bharti Vodafone Idea Reliance Aircel

Table 4 Rural vs Metro subscribers. (Data source COAI)



Metro subscribers are the ones located in Delhi, Mumbai, Chennai and Kolkota.

Above data helps us outline following inferences. 1. Bharti has been able to maintain its profitability and large subscriber base as 21.2% of its subscribers belong to high teledensity areas of metros. While only 14% of Vodafone customers come from Metro areas. 2. Idea‟s has 46.7% customers from Rural areas compared to market leaders Vodafone and Bharti who have 36-37% of their customers from rural areas. It can be assumed that the fact that only 7.36% of IDEA customers come from Metro areas it maintains cost advantage and thus has better Margin per user compared to revenue per user. 3. Vodafone doesn‟t have dominant geographical strategy, But compared to IDEA it is more Metro centric but not so in comparison to Bharti.

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EOS –Indian Telecom Industry - Vodafone
3.3 Brand and Advertisement spend.
Ratio of Advertisement spend to sales is given below

Company Vodafone Airtel Idea Reliance Aircel

Advertisement as percent of sale 4.19% 2.03% 3.43% 1.12% 15.52%

Advertisement spend as % of sales
6.00% 4.00%

2.00%
0.00% Vodafone Airtel Idea Reliance

Figure 9 Advertisement Spends (Source Capitaline * 2010 annual Data.)

Airtel was rated as strongest brand with rating of AAA by Brand Finance's Brand Power Rating (BPR). Idea Cellular and Reliance Communication were rated as A- and BBB-. The brand strength of Airtel is reflected in sales and profit. Although as a % of sales Airtel spends less than Vodafone and Idea in absolute terms it out spends them. Reliance has the lowest ratio and significantly it also fares poorly in terms of Margin and revenue per user. Vodafone‟s ratio is highest among the major players and is number two in terms of revenue per user and number 3 in Market share.

3.4 Key Success factors
From the industry attractiveness analysis it is clear that the services have limited differentiation but few firms are doing well in this competitive market. Following can be number of key success factors in the Industry. 1. As it is seen in case of Bharti, having significant percentage of subscribers from Metros ensures good margin and revenue. Hence ability of firms to Capture high teledensity markets at lower costs ensures high profitability. 2. Strong Brand Equity:- Reliance started in the industry as a low cost player, and because of that image despite now been on par with prices of other players it still doesn‟t attract high revenue generating customers. While Airtel which is ranked as the strongest brand and Vodafone which spends the maximum as percent sales on Advertisement attract high revenue generating customers. Hence Strong Brand equity is critical success factor. 3. Bharti by concentrating in metros has been able to establish market leadership while Idea by concentrating in rural markets has been able to maintain good operating profits. Identifying the geographies and markets within them and configuring firms activities gives firms an competitive edge. 4. With the introduction of Mobile number portability to hold on to existing customers it is important to have comparable quality of service, as the switching costs for customers are low. From our analysis it shows that the customer service is not that crucial but the network and call quality is crucial for the customers to maintain loyalty.

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EOS –Indian Telecom Industry - Vodafone
4 Vodafone Firm Strategy

Vodafone and Airtel haven‟t in the past been too keen on offering cheap tariffs. They were catering to customers who valued quality network and value added services over cheap tariff plans. But with the entry of new players, the game changed in the last two years. This price war was started by the Tata Teleservices. They introduced DoCoMo with Pay per second voice plans and Pay per character SMS services. Indicom came out with the pay per call plan. Virgin mobile followed. Suddenly, the big players found the sector facing price war. Following the recent launches by a number of new entrants, competition in the Indian market is intense, and will remain so for some time. During this phase of Indian market development, Vodafone leveraged in its brand, scale, cost efficiency and in reducing capital expenses. Vodafone &Airtel both were forced to reduce and reconsider their tariff plans, to regain their market share and to attract new customers. Due to tough competition the players have to increase volumes at any cost; as the lower tariff plans will erode the margins of the companies, even leading to losses. The companies will not have any choice but to take part in the price battle because otherwise they would lose the new customers and also the existing customers. Another analysis that shows that the industry is having low differentiation is the QoS data comparison from TRAI that shows that almost all are providing the same quality of calls and service. 1. Voice Quality Figure 10 shows the analysis of voice quality of the players in the various circles that they operate. The data used from TRAI shows that almost all of the players except Aircel is meeting TRAI norms for Voice Quality. Aircel is not doing well on the new markets where its subscriber base is less.

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EOS –Indian Telecom Industry - Vodafone

Figure 10 Voice Quality Analysis (Ref: QoS data from TRAI)

2. Call Drop Rate As per the statistics in Figure 11, except for one circle, all players are within the

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